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Corporation Tax Act 2010
2010 CHAPTER 4
An Act to restate, with minor changes, certain enactments relating to corporation
tax and certain enactments relating to company distributions; and for connected
purposes. [3rd March 2010] BE IT ENACTED by the Queen's most Excellent Majesty, by and with the advice and consent of
the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by
the authority of the same, as follows:—
PART 1
INTRODUCTION
1 Overview of Act
(1) Part 2 is about calculation of the corporation tax chargeable on a company's profits, in
particular—
(a) the rates at which corporation tax on profits is charged (see Chapter 2),
(b) ascertaining the amount of profits to which the rates of tax are applied (see
Chapter 3), and
(c) the currency in which profits are to be calculated and expressed (see Chapter 4).
(2) Parts 3 to 7 make provision for the following reliefs—
(a) relief for companies with small profits (see Part 3),
(b) relief for trade losses (see Chapters 2 and 3 of Part 4),
(c) relief for losses from property businesses (see Chapter 4 of Part 4),
(d) relief for losses on a disposal of shares (see Chapter 5 of Part 4),
(e) relief for losses from miscellaneous transactions (see Chapter 6 of Part 4),
(f) group relief (see Part 5),
(g) relief for qualifying charitable donations (see Part 6), and
(h) community investment tax relief (see Part 7).

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(3) Parts 8 to 13 make provision about special types of business and company etc, in
particular—
(a) oil activities (see Part 8),
(b) leasing plant or machinery (see Part 9),
(c) close companies (see Part 10),
(d) charitable companies etc (see Part 11),
(e) Real Estate Investment Trusts (see Part 12),
(f) corporate beneficiaries under trusts (see Chapter 1 of Part 13),
(g) open-ended investment companies, authorised unit trusts and court investment
funds (see Chapter 2 of Part 13),
(h) unauthorised unit trusts (see Chapter 3 of Part 13),
(i) securitisation companies (see Chapter 4 of Part 13),
(j) companies in liquidation or administration (see Chapter 5 of Part 13),
(k) banks etc in compulsory liquidation (see Chapter 6 of Part 13),
(l) co-operative housing associations and self-build societies (see Chapters 7 and
8 of Part 13), and
(m) community amateur sports clubs (see Chapter 9 of Part 13).
(4) Parts 14 to 21 contain provisions relating to tax avoidance, in particular with respect
to—
(a) change in company ownership (see Part 14),
(b) transactions in securities (see Part 15),
(c) factoring of income (see Part 16),
(d) manufactured payments and repos (see Part 17),
(e) transactions in land (see Part 18),
(f) the sale and lease-back of assets (see Part 19),
(g) leasing plant or machinery (see Part 20), and
(h) other arrangements involving asset leasing (see Part 21).
(5) Part 22 contains miscellaneous provisions, including provision with respect to—
(a) transfers of trade without a change of ownership (see Chapter 1),
(b) transfers of trade to obtain balancing allowances (see Chapter 2),
(c) transfer of relief within partnerships (see Chapter 3),
(d) the surrender of tax refunds within groups of companies (see Chapter 4),
(e) the set off of income tax deductions against corporation tax (see Chapter 5),
(f) the assessment, collection and recovery of corporation tax from UK
representatives of non-UK resident companies (see Chapter 6),
(g) the recovery of unpaid corporation tax due from non-UK resident companies
(see Chapter 7), and
(h) exemptions (see Chapter 8).
(6) Part 23 contains provisions about the meaning of “distribution” and certain associated
matters.
(7) Part 24 contains definitions that apply for the purposes of the Corporation Tax Acts and
other general provisions that have effect for the purposes of those Acts.
(8) Part 25 contains provisions of general application, including definitions for the purposes
of the Act.

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(9) For abbreviations and defined expressions used in this Act, see section 1174 and
Schedule 4.
PART 2
CALCULATION OF LIABILITY IN RESPECT OF PROFITS
CHAPTER 1
INTRODUCTION
2 Overview of Part
(1) This Part contains provisions that relate to the calculation of the corporation tax
chargeable on a company's profits of an accounting period.
(2) Chapter 2 is about the rates at which corporation tax on profits is charged.
(3) Chapter 3 is about ascertaining the amount of a company's profits of an accounting
period to which the rates of corporation tax applicable to the company are applied.
(4) Chapter 4 makes provision about the currency in which a company must calculate and
express its profits for corporation tax purposes.
(5) For provision about the calculation of the corporation tax payable for an accounting
period see paragraph 8 of Schedule 18 to FA 1998.
CHAPTER 2
RATES AT WHICH CORPORATION TAX ON PROFITS CHARGED
3 Corporation tax rates
(1) Corporation tax is charged at the rate set by Parliament for the financial year (“the main
rate”).
(2) Section 18 provides for tax to be charged at the small profits rate instead of the main
rate in certain cases.
(3) In this Act “the small profits rate” means a rate that is—
(a) lower than the main rate, and
(b) set by Parliament as the small profits rate.

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CHAPTER 3
CALCULATION OF AMOUNT TO WHICH RATES APPLIED
4 Amount of profits to which corporation tax rates applied
(1) In the calculation under paragraph 8(1) of Schedule 18 to FA 1998 of the amount of
corporation tax payable for an accounting period of a company, the first step is to apply
the rate or rates of corporation tax applicable to the profits of the company of the period
on which tax is chargeable.
(2) The profits of a company of an accounting period on which corporation tax is chargeable
(in this Act referred to as the company's taxable total profits of the period) are found
as follows—
Step 1
Find the company's total profits of the period (see subsection (3)).
Step 2
Deduct from the result of Step 1 any amounts which can be relieved against the
company's total profits of the period.
(3) To find a company's total profits of an accounting period take the following steps.
Step 1
Find the amount in respect of which the company is chargeable for the period
under the charge to corporation tax on income after any reduction required to give
effect to relief from tax.
Step 2
Add to the result of Step 1 any amount to be included in respect of chargeable gains
in the company's total profits of the accounting period (see section 8 of TCGA
1992) after any reduction required to give effect to relief from tax.
(4) Subsections (2) and (3) are subject to the provisions of the Corporation Tax Acts.
CHAPTER 4
CURRENCY
The currency to be used in tax calculations
5 Basic rule: sterling to be used
(1) For corporation tax purposes the income and chargeable gains of a company for an
accounting period must be calculated and expressed in sterling.
(2) See the following sections for provision about the application of subsection (1) in certain
cases where profits or losses fall to be calculated in accordance with generally accepted
accounting practice—
section 6 (UK resident company operating in sterling and preparing accounts in
another currency),

