The Finance Act 2004, Sections 38 to 40 and 45 and Schedule 6 (Consequential Amendment of Enactments) Order 2004

• Citation: S.I. 2004/2310
• Sections: 80

Section 1 Citation, commencement, effect and interpretation

(1) This Order may be cited as the Finance Act 2004, Sections 38 to 40 and 45 and Schedule 6 (Consequential Amendment of Enactments) Order 2004.

(2) This Order shall come into force on 28th September 2004 and shall have effect in relation to accounting periods beginning on or after 1st April 2004, subject to the transitional provisions in sections 43 and 44 of the Finance Act 2004 and in paragraphs 12(4) and 13(4) of the Schedule to this Order.

(3) In this Order—

“ ITEPA ” means the Income Tax (Earnings and Pensions) Act 2003 ;

“the Taxes Act 1988” means the Income and Corporation Taxes Act 1988; and

expressions which are defined in section 43 of the Finance Act 2004 have the same meaning as they have in that section.

Section 2 Amendments to enactments in consequence of sections 38, 40 and 45 of, and Schedule 6 to, the Finance Act 2004

The Schedule to these Regulations, which contains amendments in consequence of the provisions of sections 38, 40 and 45 of, and Schedule 6 to, the Finance Act 2004, has effect.

Section 1 Treatment of enemy debts written off during World War II

(1) Amend the Finance Act 1950 as follows.

(2) In section 39(3) for paragraph (b) of the proviso substitute—

(b) the expenses shall not be allowed—

(i) as a deduction under section 75(1) of the Income and Corporation Taxes Act 1988; or

(ii) in the computation of an expenses deduction for the purposes of Step 1 of section 76(7) of that Act.

Section 2

The Taxes Act 1988 is amended as follows.

Section 3 Relief for contributions to certain bodies

(1) Section 79 (contributions to local enterprise agencies) , section 79A (contributions to training and enterprise councils, business link organisations and local enterprise companies) , and section 79B (contributions to urban regeneration companies) are each amended as follows.

(2) In subsection (2) (contribution by investing company treated as expenses of management) for “an investment company” substitute “a company with investment business”.

(3) After subsection (2) insert—

(2A) Where any such contribution is made by a company in relation to which section 76 applies (expenses of insurance companies) any expenditure allowable as a deduction under subsection (1) above shall for the purposes of that section be treated as expenses payable which fall to be brought into account at Step 1 in subsection (7) of that section.

Section 4 Costs of establishing share option or profit sharing schemes: relief

(1) Section 84A is amended as follows.

(2) In subsection (2) for paragraph (b) (expenditure to be treated as expenses of management) substitute—

(b) if the company is one with investment business, shall be treated as expenses of management deductible under section 75 to the extent that it otherwise would not be, or

(c) if the company is one in relation to which section 76 applies, shall be treated for the purposes of that section as expenses payable which fall to be brought into account at Step 1 in subsection (7) of that section to the extent that it otherwise would not be.

(3) In subsection (3) (timing rule where approval given more than 9 months after end of period of account in which expenditure incurred) for the words following paragraph (b) substitute—

for the purpose of applying subsection (2) above the expenditure shall be treated in accordance with subsection (3ZA) below.

(4) After subsection (3) insert—

(3ZA) Where this subsection applies—

(a) in applying subsection (2)(a) above, the expenditure shall be treated as incurred in the period of account in which the approval is given (and not the period of account mentioned in subsection (3)(b) above),

(b) in applying subsection (2)(b) or (c) above, the expenditure shall be treated as referable to the accounting period in which the approval is given.

Section 5 Payment to trustees of approved profit sharing schemes

(1) Section 85 is amended as follows.

(2) In subsection (1), for paragraph (b) (expenditure to be treated as expenses of management) substitute—

(b) if that company is a company with investment business, shall be treated as expenses of management deductible under section 75, or

(c) if that company is one in relation to which section 76 applies, shall be treated as expenses payable for the purposes of that section.

Section 6 Costs of establishing employee share ownership trusts

(1) Section 85A is amended as follows.

(2) In subsection (2)—

(a) in paragraph (a), omit “or”; and

(b) for paragraph (b) (expenditure to be treated as expenses of management) substitute—

(b) if the company is a company with investment business, shall be treated as expenses of management deductible under section 75 to the extent that it otherwise would not be, or

(c) if the company is one in relation to which section 76 applies, shall be treated for the purposes of that section as expenses payable which fall to be brought into account at Step 1 in subsection (7) of that section to the extent that it otherwise would not be.

(3) In subsection (3) (timing rule where trust established more than 9 months after end of period of account in which expenditure incurred) for the words following paragraph (b) substitute—

for the purpose of applying subsection (2) above, the expenditure shall be treated in accordance with subsection(3A) below.

(4) After subsection (3) insert—

(3A) Where this subsection applies—

(a) in applying subsection (2)(a) above, the expenditure shall be treated as incurred in the period of account in which the trust is established (and not the period of account mentioned in subsection (3)(b) above),

(b) in applying subsection (2)(b) or (c) above, the expenditure shall be treated as referable to the accounting period in which the trust is established.

Section 7 Employees seconded to charities and educational establishments

(1) Section 86 is amended as follows.

(2) In subsection (1) (expenditure on seconded employees deductible as if employee’s service were available for employer’s trade etc ) for “notwithstanding anything in section 74 or 75, any expenditure incurred (or disbursed)” substitute “notwithstanding anything in section 74, 75 or 76, any expenditure incurred”.

(3) In subsection (2) (definitions) for the definition of “deductible” substitute—

“deductible” means—

deductible as an expense in computing the profits of the employer to be charged under Case I or II of Schedule D,

deductible as expenses of management for the purposes of section 75, or

falling to be brought into account in accordance with section 76 as expenses payable which fall to be brought into account at Step 1 in subsection (7) of that section,

as the case may be.

Section 8 Charitable donations: contributions to agent’s expenses

(1) Section 86A is amended as follows.

(2) In subsection (2), for paragraph (b) (expenditure to be treated as expenses of management for the purposes of sections 75 and 76) substitute—

(b) if the employer is a company with investment business, shall be treated as expenses of management deductible under section 75.

Section 9 Payments to Export Credits Guarantee Department

(1) Section 88 is amended as follows.

(2) For paragraph (b) (expenditure to be treated as expenses of management for the purposes of sections 75 and 76) substitute—

(b) if that person is a company with investment business, in the expenses of management that are deductible under section 75 in computing the company’s profits for the purpose of corporation tax;

Section 10 Additional payments to redundant employees

(1) Section 90 is amended as follows.

(2) For subsection (1) (expenditure that would be allowable as a deduction or eligible for relief under section 75 or 76 as expenses of management) substitute—

(1) Where a payment is made by way of addition to a redundancy payment or to the corresponding amount of any other employer’s payment and the additional payment would be—

(a) allowable as a deduction in computing for the purposes of Schedule D the profits or losses of a trade, profession or vocation,

(b) deductible under section 75 as expenses of management of a business, or

(c) regarded as expenses payable for the purposes of section 76,

but for the permanent discontinuance of the trade, profession, vocation or business, the additional payment shall, subject to subsection (2) below, be so allowable, deductible or regarded notwithstanding that discontinuance.

If the additional payment—

(i) is made after discontinuance, or

(ii) is for the purposes of section 75 or 76 referable to an accounting period beginning after the discontinuance,

it shall be treated as made, or (as the case may be) as referable to the accounting period ending, on the last day on which the trade, profession, vocation or business was carried on.

(3) After subsection (1) insert—

(1A) To the extent that the additional payment would, apart from this subsection, be regarded as expenses payable for the purposes of Step 5 in subsection (7) of section 76, it shall not be so regarded for the purposes of that subsection (or of subsection (1) above so far as relating to that section).

Section 11 Other grants under Industrial Development Act 1982 etc

(1) Section 93 is amended as follows.

(2) In subsection (1) (which includes provision about certain payments to an investment company) for “an investment company” substitute “a company with investment business”.

Section 12 Schedule A losses

(1) Section 392A is amended as follows.

(2) For subsection (3) (investment company ceasing to carry on Schedule A business) substitute—

(3) Where a company with investment business—

(a) ceases to carry on a Schedule A business, but

(b) continues to be a company with investment business,

any Schedule A loss that cannot be used under the preceding provisions shall be carried forward to the succeeding accounting period and be treated for the purposes of section 75 as if it were expenses of management deductible for that period.

(3) In subsection (4) (definitions) in paragraph (b) (definition of “investment company”) for ““investment company”” substitute ““company with investment business””.