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section 7 (UK resident company operating in currency other than sterling and
preparing accounts in another currency),
section 8 (UK resident company preparing accounts in currency other than
sterling),
section 9 (non-UK resident company preparing accounts in currency other than
sterling).
6 UK resident company operating in sterling and preparing accounts in another
currency
(1) This section applies if, for a period of account, in accordance with generally accepted
accounting practice, a UK resident company—
(a) prepares its accounts in a currency other than sterling, and
(b) in those accounts identifies sterling as its functional currency.
(2) Profits or losses of the company for the period that fall to be calculated in accordance
with generally accepted accounting practice for corporation tax purposes must be
calculated in sterling as if the company prepared its accounts in sterling.
7 UK resident company operating in currency other than sterling and preparing
accounts in another currency
(1) This section applies if, for a period of account, in accordance with generally accepted
accounting practice—
(a) a UK resident company prepares its accounts in one currency,
(b) in those accounts it identifies another currency as its functional currency, and
(c) that other currency is not sterling.
(2) Profits or losses of the company for the period that fall to be calculated in accordance
with generally accepted accounting practice for corporation tax purposes must be
calculated in sterling as follows—
Step 1
Calculate those profits or losses in the functional currency as if the company
prepared its accounts in that currency.
Step 2
Take the sterling equivalent of those profits or losses (see section 11).
(3) If this section applies, assume that any sterling amount mentioned in the Corporation
Tax Acts is its equivalent expressed in the functional currency of the company.
8 UK resident company preparing accounts in currency other than sterling
(1) This section applies if, for a period of account—
(a) a UK resident company prepares its accounts in a currency other than sterling
(the “accounts currency”), and
(b) neither section 6 nor section 7 applies.
(2) Profits or losses of the company for the period that fall to be calculated in accordance
with generally accepted accounting practice for corporation tax purposes must be
calculated in sterling as follows—

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Step 1
Calculate those profits or losses in the accounts currency.
Step 2
Take the sterling equivalent of those profits or losses (see section 11).
(3) If this section applies, assume that any sterling amount mentioned in the Corporation
Tax Acts is its equivalent expressed in the accounts currency of the company.
9 Non-UK resident company preparing return of accounts in currency other than
sterling
(1) This section applies if—
(a) a non-UK resident company carries on a trade in the United Kingdom through
a permanent establishment in the United Kingdom, and
(b) for a period of account, the company prepares its return of accounts in a
currency other than sterling (the “accounts currency”).
(2) Profits or losses of the company for the period that fall to be calculated in accordance
with generally accepted accounting practice for corporation tax purposes must be
calculated in sterling as follows—
Step 1
Calculate those profits or losses in the accounts currency.
Step 2
Take the sterling equivalent of those profits or losses (see section 11).
(3) If this section applies, assume that any sterling amount mentioned in the Corporation
Tax Acts is its equivalent expressed in the accounts currency of the company.
(4) The reference in subsection (1) to the company's “return of accounts” is to a return of
such accounts of its permanent establishment in the United Kingdom as may be required
under paragraph 3 of Schedule 18 to FA 1998 (company tax returns).
Translating amounts into other currencies
10 The equivalent in another currency of a sterling amount
(1) Subsection (2) applies if, for the purposes of calculating the profits or losses of a
company arising in an accounting period, section 7(3), 8(3) or 9(3) requires a sterling
amount to be translated into its equivalent expressed in another currency.
(2) The translation must be made by reference to—
(a) the average exchange rate for the accounting period, or
(b) the rate mentioned in subsection (3).
(3) That rate is—
(a) if the amount to be translated relates to a single transaction, an appropriate spot
rate of exchange for the transaction, or
(b) if the amount to be translated relates to more than one transaction, a rate of
exchange derived on a just and reasonable basis from appropriate spot rates of
exchange for those transactions.

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11 Sterling equivalents: basic rule
(1) Subsection (2) applies if, for the purposes of calculating the profits or losses of a
company arising in an accounting period, section 7(2), 8(2) or 9(2) requires a profit or
loss to be translated into its sterling equivalent.
(2) The translation must be made by reference to—
(a) the average exchange rate for the accounting period, or
(b) the rate mentioned in subsection (3).
(3) That rate is—
(a) if the amount to be translated relates to a single transaction, an appropriate spot
rate of exchange for the transaction, or
(b) if the amount to be translated relates to more than one transaction, a rate of
exchange derived on a just and reasonable basis from appropriate spot rates of
exchange for those transactions.
(4) Subsection (2) is subject to sections 12 and 13 (special rules where the translation is for
the purpose of calculating carried-forward or carried-back amounts).
12 Sterling equivalents: carried-back amounts
(1) This section applies if, for the purpose of calculating a carried-back amount in respect
of a company, a loss (“the loss”) is required by section 7(2), 8(2) or 9(2) to be translated
into its sterling equivalent.
(2) The translation must be made in accordance with whichever of the rules 1, 2 and 3 is
applicable (see the table below).
Rule 1 applies if the later tax calculation
currency is the same as the earlier tax
calculation currency.
Rule 1 is that the loss must be translated
into its sterling equivalent by reference to
the same rate of exchange as that at which
the profit against which the carried-back
amount is to be set off is required to be
translated under section 11.
Rule 2 applies if—
(a) the later tax calculation currency
is not the same as the earlier tax
calculation currency, and
(b) the earlier tax calculation currency
is sterling.
Rule 2 is that the loss must be translated
into its sterling equivalent by reference to
the spot rate of exchange for the last day
of the relevant accounting period.
Rule 3 applies if—
(a) the later tax calculation currency
is not the same as the earlier tax
calculation currency, and
(b) the earlier tax calculation currency
is a currency other than sterling.
Rule 3 is that the loss must be translated
into its sterling equivalent by—
(a) being translated into the earlier tax
calculation currency by reference
to the spot rate of exchange for the
last day of the relevant accounting
period, and
(b) then being translated into sterling
by reference to the same rate of
exchange as that at which the profit
against which the carried-back

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amount is to be set off is required to
be translated under section 11.
(3) In the table in subsection (2)—
“the earlier tax calculation currency” means the tax calculation currency of
the company in the accounting period to which the carried-back amount is to
be carried back,
“the later tax calculation currency” means the tax calculation currency of the
company in the accounting period in which the loss arises, and
“the relevant accounting period” means the latest accounting period of the
company that both—
(a) ends before the accounting period in which the loss arises, and
(b) is a period in which the tax calculation currency of the company is the
same as the earlier tax calculation currency.
13 Sterling equivalents: carried-forward amounts
(1) This section applies if, for the purpose of calculating a carried-forward amount in
respect of a company, a loss (“the loss”) is required by section 7(2), 8(2) or 9(2) to be
translated into its sterling equivalent.
(2) The translation must be made in accordance with whichever of rules 1, 2 and 3 is
applicable (see the table below).
Rule 1 applies if the earlier tax calculation
currency is the same as the later tax
calculation currency.
Rule 1 is that the loss must be translated
into its sterling equivalent by reference
to the same rate of exchange as that at
which the profit against which the carried-
forward amount is to be set off is required
to be translated under section 11.
Rule 2 applies if—
(a) the earlier tax calculation currency
is not the same as the later tax
calculation currency, and
(b) the later tax calculation currency is
sterling.
Rule 2 is that the loss must be translated
into its sterling equivalent by reference to
the spot rate of exchange for the first day
of the relevant accounting period.
Rule 3 applies if—
(a) the earlier tax calculation currency
is not the same as the later tax
calculation currency, and
(b) the later tax calculation currency is
a currency other than sterling.
Rule 3 is that the loss must be translated
into its sterling equivalent by—
(a) being translated into the later tax
calculation currency by reference
to the spot rate of exchange for the
first day of the relevant accounting
period, and
(b) then being translated into sterling
by reference to the same rate of
exchange as that at which the profit
against which the carried-forward
amount is to be set off is required to
be translated under section 11.
(3) In the table in subsection (2)—