(4) Any loss which would, apart from this sub-paragraph, have fallen to be carried forward under section 392A(3) of the Taxes Act 1988 and treated as if it had been disbursed as expenses of management for the first accounting period of a company to begin on or after 1st April 2004 shall be treated as if that provision instead provided for the loss to be carried forward and treated for the purposes of section 75 of that Act as if it were expenses of management deductible for that period.

Section 13 Write-off of government investment

(1) Section 400 is amended as follows.

(2) In subsection (2) (a body’s tax losses) for paragraph (b) (expenses of management investment company) substitute—

(b) in the case of a company with investment business, within the meaning of Part 4, any such excess as is mentioned in subsection (8) of section 75 which falls to be treated in accordance with subsection (9) of that section;

(3) In paragraph (bb) of that subsection, for sub-paragraph (ii) (losses treated under section 392A(3) as disbursed in the next accounting period) substitute—

(ii) under section 392A(3) are to be carried forward to the next accounting period and treated for the purposes of section 75 as if they were expenses of management deductible for that period;

(4) The amendments made by this article also have effect (in addition to their application for the purposes of the periods mentioned in article 1(2)) for the purpose of determining a body’s tax losses for an accounting period which—

(a) begins before 1st April 2004; and

(b) ends on or after 31st March 2004.

(5) In section 400(2)—

(a) the references in paragraph (b) to subsections (8) and (9) of section 75 include a reference to the old section 75(3), as read with section 43 of the Finance Act 2004, and

(b) the reference in paragraph (bb)(ii) to section 392A(3) includes a reference to that provision as read with paragraph 12(4) of this Schedule.

Section 14 Group relief: meaning of “management expenses” in section 403

(1) Section 403ZD (other amounts available by way of group relief) is amended as follows.

(2) For subsection (4) (meaning of “management expenses” in section 403) substitute—

(4) Management expenses means the aggregate of the amounts deductible under section 75(1) (expenses of management of company with investment business) by the surrendering company for this period.

It does not include an amount deductible by virtue only of section 75(9) or 392A(3) (amounts carried forward from earlier periods).

(3) Omit subsection (5) (which is rendered unnecessary by section 76 no longer applying section 75).

(4) In section 403ZD(4)—

(a) the reference to section 75(9) includes a reference to the old section 75(3), as read with section 43 of the Finance Act 2004, and

(b) the reference to section 392A(3) includes a reference to that provision as read with paragraph 12(4) of this Schedule.

Section 15 Computation of gross profits

(1) Section 403ZE is amended as follows.

(2) In subsection (1) (gross profits for surrender period) in paragraph (b)(ii) (no deduction by virtue of section 75(3) of the Taxes Act 1988) for “75(3)” substitute “75(9)”.

(3) In section 403ZE(2)(b)(ii), the reference to section 75(9) of the Taxes Act 1988 includes a reference to the old section 75(3).

(4) Omit subsection (2) (which is rendered unnecessary by section 76 no longer applying section 75).

Section 16 Limitation of group relief in relation to certain dual resident companies

(1) Section 404 is amended as follows.

(2) In subsection (2)(c) (accounting period for which expenses of management are disbursed) for “disbursed” substitute “deductible”.

(3) The amendment made by sub-paragraph (2) has effect in any case where the accounting period referred to in section 404(2) of the Taxes Act 1988 begins on or after 1st April 2004.

Section 17 Losses from Schedule A business or overseas property business

(1) Section 432AB is amended as follows.

(2) For subsection (3) (loss to be treated as expenses of management under section 76 disbursed for the period in which the loss arose) substitute—

(3) So far as a loss is referable to basic life assurance and general annuity business, it shall be treated for the purposes of section 76 as expenses payable which fall to be brought into account at Step 3 in subsection (7) of that section.

Section 18 General annuity business

(1) Section 437 is amended as follows.

(2) In subsection (1A) (new annuities to be brought into account by treating an amount as a sum disbursed as expenses of management) for the words from “as a sum” to the end of the subsection substitute—

as expenses payable which fall to be brought into account for that period at Step 3 in section 76(7)

Section 19 Transfers of business

(1) Section 444A is amended as follows.

(2) For subsection (2) (treatment of expenses of management) substitute—

(2) Any expenses payable which (assuming the transferor had continued to carry on the business transferred after the transfer) would have fallen to be brought into account by the transferor in determining the deduction for expenses payable to be allowed under section 76 in computing profits for an accounting period following the period which ends with the day on which the transfer takes place shall, instead, be brought into account under and in accordance with that section by the transferee as expenses payable by him (and giving effect in the case of acquisition expenses, to section 86(6) to (9) of the Finance Act 1989).

(3) In subsection (4) (treatment of acquisition expenses) for “expenses of management of the transferee” substitute “expenses payable by the transferee”.

Section 20 Authorised unit trusts

Section 468(4) is repealed.

Section 21 Interest distributions

(1) Section 468L is amended as follows.

(2) In subsection (6)(a) for “sums disbursed as expenses of management” substitute “expenses of management”.

Section 22 Credit unions

(1) Section 487 is amended as follows.

(2) In subsection (4) (credit union not to be regarded as an investment company for purposes of section 75 or Part 2 of the Capital Allowances Act) for “an investment company” substitute “a company with investment business”.

Section 23 Business entertaining expenses

(1) Section 577 is amended as follows.

(2) In subsection (1)(a) (expenses not to be included in computing expenses of management in respect of which may be given under the Tax Acts)—

(a) after “and such expenses” insert “(i)”, and

(b) after “the Tax Acts;” insert—

and

(ii) shall not be brought into account under section 76 as expenses payable

Section 24 Expenditure involving crime

(1) Section 577A is amended as follows.

(2) In subsection (2) (expenditure not to be included in computing expenses of management in respect of which relief may be given under the Tax Acts)—

(a) after “above” insert “(a)”, and

(b) after “the Tax Acts” insert—

; and

(b) shall not be brought into account under section 76 as expenses payable

Section 25 Expenditure on car hire

(1) Section 578A is amended as follows.

(2) In subsection (1) (amounts for which the section provides a reduction) in paragraph (b) for “an investment company” substitute “a company with investment business”.

(3) In subsection (1), at the end of paragraph (b) insert—

or

(bb) which can be brought into account under section 76 as expenses payable,

Section 26 Statutory redundancy payments

(1) Section 579 is amended as follows.

(2) For subsection (3) (amount of payment to be allowable as expenses of management eligible for relief under section 75 or 76 etc) substitute—

(3) Where a redundancy payment or other employer’s payment is made in respect of employment wholly in a business carried on by the employer and—

(a) expenses of management of the business are deductible under section 75, or

(b) a deduction for expenses payable falls to be allowed in accordance with section 76 in computing profits of the business,

the amount of the redundancy payment, or the corresponding amount of the other employer’s payment, shall (to the extent that it would not otherwise fall to be so treated) be deductible under section 75 as expenses of management or as the case may be, be included at Step 1 in section 76(7).

(3A) If in a case where subsection (3) above applies, the payment in question is for the purposes of section 75 or 76 referable to an accounting period beginning after discontinuance, it shall be treated as referable to the accounting period ending on the last day on which the business was carried on.

Section 27 Gifts of shares, securities and real property to charities etc

(1) Section 587B is amended as follows.

(2) In subsection (8) (disposal by company carrying on life assurance business) in paragraph (b)(i), for ““an expense of management”” substitute ““expenses payable falling to be brought into account at Step 3 in section 76(7)””.

Section 28 Training courses for employees

(1) Section 588 is amended as follows.

(2) For subsection (4) (modification of subsection (3) for expenses of management) substitute—

(4) Where the employer is a company with investment business or a company carrying on life assurance business, subsection (3) above shall have effect with the substitution for the words following paragraph (b) of—

then, if and so far as that expenditure would not, apart from this subsection, fall to be so deductible or brought into account, it shall—

(i) in a case where the employer is a company with investment business, be deductible as expenses of management under section 75, or

(ii) in a case where the employer is a company carrying on life assurances business, be brought into account under section 76 as expenses payable.

(3) After subsection (5) (consequences of failure to meet condition) insert—

(5A) The reference in subsection (5)(b) above to a deduction on account of any expenditure includes a reference to bringing an amount into account in determining the amount of the deduction to be made under section 76.

Section 29 Counselling services for employees

(1) Section 589A is amended as follows.