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“the earlier tax calculation currency” means the tax calculation currency of
the company in the accounting period in which the loss arises,
“the later tax calculation currency” means the tax calculation currency of the
company in the accounting period to which the carried-forward amount is to
be carried forward, and
“the relevant accounting period” means the earliest accounting period of the
company that both—
(a) begins after the accounting period in which the loss arises, and
(b) is a period in which the tax calculation currency of the company is the
same as the later tax calculation currency.
Adjustment of sterling losses
14 Carried-back amounts
(1) This section applies if conditions A, B and C are met.
(2) Condition A is that, in accordance with generally accepted accounting practice, a UK
resident company—
(a) prepares its accounts for a period of account in sterling, or
(b) prepares its accounts for a period of account in a currency other than sterling
and in those accounts identifies sterling as its functional currency.
(3) Condition B is that a loss of the company for that period (“the loss”) which falls to be
calculated in accordance with generally accepted accounting practice for corporation
tax purposes is to be a carried-back amount.
(4) Condition C is that the tax calculation currency of the company in the accounting period
to which the loss is to be carried back (“the earlier tax calculation currency”) is a
currency other than sterling.
(5) The loss must be adjusted by—
(a) first being translated into the earlier tax calculation currency by reference to
the spot rate of exchange for the last day of the relevant accounting period, and
(b) then being translated into sterling by reference to the same rate of exchange as
that at which the profit against which the carried-back amount is to be set off
is required to be translated under section 11.
(6) In this section “the relevant accounting period” means the latest accounting period of
the company that both—
(a) ends before the accounting period in which the loss arises, and
(b) is a period in which the tax calculation currency of the company is the currency
mentioned in subsection (4).
15 Carried-forward amounts
(1) This section applies if conditions A, B and C are met.
(2) Condition A is that, in accordance with generally accepted accounting practice, a UK
resident company—
(a) prepares its accounts for a period of account in sterling, or

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(b) prepares its accounts for a period of account in a currency other than sterling
and in those accounts identifies sterling as its functional currency.
(3) Condition B is that a loss of the company for that period (“the loss”) which falls to be
calculated in accordance with generally accepted accounting practice for corporation
tax purposes is to be a carried-forward amount.
(4) Condition C is that the tax calculation currency of the company in the accounting period
to which the loss is to be carried forward (“the later tax calculation currency”) is a
currency other than sterling.
(5) The loss must be adjusted by—
(a) first being translated into the later tax calculation currency by reference to the
spot rate of exchange for the first day of the relevant accounting period, and
(b) then being translated into sterling by reference to the same rate of exchange as
that at which the profit against which the carried-forward amount is to be set
off is required to be translated under section 11.
(6) In this section “the relevant accounting period” means the earliest accounting period
of the company that both—
(a) begins after the accounting period in which the loss arises, and
(b) is a period in which the tax calculation currency of the company is the currency
mentioned in subsection (4).
Interpretation
16 Sections 13(2) and 15(5): profit against which carried-forward amount to be set
off
(1) This section is about the interpretation of the references in sections 13(2) and 15(5) to
the profit against which a carried-forward amount is to be set off, in a case where the
carried-forward amount—
(a) is one that is treated as arising in an accounting period later than that in which
it in fact arises, and
(b) is accordingly deductible in calculating a profit for that later period.
(2) In such a case, the references are to be read as references to the profit in calculating
which the amount is deductible, disregarding the deduction.
17 Interpretation of Chapter
(1) References in this Chapter to the accounts of a UK resident company are to—
(a) the annual accounts of the company required by Part 15 of the Companies Act
2006, or
(b) if the company is not required to prepare such accounts, the accounts which it
is required to keep under the law of the territory under whose laws the company
is incorporated, or
(c) if the company is not required to keep accounts as mentioned in paragraph (a)
or (b), those accounts of the company that most closely correspond to accounts
which it would have been required to prepare if the provisions of Part 15 of the
Companies Act 2006 applied to it.

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(2) In this Chapter “carried-back amount” means—
(a) an amount carried back under section 37 (relief for trade losses against total
profits),
(b) an amount carried back under section 389(2) of CTA 2009 (deficits of insurance
companies), or
(c) an amount carried back by virtue of a claim under section 459(1)(b) of CTA
2009 (non-trading deficits from loan relationships).
(3) In this Chapter “carried-forward amount” means—
(a) an amount carried forward under section 45 (carry forward of trade loss against
subsequent trade profits),
(b) an amount carried forward under section 62(5) (UK property business losses),
(c) an amount carried forward under section 63(3) (company with investment
business ceasing to carry on a UK property business),
(d) an amount carried forward under 66(3) (overseas property business losses),
(e) an amount carried forward under section 91(6) (losses from miscellaneous
transactions),
(f) an amount carried forward under section 76(12) or (13) of ICTA (certain
expenses of insurance companies),
(g) an amount carried forward under section 436A(4) of ICTA (insurance
companies: losses from gross roll-up business),
(h) an amount carried forward under section 391(2) of CTA 2009 (deficits of
insurance companies),
(i) an amount carried forward under section 457(3) of CTA 2009 (non-trading
deficits from loan relationships),
(j) an amount carried forward under section 753(3) of CTA 2009 (non-trading loss
on intangible fixed assets),
(k) an amount carried forward under section 925(3) of CTA 2009 (patent income:
relief for expenses), or
(l) an amount carried forward under section 1223 of CTA 2009 (expenses of
management and other amounts).
(4) References in this Chapter to a company's functional currency are to the currency of the
primary economic environment in which the company operates.
(5) References in this Chapter to the tax calculation currency of a company in an accounting
period are to the currency in which profits or losses of the company arising in that period
that fall to be calculated in accordance with generally accepted accounting practice
for corporation tax purposes are required to be calculated by virtue of section 5(1),
section 6(2), Step 1 of section 7(2), Step 1 of section 8(2) or Step 1 of section 9(2).