(2) For subsection (9) (modification of subsection (8) for expenses of management) substitute—

(9) Where the employer is a company with investment business or a company carrying on life assurance business, subsection (8) above shall have effect as if for the words from “so deductible” onwards there were substituted—

so deductible or brought into account, it shall—

(a) in a case where the employer is a company with investment business, be deductible as expenses of management under section 75, or

(b) in case where the employer is a company carrying on life assurance business, be brought into account under section 76 as expenses payable.

Section 30 Exempt approved schemes

(1) Section 592 is amended as follows.

(2) For subsection (4) (deduction of employer’s contributions) substitute—

(4) This subsection makes provision about an employer’s entitlement to relief in respect of contributions paid by the employer the pension scheme in respect of any individual, and accordingly—

(a) for the purposes of Case I or II of Schedule D—

(i) the contributions are to be treated as not being payments of a capital nature to the extent that they otherwise would be, and

(ii) if they are allowed to be deducted in computing the amount of the profits of the employer, they are deductible in computing the amount of the profits for the period of account in which they are paid;

(b) for the purposes of section 75 (expenses of management: companies with investment business), the contributions—

(i) are to be treated as being expenses of management to the extent that they otherwise would not be, and

(ii) are referable to the accounting period in which they are paid;

(c) for the purposes of section 76 (expenses of insurance companies), the contributions—

(i) are to be brought into account at Step 1 in subsection 7 of that section to the extent that they otherwise would not be, and

(ii) are referable to the accounting period in which they are paid.

(3) In subsection (5) (limit on amount that may be deducted under subsection (4)) for “be deducted under subsection (4) above” substitute the following paragraphs—

(a) be deducted under paragraph (a) of subsection (4) above,

(b) be deductible under paragraph (b) of that subsection, or

(c) be included at Step 1 in section 76(7),

(4) For subsection (6) (power of Board to direct sum not paid by way of ordinary annual contribution to be treated as expense incurred in chargeable period in which paid or to be spread over period of years) substitute—

(6) A sum not paid by ordinary way of annual contribution shall for the purposes of subsection (4) above be treated, as the Board may direct, either—

(a) as an expense deductible for the chargeable period in which the sum is paid,

(b) as expenses of management deductible under section 75 for that chargeable period, or

(c) for the purposes of section 76, as expenses payable referable to that chargeable period,

or as an expense to be spread over such period of years as the Board think proper.

Section 31 Social security benefits and contributions

(1) Section 617 is amended as follows.

(2) In subsection (4) (exception from subsection (3) of certain contributions) in paragraph (b) (expenses of management etc) for “under that section as applied by section 76” substitute—

falls to be brought into account under section 76 as expenses payable

Section 32 Sale and lease-back: limitation on tax reliefs

(1) Section 779 is amended as follows.

(2) In subsection (13)(d) (deductions by way of relevant tax relief), for “allowance of a payment” substitute “a deduction”.

Section 33 Assets leased to traders and others

(1) Section 781 is amended as follows.

(2) In subsection (4)(c) (deductions by way of tax relief to which subsection (1) applies), for “allowance of a payment” substitute “a deduction”.

Section 34 Limits on credit for foreign tax: corporation tax

(1) Section 797 is amended as follows.

(2) In subsection (3) (power of company to allocate deductions against such of its profits as it thinks fit after “expenses of management” insert “expenses payable (within the meaning of section 76(1))”.

Section 35 Share incentive plans: corporation tax deductions

(1) Schedule 4AA is amended as follows.

(2) In paragraph 1 (introductory) in sub-paragraph (4) for “investment companies” substitute “companies with investment business”.

(3) In paragraph 7 (deduction for costs of setting up plan) in sub-paragraph (3) (approval given more than 9 months after end of period in which expenses incurred) for “incurred in” substitute “deductible for”.

(4) In paragraph 13 (application of provisions to expenses of management of investment companies etc) for sub-paragraphs (1) and (2) substitute—

(1) The provisions of this Schedule apply in relation to—

(a) companies with investment business, and

(b) companies in relation to which section 76 applies (expenses of insurance companies),

in accordance with the following provisions.

(2) The provisions of this Schedule which allow a deduction in calculating the profits of a trade apply—

(a) in relation to a company with investment business, to treat amounts as expenses of management, and

(b) in relation to companies in relation to which section 76 applies, to treat amounts as expenses payable falling to be brought into account at Step 1 in section 76(7).

(5) The heading to paragraph 13 accordingly becomes “Application of provisions to expenses of management of companies with investment business etc”.

Section 36 Modification of the Taxes Act 1988 in relation to overseas life insurance companies

(1) Schedule 19AC is amended as follows.

(2) For paragraph 5 substitute—

(5) After subsection (3) of section 76 there shall be treated as inserted the following subsection—

(3A) In its application to an overseas life insurance company subsection (3) shall have effect as if—

(a) in a case where the company is not an EEA firm of the kind mentioned in paragraph 5(d) of Schedule 3 to the Financial Services and Markets Act 2000 , the reference to the Form 40 (revenue account) were a reference to the Form 40 relating only to the long-term business carried on by it at a permanent establishment in the UK , and

(b) in a case where it is an EEA firm of the kind mentioned in paragraph 5(d) of Schedule 3 to the Financial Services and Markets Act 2000, the reference to “expenses brought into account in line 12, 22 or 25 of Form 40 in the periodical return of the company for a period of account” were a reference to so much of the expenses included in Item II.8 or 9(a) of the Profit and Loss account included in accounts drawn up in accordance with the Council Directive of 19th December 1991 on the annual accounts and consolidated accounts of insurance undertakings ( No. 91/674/ EEC ) as are attributable to permanent establishment in the United Kingdom through which the company carries on life assurance business.

(5ZA) After subsection (11) there shall be treated as inserted the following subsections—

(11A) In subsection (11) the reference in paragraph (a) of the definition of “the relevant income” to income and gains shall be treated as a reference to so much of the income and gains mentioned in that paragraph as falls to be attributed, for the purposes of section 11AA(2) , to the permanent establishment in the United Kingdom through which the company carries on life assurance business.

(11B) In that subsection the reference in paragraph (b) of that definition to distributions shall be treated as a reference to so much of the distributions mentioned in that paragraph as falls to be attributed, for the purposes of section 11AA(2), to the permanent establishment in the United Kingdom through which the company carries on life assurance business.

Section 37 Manufactured overseas dividends

(1) Schedule 23A is amended as follows.

(2) Paragraph 4 is amended as follows.

(3) After sub-paragraph (1) insert—

(1A) Where a manufactured overseas dividend is paid as set out in sub-paragraph (1) above it shall be treated—

(a) as an expense of the trade where a company carries on a trade to which that payment relates;

(b) where a company has investment business to which the payment relates, for the purposes of section 75 as expenses of management;

(c) in the case of a company carrying on life assurance business—

(i) so far as the payment is referable to basic life assurance and general annuity business, for the purposes of section 76 as if it were an expense payable falling to be brought into account at Step 3 of subsection (7) of that section, and

(ii) the payment is to be treated as referable to basic life assurance and general annuity business to the extent that the overseas dividend of which it is representative is or would, if it were received by the company, be so referable by virtue of section 432A.

(4) In sub-paragraph (2)—

(a) after “treated”, insert “, except in determining whether it is deductible,”;

(b) in paragraph (b)—

(i) for “sections 338B(4) and 350(4)” substitute “section 350(4)”; and

(ii) for “references” substitute “reference”.

(5) After sub-paragraph (2) insert—

(2A) Sub-paragraph (10) of paragraph 3 applies for the construction of the reference in sub-paragraph (2) above to an amount being deductible as it applies to references in that paragraph.

(6) Paragraph 7 is amended as follows.

(7) In sub-paragraph (1) for “notwithstanding anything in paragraphs 2 to 4 above.” substitute—

notwithstanding anything in paragraphs 2 or 3 above or anything in paragraph 4 other than in sub-paragraph (1A).

Section 38 Controlled foreign companies: relief against liability for tax in respect of chargeable profits

(1) Schedule 26 is amended as follows.

(2) In paragraph 1(3) (trading losses and group relief: meaning of “relevant allowance”) after paragraph (c) (expenses of management) insert—

(cc) any expenses deduction under section 76(1);

Section 39 Change in ownership of investment company: deductions

(1) Schedule 28A is amended as follows.

(2) In Part 2 (amounts in issue for the purpose of section 768B) in paragraph 6(a) for—

the amount of any sums (including commissions) actually disbursed as expenses of management for the accounting period

substitute “the amount of any expenses of management referable to the accounting period (within the meaning of section 75)”.

(3) In paragraph 6(c) for “section 75(3)” substitute “section 75(9)”.