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PART 3
COMPANIES WITH SMALL PROFITS
The small profits rate
18 Profits charged at the small profits rate
Corporation tax is charged at the small profits rate on a company's taxable total profits
of an accounting period if—
(a) the company is UK resident in the accounting period,
(b) it is not a close investment-holding company in the period, and
(c) its augmented profits of the accounting period do not exceed the lower limit.
Marginal relief
19 Marginal relief
(1) This section applies if—
(a) a company is UK resident in an accounting period,
(b) it is not a close investment-holding company in the period,
(c) its augmented profits of the accounting period—
(i) exceed the lower limit, but
(ii) do not exceed the upper limit, and
(d) its augmented profits of the period do not include any ring fence profits.
(2) The corporation tax charged on the company's taxable total profits of the accounting
period is reduced by an amount equal to—
where—
F is the standard fraction,
U is the upper limit,
A is the amount of the augmented profits, and
N is the amount of the taxable total profits.
(3) In this Part “the standard fraction” means the fraction set by Parliament as the standard
fraction for the purposes of this Part.

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20 Company with only ring fence profits
(1) This section applies if—
(a) a company is UK resident in an accounting period,
(b) it is not a close investment-holding company in the period,
(c) its augmented profits of the accounting period—
(i) exceed the lower limit, but
(ii) do not exceed the upper limit, and
(d) its augmented profits of the period consist exclusively of ring fence profits.
(2) The corporation tax charged on the company's taxable total profits of the accounting
period is reduced by an amount equal to—
where—
R is the ring fence fraction,
U is the upper limit,
A is the amount of the augmented profits, and
N is the amount of the taxable total profits.
(3) In this Part “the ring fence fraction” means the fraction set by Parliament as the ring
fence fraction for the purposes of this Part.
21 Company with ring fence profits and other profits
(1) This section applies if—
(a) a company is UK resident in an accounting period,
(b) it is not a close investment-holding company in the period,
(c) its augmented profits of the accounting period—
(i) exceed the lower limit, but
(ii) do not exceed the upper limit, and
(d) its augmented profits of that period consist of both ring fence profits and other
profits.
(2) The corporation tax charged on the company's taxable total profits of the accounting
period is reduced by the total of—
(a) the sum equal to the ring fence fraction of the ring fence amount, and
(b) the sum equal to the standard fraction of the remaining amount.
(3) In this Part “ring fence profits” has the same meaning as in Part 8 (see section 276).

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22 The ring fence amount
(1) In section 21 “the ring fence amount” means the amount given by the formula—
(2) For the purposes of this section—
UR is the amount given by multiplying the upper limit by—
AR is the total amount of any ring fence profits that form part of the augmented
profits of the accounting period,
NR is the total amount of any ring fence profits that form part of the taxable total
profits of the accounting period, and
A is the amount of the augmented profits of the accounting period.
23 The remaining amount
(1) In section 21 “the remaining amount” means the amount given by the formula—
(2) For the purposes of this section—
UZ is the amount given by multiplying the upper limit by—

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AZ is the total amount of any profits other than ring fence profits that form part
of the augmented profits of the accounting period,
NZ is the total amount of any profits other than ring fence profits that form part
of the taxable total profits of the accounting period, and
A is the amount of the augmented profits of the accounting period.
The lower limit and the upper limit
24 The lower limit and the upper limit
(1) This section gives the meaning in this Part of “the lower limit” and “the upper limit”
in relation to an accounting period of a company.
(2) If the company has no associated company in the accounting period—
(a) the lower limit is £300,000, and
(b) the upper limit is £1,500,000.
(3) If the company has one or more associated companies in the accounting period—
(a) the lower limit is—
and
(b) the upper limit is—

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where N is the number of those associated companies.
(4) For an accounting period of less than 12 months the lower limit and the upper limit are
proportionately reduced.
25 Associated companies
(1) For the purposes of section 24, a company is another company's associated company
in an accounting period if it is an associated company (see subsection (4)) for any part
of the accounting period.
(2) The rule in subsection (1) applies to each of two or more associated companies even if
they are associated companies for different parts of the accounting period.
(3) But an associated company is ignored for the purposes of section 24 if—
(a) it has not carried on a trade or business at any time in the accounting period, or
(b) it was an associated company for part only of the accounting period and has not
carried on a trade or business at any time in that part of the accounting period.
(4) For the purposes of this Part, a company is an associated company of another at any
time when—
(a) one of the two has control of the other, or
(b) both are under the control of the same person or persons.
(5) In subsection (4) “control” has the same meaning as in Part 10 (see sections 450 and
451).
(6) In this section—
(a) subsection (3) is subject to section 26, and
(b) subsections (4) and (5) are subject to sections 27, 28, 29 and 30.
26 Section 25(3): treatment of certain non-trading companies
(1) Subsection (2) applies if a company carries on a business of making investments in an
accounting period and throughout the period the company—
(a) carries on no trade,
(b) has one or more 51% subsidiaries, and
(c) is a passive company.
(2) The company is treated for the purposes of section 25(3) as not carrying on a business
at any time in the accounting period.
(3) A company is a passive company throughout an accounting period only if the following
requirements are met—
(a) it has no assets in that period, other than shares in companies which are its 51%
subsidiaries,
(b) no income arises to it in that period other than dividends,
(c) if income arises to it in that period in the form of dividends—
(i) the redistribution condition is met (see subsection (4)), and
(ii) the dividends are franked investment income received by it,
(d) no chargeable gains accrue to it in that period,

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(e) no expenses of management of the business mentioned in subsection (1) are
referable to that period, and
(f) no qualifying charitable donations are deductible from the company's total
profits of that period.
(4) The redistribution condition is that—
(a) the company pays dividends to one or more of its shareholders in the accounting
period, and
(b) the total amount paid in the form of those dividends is at least equal to the
amount of the income arising to the company in the form of dividends in that
period.
(5) If income arises to a company in an accounting period in the form of a dividend and the
requirement in subsection (3)(c) is met in respect of the income—
(a) neither the dividend nor any asset representing it is treated as an asset of the
company in that accounting period for the purposes of subsection (3)(a), and
(b) no right of the company to receive the dividend is treated as an asset of the
company for the purposes of subsection (3)(a) in that period or any earlier
accounting period.
27 Attribution to persons of rights and powers of their partners
(1) This section applies if it is necessary to determine in accordance with section 25(4) and
(5) whether a company is an associated company of another company (“the taxpayer
company”).
(2) In the application of section 451 (meaning of “control”: rights to be attributed) for the
purposes of the determination, the references in section 451(4) and (5) to an associate
of a person (“P”) include a partner of the person only if the condition in subsection (3)
below is met.
(3) The condition is that tax planning arrangements which—
(a) involve P and the partner, and
(b) secure a relevant tax advantage,
have at any time had effect in relation to the taxpayer company.
(4) In subsection (3) “relevant tax advantage” means a reduction in the taxpayer company's
liability to corporation tax as a result of an increase in relief under this Part.
(5) The reference in subsection (3) to arrangements which have had effect in relation to the
taxpayer company includes arrangements which have had effect in connection with the
formation of the company.
(6) In this section “arrangements”—
(a) does not include any guarantee, security or charge given to or taken by a bank,
but
(b) otherwise includes any agreement, understanding, scheme, transaction or series
of transactions (whether or not legally enforceable).

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28 Associated companies: fixed-rate preference shares
(1) In determining for the purposes of section 25(4) whether a company is under the control
of another, fixed-rate preference shares held by a company are ignored if the company
holding them—
(a) is not a close company,
(b) takes no part in the management or conduct of the company which issued the
shares, or in the management or conduct of its business, and
(c) subscribed for the shares in the ordinary course of a business which includes
the provision of finance.
(2) In this section “fixed-rate preference shares” means shares which—
(a) were issued wholly for new consideration,
(b) do not carry any right either to conversion into shares or securities of any other
description or to the acquisition of any additional shares or securities, and
(c) do not carry any right to dividends other than dividends which—
(i) are of a fixed amount or at a fixed rate per cent of the nominal value
of the shares, and
(ii) together with any sum paid on redemption, represent no more than a
reasonable commercial return on the consideration for which the shares
were issued.
(3) In subsection (2)(a) “new consideration” has the meaning given by section 1115.
29 Association through a loan creditor
(1) A company (“A”) is not under the control of another company (“B”) for the purposes
of section 25(4) if—
(a) B is a loan creditor of A,
(b) there is no other connection between A and B, and
(c) either—
(i) B is not a close company, or
(ii) B's relationship to A as a loan creditor arose in the ordinary course of
a business which B carries on.
(2) Subsection (3) applies if—
(a) two companies (“A” and “B”) are controlled by the same person who is a loan
creditor of each of them,
(b) there is no other connection between A and B, and
(c) either—
(i) the loan creditor is a company which is not a close company, or
(ii) the loan creditor's relationship to each of A and B as a loan creditor
arose in the ordinary course of a business which the loan creditor carries
on.
(3) In determining for the purposes of this Part whether A and B are associated with each
other, rights which the loan creditor has as a loan creditor of A, or as a loan creditor
of B, are ignored.
(4) In subsection (2)(a) “control” has the same meaning as in section 25(4).
(5) In this section—

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(a) “connection” includes a connection in the past as well as a connection in the
present, and
(b) references to a connection between two companies include any dealings
between them.
(6) In this section references to a loan creditor of a company are to be read in accordance
with section 453.
30 Association through a trustee
(1) Subsection (2) applies if—
(a) two companies (“A” and “B”) are controlled by the same person by virtue of
rights or powers (or both) held in trust by that person, and
(b) there is no other connection between A and B.
(2) In determining for the purposes of this Part whether A and B are associated with each
other, the rights and powers mentioned in subsection (1)(a) are ignored.
(3) In subsection (1)—
(a) “control” has the same meaning as in section 25(4),
(b) “connection” includes a connection in the past as well as a connection in the
present, and
(c) the reference to a connection between A and B includes any dealings between
them.
Supplementary
31 Power to obtain information
(1) An officer of Revenue and Customs may, for the purposes of this Part, by notice require
any person in whose name any shares or loan capital are registered—
(a) to state whether or not that person is the beneficial owner of the shares or loan
capital, and
(b) if that person is not the beneficial owner of the shares or loan capital, to provide
the name and address of the person on whose behalf the shares or loan capital
are registered in that person's name.
(2) Subsections (3) and (4) apply if a company (“the issuing company”) appears to an
officer of Revenue and Customs to be a close company.
(3) The officer may, for the purposes of this Part, by notice require the issuing company
to provide the officer with—
(a) particulars of any bearer securities issued by the company,
(b) the names and addresses of the persons to whom the securities were issued, and
(c) details of the amounts issued to each person.
(4) The officer may, for the purposes of this Part, by notice require—
(a) any person to whom bearer securities were issued by the company, or
(b) any person to or through whom bearer securities issued by the company were
subsequently sold or transferred,

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to provide any further information that the officer reasonably requires with a view to
enabling the officer to find out the names and addresses of the persons beneficially
interested in the securities.
(5) In this section—
“loan creditor” has the meaning given by section 453, and
“securities” includes—
(a) shares, stocks, bonds, debentures and debenture stock, and
(b) any promissory note or other instrument evidencing indebtedness to a loan
creditor of the company.
32 Meaning of “augmented profits”
(1) For the purposes of this Part, a company's augmented profits of an accounting period
are—
(a) the company's taxable total profits of that period, plus
(b) any franked investment income received by the company that is not excluded
by subsection (2).
(2) This subsection excludes any franked investment income which the company (“the
receiving company”) receives from a company which is—
(a) a 51% subsidiary of—
(i) the receiving company, or
(ii) a company of which the receiving company is a 51% subsidiary, or
(b) a trading company or relevant holding company that is a quasi-subsidiary of
the receiving company.
(3) For the purposes of subsection (2)(b) a company is a quasi-subsidiary of the receiving
company if—
(a) it is owned by a consortium of which the receiving company is a member,
(b) it is not a 75% subsidiary of any company, and
(c) no arrangements of any kind (whether in writing or not) exist by virtue of which
it could become a 75% subsidiary of any company.
33 Interpretation of section 32(2) and (3)
(1) For the purposes of section 32(2)(a), a company (“A”) is a 51% subsidiary of another
company (“B”) only at times when—
(a) B would be beneficially entitled to more than 50% of any profits available for
distribution to equity holders of A, and
(b) B would be beneficially entitled to more than 50% of any assets of A available
for distribution to its equity holders on a winding up.
(2) The requirement in subsection (1) is in addition to the requirements of section 1154(2)
(meaning of “51% subsidiary”).
(3) In determining for the purposes of section 32(2)(a) whether or not a company is a 51%
subsidiary of another company (“C”), C is treated as not being the owner of share capital
if—
(a) it owns the share capital indirectly,
(b) the share capital is owned directly by a company (“D”), and

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(c) a profit on the sale of the shares would be a trading receipt for D.
(4) In section 32(2)(b) and this section—
(a) “trading company” means a company whose business consists wholly or mainly
of carrying on a trade or trades, and
(b) “relevant holding company” means a company whose business consists wholly
or mainly of holding shares in or securities of trading companies that are its
90% subsidiaries.
(5) For the purposes of section 32(3), a company is owned by a consortium if at least 75%
of the company's ordinary share capital is beneficially owned by two or more companies
each of which—
(a) beneficially owns at least 5% of that capital,
(b) would be beneficially entitled to at least 5% of any profits available for
distribution to equity holders of the company, and
(c) would be beneficially entitled to at least 5% of any assets of the company
available for distribution to its equity holders on a winding up.
(6) The companies meeting those conditions are called the members of the consortium.
(7) Chapter 6 of Part 5 (equity holders and profits or assets available for distribution) applies
for the purposes of subsections (1) and (5) as it applies for the purposes of section 151(4)
(a) and (b).
34 Close investment-holding companies
(1) For the purposes of this Part, a close company (“the candidate company”) is a close
investment-holding company in an accounting period unless throughout the period
it exists wholly or mainly for one or more of the permitted purposes set out in
subsection (2).
There is an exception to this rule in subsection (5).
(2) The candidate company exists for a permitted purpose so far as it exists—
(a) for the purpose of carrying on a trade or trades on a commercial basis,
(b) for the purpose of making investments in land, or estates or interests in
land, in cases where the land is, or is intended to be, let commercially (see
subsection (3)),
(c) for the purpose of holding shares in and securities of, or making loans to, one
or more companies each of which—
(i) is a qualifying company, or
(ii) falls within subsection (4),
(d) for the purpose of co-ordinating the administration of two or more qualifying
companies,
(e) for the purpose of the making of investments as mentioned in paragraph (b)—
(i) by one or more qualifying companies, or
(ii) by a company which has control of the candidate company, or
(f) for the purpose of a trade or trades carried on on a commercial basis—
(i) by one or more qualifying companies, or
(ii) by a company which has control of the candidate company.