(4) In paragraph 6(d) for “section 75(4)” substitute “section 75(7)”.

(5) In Part 3 (apportionment for purposes of section 768B) for paragraph 7(1)(a), substitute—

(a) in the case of the sums mentioned in paragraph 6(a) above, by apportioning to each accounting period the amounts that would fall to be brought into account in that period as such sums, if it were a period of account for which accounts were drawn up in accordance with generally accepted accounting practice;

(aa) in the case of the charges mentioned in paragraph 6(b) above, by reference to the time when the charge is due to be paid;

(6) In paragraph 7(1)(e) (apportionment in case of debits falling to be brought into account on the assumption that interest does not accrue until paid etc) for sub-paragraphs (iii) and (iv) substitute—

and

(iii) so falls to be brought into account—

on the assumption mentioned in paragraph (d)(iii) above, or

with such an adjustment as is mentioned in paragraph (d)(iv) above,

(7) In Part 4 (disallowed debits) in paragraph 11(1) (debits that fall within paragraph 11) for paragraphs (b) and (bb) substitute—

(b) so falls to be brought into account—

(i) with an adjustment under paragraph 17 or 18 of Schedule 9 to that Act (debit relating to amount of discount referable to the relevant accounting period to be brought into account instead for the accounting period in which the security is redeemed); or

(ii) on the assumption, specified in sub-paragraph (2) of paragraph 2 of that Schedule, that the interest to which it relates does not accrue until it is paid; and

(8) In Part 5 (amounts in issue for the purposes of section 768C) in paragraph 13(1) —

(a) in paragraph (b) for—

the amount of any sums (including commissions) actually disbursed as expenses of management for the accounting period

substitute—

the amount of any expenses of management referable to the accounting period (within the meaning of section 75)

(b) in paragraph (d) for “section 75(3)” substitute “section 75(9)”; and

(c) in paragraph (e) for “section 75(4)” substitute “section 75(7)”.

(9) In Part 6 (apportionment for purposes of section 768C) for paragraph 16(1)(a), substitute—

(a) in the case of the sums mentioned in paragraph 13(1)(b) above, by apportioning to each accounting period the amounts that would fall to be brought into account in that period as such sums, if it were a period of account for which accounts were drawn up in accordance with generally accepted accounting practice;

(aa) in the case of the charges mentioned in paragraph 13(1)(c) above, by reference to the time when the charge is due to be paid;

(10) In paragraph 16(1)(e) (manner of apportionment in case of debits falling to be brought into account on the assumption that interest does not accrue until paid) for sub-paragraphs (iii) and (iv) substitute—

and

(iii) so falls to brought into account—

on the assumption mentioned in paragraph (d)(iii) above, or

with such an adjustment as is mentioned in paragraph (d)(iv) above,

(11) The heading to the Schedule accordingly becomes “Change in ownership of company with investment business: deductions”.

Section 40 Provision not at arm’s length

(1) Schedule 28AA is amended as follows.

(2) In paragraph (a) of the definition of “losses” in paragraph 14(1), for “section 75(3)” substitute “section 75(9)”.

Section 41 Consideration for certain restrictive undertakings

(1) Section 73 of the Finance Act 1988 is amended as follows.

(2) For subsection (3) (payments treated as expenses of management) substitute—

(3) Any payment which is treated as earnings of an employee by virtue of section 225 of the Income Tax (Earning and Pensions) Act 2003—

(a) if paid or treated as paid by company with investment business, shall be treated for the purposes of section 75 of the Taxes Act 1988 as an expense of management to the extent that it otherwise would not be;

(b) if paid or treated as paid by a company in relation to which section 76 of that Act applies, shall be treated as expenses payable falling to be brought into account at Step 1 in subsection (7) of that section to the extent that it otherwise would not be.

Section 42 Investment and insurance companies: computation

(1) Section 44 of the Finance Act 1989 is amended as follows.

(2) For subsection (1) (no deduction for late paid remuneration) substitute—

(1) For the purposes of corporation tax, in calculating for a period of account the profits of a company with investment business, an amount charged in the accounts in respect of employees' remuneration shall not be deductible under section 75 of the Taxes Act 1988 as expenses of management unless the remuneration is paid before the end of the period of 9 months immediately following the end of the period of account.

(3) In subsection (5) (profits of trade calculated before end of the period of 9 months) for “the profits of the trade” substitute “the profits of the company”.