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(3) For the purposes of subsection (2)(b), any letting of land is taken to be commercial
unless the land is let to—
(a) a person connected with the candidate company (“a connected person”), or
(b) a person who is—
(i) the spouse or civil partner of a connected person,
(ii) a relative of a connected person, or the spouse or civil partner of a
relative of a connected person,
(iii) the relative of the spouse or civil partner of a connected person, or
(iv) the spouse or civil partner of a relative of the spouse or civil partner
of the connected person.
(4) A company falls within this subsection (see subsection (2)(c)(ii)) if—
(a) it is under the control of the candidate company or of a company which has
control of the candidate company, and
(b) it exists wholly or mainly for the purpose of holding shares in or securities of,
or of making loans to, one or more qualifying companies.
(5) If a company is wound up and was not a close investment-holding company in the
accounting period that ends (by virtue of section 12(2) of CTA 2009) immediately
before the winding up starts, the company is not treated for the purposes of this Part as
being a close investment-holding company in the subsequent accounting period.
(6) In this section “qualifying company” means a company which—
(a) is under the control of the candidate company or of a company which has
control of the candidate company, and
(b) exists wholly or mainly for either or both of the purposes mentioned in
subsection (2)(a) and (b).
(7) In this section—
“control” has the meaning given by section 450, and
“relative” means brother, sister, ancestor or lineal descendant.
PART 4
LOSS RELIEF
CHAPTER 1
INTRODUCTION
35 Overview of Part
(1) This Part provides corporation tax relief for—
(a) losses made in a trade (see Chapter 2 as well as the restrictions on relief in
Chapter 3 relating to limited partnerships and limited liability partnerships),
(b) losses made in a UK property business or overseas property business (see
Chapter 4),
(c) losses made on a disposal of certain shares (see Chapter 5), and
(d) losses made in certain miscellaneous transactions (see Chapter 6).

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(2) This Part also provides for the reduction of available relief if there is a write-off of
government investment in a company (see Chapter 7).
(3) For rules about the calculation of losses for the purposes of this Part, see—
(a) section 47 of CTA 2009 (losses of a trade calculated on same basis as profits),
and
(b) section 210 of CTA 2009 (which applies section 47 of that Act, so that losses
of a UK property business or overseas property business are calculated on the
same basis as profits).
(4) See also Part 17 of CTA 2009 for rules about how to calculate the losses of a company
that is a partner in a partnership.
CHAPTER 2
TRADE LOSSES
Introduction
36 Introduction to Chapter
(1) This Chapter—
(a) provides relief against a company's total profits of an accounting period for a
loss made by the company in a trade in that or a subsequent accounting period
(see sections 37 to 44), and
(b) provides relief against a company's profits of a trade of an accounting period
for a loss made by the company in the trade in a previous accounting period
(see sections 45 to 47).
(2) This Chapter also provides for restrictions on relief for the following cases—
(a) farming or market gardening (sections 48 to 51),
(b) dealings in commodity futures (section 52),
(c) leasing contracts and company reconstructions (section 53), and
(d) receipts of interest, dividends and royalties by a non-UK resident company
(section 54).
(3) In this Chapter references to a company carrying on a trade are references to the
company carrying on the trade so as to be within the charge to corporation tax in relation
to the trade.
(4) In this Chapter, except in so far as the context otherwise requires—
(a) references to a trade include an office, and
(b) references to carrying on a trade include holding an office.
Trade loss relief against total profits
37 Relief for trade losses against total profits
(1) This section applies if, in an accounting period, a company carrying on a trade makes
a loss in the trade.

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(2) The company may make a claim for relief for the loss under this section (but see
subsection (5)).
(3) If the company makes a claim, the relief is given by deducting the loss from the
company's total profits of—
(a) the accounting period in which the loss is made (“the loss-making period”), and
(b) if the claim so requires, previous accounting periods so far as they fall (wholly
or partly) within the period of 12 months ending immediately before the loss-
making period begins.
(4) The amount of a deduction to be made under subsection (3) for any accounting period
is the amount of the loss so far as it cannot be deducted under that subsection for a
subsequent accounting period.
(5) The company may not make a claim if, in the loss-making period, the company carries
on the trade wholly outside the United Kingdom.
(6) A deduction under subsection (3)(b) may be made for an accounting period only if the
company—
(a) carried on the trade in the period, and
(b) did not do so wholly outside the United Kingdom.
(7) The company's claim must be made—
(a) within the period of two years after the end of the loss-making period, or
(b) within such further period as an officer of Revenue and Customs may allow.
(8) If, for an accounting period, deductions under subsection (3) are to be made for losses
of different accounting periods, the deductions are to be made in the order in which the
losses were made (starting with the earliest loss).
(9) Relief under this section is subject to restriction or modification in accordance with
provisions of the Corporation Tax Acts.
38 Limit on deduction if accounting period falls partly within 12 month period
(1) This section applies if an accounting period falls partly within the period of 12 months
mentioned in section 37(3)(b).
(2) The amount of the deduction for the loss for the accounting period is not to exceed an
amount equal to the overlapping proportion of the company's total profits of that period.
(3) The overlapping proportion is the same as the proportion that the part of the accounting
period falling within the period of 12 months bears to the whole of the accounting
period.
39 Terminal losses: extension of periods for which relief may be given
(1) This section applies if—
(a) a company ceases to carry on a trade, and
(b) the company has made a terminal loss in the trade.
(2) Sections 37(3)(b) and 38(1) and (3) have effect in relation to the terminal loss as if the
references to 12 months were references to 3 years.

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(3) The following are terminal losses made in the trade—
(a) the whole of any loss made by the company in the trade in an accounting period
that begins during the final 12 months, and
(b) the overlapping proportion of any loss made by the company in the trade in an
accounting period that ends, but does not begin, during the final 12 months.
(4) The overlapping proportion is the same as the proportion that the part of the accounting
period falling within the final 12 months bears to the whole of the accounting period.
(5) “The final 12 months” means the period of 12 months ending when the company ceases
to carry on the trade.
(6) This section is subject to section 41.
40 Ring fence trades: extension of periods for which relief may be given
(1) This section applies if—
(a) in an accounting period a company makes a loss in a ring fence trade (as defined
in section 162 of CAA 2001),
(b) the accounting period is an accounting period for which an allowance under
section 164 of CAA 2001 is made to the company, and
(c) not all the loss is a terminal loss (see section 39(3) above).
(2) Sections 37(3)(b) and 38(1) and (3) have effect in relation to the loss (so far as it is not
a terminal loss) as if the references to 12 months were references to 3 years.
(3) But if the loss exceeds the allowance mentioned in subsection (1)(b), subsection (2)
applies in relation to the loss only so far as it does not exceed that allowance.
(4) This section is subject to section 41.
41 Sections 39 and 40: transfers of trade to obtain relief
Sections 39 and 40 do not apply by reason of a company ceasing to carry on a trade if—
(a) on the company ceasing to carry on the trade, any of the activities of the trade
begin to be carried on by a person who is not (or by persons any or all of whom
are not) within the charge to corporation tax, and
(b) the company's ceasing to carry on the trade is part of a scheme or arrangement
the main purpose, or one of the main purposes, of which is to secure that either
or both of those sections apply in relation to a loss by reason of the cessation.
42 Ring fence trades: further extension of period for relief
(1) This section applies if—
(a) a company makes a claim under section 37 for relief in respect of a loss made
in a ring fence trade,
(b) the claim is made by virtue of section 39 or 40, and
(c) a part of the loss that is eligible for relief under section 37 cannot be so relieved
because there are not enough profits from which the loss may be deducted under
that section.

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(2) Relief for the part of the loss that cannot be relieved under section 37 (“the unrelieved
loss”) is given to the company under this section.
(3) The relief is given by deducting the unrelieved loss from the profits of the ring fence
trade of an accounting period that—
(a) falls wholly or partly before the three year relief period, and
(b) ends on or after 17 April 2002.
(4) The amount of a deduction to be made under subsection (3) for any accounting period
is so much of the unrelieved loss as cannot be deducted under that subsection from
profits of the ring fence trade of a subsequent accounting period (but this is subject to
subsections (5) and (6)).
(5) In the case of an accounting period that falls partly before the 3 year relief period, the
amount given by subsection (4) is to be reduced by the proportion which the part of
the accounting period falling within the 3 year relief period bears to the whole of the
accounting period.
(6) In the case of an accounting period that falls partly before 17 April 2002, the amount
given by subsection (4) is to be reduced by the proportion which the part of the
accounting period falling before that date bears to the whole of the accounting period.
(7) If, for an accounting period, deductions under subsection (3) are to be made for losses
of different accounting periods, the deductions are to be made in the order in which the
losses were made (starting with the earliest first).
(8) In this section—
“ring fence trade” has the same meaning as in section 162 of CAA 2001, and
“3 year relief period” means the period of 3 years that applies to a claim
under section 37 by virtue of section 39 or 40.
43 Claim period in case of ring fence or mineral extraction trades
(1) This section applies in relation to a claim under section 37 if—
(a) as a result of section 165 of CAA 2001 (general decommissioning expenditure
after ceasing ring fence trade) a company's qualifying expenditure for the
accounting period in which it ceases to carry on a ring fence trade (as defined
in section 162 of that Act) is increased by any amount, or
(b) as a result of section 416 of CAA 2001 (expenditure on restoration within 3
years of ceasing to carry on mineral extraction trade) any expenditure is treated
as qualifying expenditure of a company incurred on the last day of trading.
(2) So far as the claim relates to the increase mentioned in subsection (1)(a), the period of
two years specified in section 37(7)(a) for making the claim is instead to be read as a
reference to the period given by adding two years to the post-cessation period (within
the meaning of section 165 of CAA 2001).
(3) So far as the claim relates to the expenditure mentioned in subsection (1)(b), the period
of two years specified in section 37(7)(a) for making the claim is instead to be read as
a reference to a period of 5 years.

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44 Trade must be commercial or carried on for statutory functions
(1) Relief under section 37 is not available for a loss made in a trade unless for the loss-
making period (see section 37(3)(a)) the trade is carried on—
(a) on a commercial basis, and
(b) with a view to the making of a profit in the trade or so as to afford a reasonable
expectation of making such a profit.
(2) References in subsection (1)(b) to a profit in the trade include references to a profit in
any larger undertaking of which the trade forms part.
(3) If during the loss-making period there is a change in the way in which the trade is carried
on, it is treated as having been carried on throughout that period in the way in which it
is being carried on by the end of that period.
(4) The restriction on relief under this section does not apply if the trade is a trade carried
on in the exercise of functions conferred by or under an Act (including an Act of the
Scottish Parliament).
Carry forward of trade loss relief
45 Carry forward of trade loss against subsequent trade profits
(1) This section applies if, in an accounting period, a company carrying on a trade makes
a loss in the trade.
(2) Relief for the loss is given to the company under this section.
(3) The relief is given for that part of the loss for which no relief is given under section 37
or 42 (“the unrelieved loss”).
(4) For this purpose—
(a) the unrelieved loss is carried forward to subsequent accounting periods (so long
as the company continues to carry on the trade), and
(b) the profits of the trade of any such period are reduced by the unrelieved loss
so far as that loss cannot be used under this paragraph to reduce the profits of
an earlier period.
(5) In this section and section 46 references to profits of the trade are references to profits
of the trade chargeable to corporation tax.
(6) Relief under this section is subject to restriction or modification in accordance with
provisions of the Corporation Tax Acts.
46 Use of trade-related interest and dividends if insufficient trade profits
(1) This section applies for the purposes of section 45 if—
(a) the company carries on the trade in an accounting period (“the later period”),
and
(b) relief cannot be fully given in the later period for the unrelieved loss (or for
that loss so far as it cannot be relieved in earlier periods) because there are no
profits, or insufficient profits, of the trade of the later period.

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(2) Treat any interest or dividends within subsection (3) as profits of the trade of the later
period.
(3) Interest or dividends are within this subsection if they—
(a) are from investments, and
(b) would be brought into account as trading receipts in calculating the profits of
the trade of the later period but for the fact that they have been subjected to tax
under other provisions of the Tax Acts.
47 Registered industrial and provident societies
(1) This section applies for the purposes of section 45 if the company carrying on the trade
is a registered industrial and provident society.
(2) The following amounts may be brought into account in calculating the profits of the
trade—
(a) amounts to which the charge to corporation tax on income applies under
section 299 of CTA 2009 (charge to tax on non-trading profits from loan
relationships), and
(b) amounts arising from possessions out of the United Kingdom to which the
charge to corporation tax on income applies under section 933 of CTA 2009
(dividends of non-UK resident company) or under section 974 of that Act
(income arising from foreign holdings).
Restrictions on relief: farming or market gardening
48 Farming or market gardening
(1) This section applies if a loss is made in a trade of farming or market gardening in an
accounting period (“the current period”).
(2) Relief under section 37 is not available for the loss if a loss, calculated without regard
to capital allowances, was made in the trade—
(a) in the current period, and
(b) in each accounting period falling wholly or partly within the period of 5 years
(“the prior 5 years”) ending immediately before the current period begins.
(3) But this section does not prevent relief for the loss from being available if—
(a) the carrying on of the trade forms part of, and is ancillary to, a larger trading
undertaking,
(b) the farming or market gardening activities meet the reasonable expectation of
profit test (see section 49), or
(c) the trade was started, or treated as started, during the prior 5 years (see
section 50).
(4) A loss in a trade is calculated without regard to capital allowances by ignoring—
(a) the allowances treated as expenses of the trade under CAA 2001, and
(b) the charges treated as receipts of the trade under CAA 2001.