(4) For subsection (7) (application to the company carrying on life assurance business) substitute—

(7) This section shall apply in calculating the profits of a company in relation to which section 76 of the Taxes Act 1988 applies (companies carrying on life assurance business) as it applies in calculating the profits of a company with investment business; and in any such case—

(a) any reference in this section to an amount being deductible under section 75 of the Taxes Act 1988 as expenses of management shall be taken as a reference to an amount being brought into account under section 76 of that Act as expenses payable and references to a deduction shall be construed accordingly;

(b) subsection (4) above shall have effect subject to section 86 below, and

(c) in construing section 86 below the remuneration shall be treated as expenses payable for that period which fall to be included at Step 1 in section 76(7) of the Taxes Act 1988.

(5) In subsection (8) (definitions)—

(a) before the definition of “employee” insert—

“company with investment business” has the same meaning as in Part 4 of the Taxes Act 1988 (see section 130 of that Act),

(b) omit the definition of “investment company”.

(6) The side note to the section accordingly becomes “Companies with investment business and insurance companies: computation”.

Section 43 Non-approved retirement benefit schemes

(1) Section 76 of the Finance Act 1989 is amended as follows.

(2) In subsection (1) (no deduction in respect of expenses falling within subsection (1) or (2)) for the words from “and no expenses” to the end of the subsection substitute—

and no expenses falling within either of those subsections shall be treated—

(a) for the purposes of section 75 of the Taxes Act 1988 (companies with investment business) as expenses of management, or

(b) for the purposes of section 76 of that Act (companies carrying on life assurance business) as expenses payable.

(3) In subsection (4) (no deduction unless sum actually expended) for paragraph (b) substitute—

(b) under section 75 or 76 of the Taxes Act 1988,

(4) After subsection (4) insert—

(4A) The reference in subsection (4) above to a sum being deducted shall be construed, so far as relating to section 76 of the Taxes Act 1988, as a reference to an amount being brought into account under that section as expenses payable.

Section 44 Management expenses

(1) Section 87 of the Finance Act 1989 is amended as follows.

(2) Subsections (6) and (7) (carry forward and use of pre-1990 expenses under section 75(3) of the Taxes Act 1988) are repealed.

Section 45 Corporation tax: policy holders' fraction of profits

(1) Section 88 of the Finance Act 1989 is amended as follows.

(2) In subsection (3) (relevant profits to be income and gains of life assurance business reduced by aggregate amount of the items in the paragraphs) for the words from the end of paragraph (aa) to the end substitute—

and

(a) the basic deduction given by Step 8 in section 76(5) of the Taxes Act 1988.

Section 46 Policy holder’s share of profits

(1) Section 89 of the Finance Act 1989 is amended as follows.

(2) In subsection (1B) (BLAGAB profits to be income and chargeable gains referable to company’s basic life assurance and general annuity business reduced by aggregate amount of the items in the paragraphs) for the words from paragraph (a) to the end of the subsection substitute—

(a) amounts falling in respect of any non-trading deficits on the company’s loan relationships to be brought into account in that period in accordance with paragraph 4 of Schedule 11 to the Finance Act 1996, and

(b) the basic deduction given by Step 8 in section 76(7) of the Taxes Act 1988.

(3) In subsection (7), in the definition of “Case I profits” (which refers to adjustment in respect of losses in accordance with section 76(2C) and (2D) of the Taxes Act 1988) for “section 76(2C) and (2D)” substitute “the second sentence of section 76(10)”.

Section 47 Basic life assurance and general annuity business: transitional relief for old annuity contracts

(1) In Schedule 7 to the Finance Act 1991 (basic life assurance and general annuity business) paragraph 16 (transitional relief for old annuity contracts) is amended as follows.

(2) In sub-paragraph (1) (which provides for an amount to be treated as a sum disbursed as expenses of management for the period) for “a sum disbursed as expenses of management of the company for that period”, substitute “expenses payable which fall to be brought into account for that period at Step 3 in section 76(7) of the Taxes Act 1988,”.

Section 48 Allowable deductions: consideration chargeable to tax on income

(1) Section 37 of the Taxation of Chargeable Gains Act 1992 is amended as follows.

(2) Subsection (4) (reference in subsection (1) to computing income etc not to include reference to computation for purposes of section 76(2) of the Taxes Act 1988) is repealed.