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49 Reasonable expectation of profit
(1) This section explains how the farming or market gardening activities (“the activities”)
meet the reasonable expectation of profit test for the purposes of section 48(3)(b).
(2) The test is decided by reference to the expectations of a competent farmer or market
gardener (a “competent person”) carrying on the activities.
(3) The test is met if—
(a) a competent person carrying on the activities in the year (“the current
year”) after the prior 5 years would reasonably expect future profits (see
subsection (4)), but
(b) a competent person carrying on the activities at the start of the prior period of
loss (see subsection (5)) could not reasonably have expected the activities to
become profitable until after the end of the current year.
(4) In determining whether a competent person carrying on the activities in the current year
would reasonably expect future profits, regard must be had to—
(a) the nature of the whole of the activities, and
(b) the way in which the whole of the activities were carried on in the current year.
(5) “The prior period of loss” means—
(a) the prior 5 years, or
(b) if subsection (6) applies, the period made up of the successive accounting
periods taken together as mentioned in that subsection.
(6) This subsection applies if—
(a) losses in the trade, calculated without regard to capital allowances (see
section 48(4)), were made in successive accounting periods before the current
year, and
(b) taken together those accounting periods amount to a period of more than 5 years
ending at the end of the prior 5 years.
50 Cessation of trades
(1) For the purposes of section 48(3)(c) a trade is to be treated as ceased, and a new trade
as started, in any of the following cases—
Case 1
A company starts or ceases to be within the charge to corporation tax in respect
of a trade.
Case 2
There is a change in the persons carrying on a trade which involves all of the
persons carrying it on before the change permanently ceasing to carry it on.
Case 3
There is a change in the persons carrying on a trade and—
(a) immediately before the change, the trade is carried on by persons who
include a company, and
(b) after the change, no company that carried on the trade in partnership
immediately before the change continues to carry it on in partnership.
Case 4

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There is a change in the persons carrying on a trade and—
(a) immediately before the change, no company carries on the trade in
partnership, and
(b) immediately after the change, the trade is carried on in partnership by
persons who include a company.
(2) Subsection (1) is subject to subsections (3) and (4).
(3) A trade is not to be treated as ceased if the change in the persons carrying on the trade
is a transfer to which Chapter 1 of Part 22 applies (transfers of trade without a change
of ownership).
(4) In determining if there is a change in the persons carrying on a trade, subsection (1) is
subject to the following rules—
Rule 1
A husband and wife are treated as the same person.
Rule 2
Individuals who are civil partners of each other are treated as the same person.
Rule 3
A husband or wife is treated as the same person as—
(a) a company of which either of them has control, or
(b) a company of which both have control.
Rule 4
An individual's civil partner is treated as the same person as—
(a) a company of which either of the civil partners has control, or
(b) a company of which both have control.
(5) In subsection (4) “control” has the same meaning as in section 450.
51 Companies treated as same person as individual
(1) This section applies for the purposes of sections 48(2) and 49(6) if, as a result of
section 50(4), a company is treated as the same person as an individual.
(2) A loss in an accounting period may be determined by reference to profits and losses
made by the individual in the trade in tax years (within the meaning of the Income Tax
Acts).
(3) For this purpose—
(a) profits and losses made by the individual in tax years may be allocated (in whole
or in part) to accounting periods in a way that is just and reasonable, and
(b) if a tax year or part of a tax year is not covered by any accounting period—
(i) the period covered by the tax year or part may be treated as if it were
an accounting period, and
(ii) in accordance with paragraph (a), profits and losses may be allocated
to it.
(4) Section 70(2), (3)(a), (4)(a) and (5) of ITA 2007 applies for the purpose of determining
the individual's profits and losses in the trade for tax years.

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Restrictions on relief: commodity futures
52 Dealings in commodity futures
(1) This section applies if—
(a) a company makes a loss in a trade of dealing in commodity futures,
(b) the company carried on the trade as a partner in a partnership, and
(c) a scheme has been effected or arrangements within subsection (3) have been
made (whether by the partnership agreement or otherwise).
(2) Relief under section 37 is not available for the loss.
(3) Arrangements are within this subsection if as a result of them the sole or main benefit
that might be expected to arise to the company from the company's interest in the
partnership is the obtaining of a reduction in tax liability by means of relief under
section 37.
(4) If relief is given in a case to which this section applies, the relief is withdrawn by the
making of an assessment to corporation tax under this section.
(5) “Commodity futures” means commodity futures that are for the time being dealt in on
a recognised futures exchange (as defined in section 288(6) of TCGA 1992).
Other restrictions on relief
53 Leasing contracts and company reconstructions
(1) This section applies if—
(a) under a contract a company (“the leasing company”) incurs capital expenditure
on the provision of plant or machinery,
(b) the leasing company lets that plant or machinery to another person under
another contract (“the leasing contract”),
(c) a first-year allowance (within the meaning of Part 2 of CAA 2001) in relation
to the capital expenditure is made to the leasing company for an accounting
period (“the allowance period”),
(d) arrangements within subsection (3) are in place in the allowance period, and
(e) apart from this section, relief under section 37 or 45 would be available to the
leasing company in relation to losses made on the leasing contract.
(2) In the allowance period and any subsequent accounting period, no relief is available to
the leasing company as mentioned in subsection (1)(e) except against profits (if any)
arising under the leasing contract.
(3) Arrangements are within this subsection if, as a result of them, a successor company
will be able to carry on, at some time during or after the allowance period, any part of the
leasing company's trade which includes the performance of all or any of the obligations
which (apart from the arrangements) would be the leasing company's obligations under
the leasing contract.
(4) A company (“company S”) is a successor company if—
(a) Chapter 1 of Part 22 applies in relation to the leasing company and company S
as, respectively, the predecessor and the successor within the meaning of that
Chapter, or

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(b) the leasing company and company S are connected with each other.
(5) “Arrangements” means arrangements of any kind (whether or not in writing).
(6) For the purposes of this section, calculate losses made on the leasing contract and profits
arising under that contract as if—
(a) the performance of that contract were a trade carried on by the leasing company
separately from any other trade carried on by it, and
(b) the leasing company started carrying on that separate trade at the
commencement of the letting under that contract.
(7) In determining if relief is available to the leasing company as mentioned in
subsection (1)(e), any losses made on the leasing contract are treated as made in a trade
carried on by the leasing company separately from any other trade carried on by it.
54 Non-UK resident company: receipts of interest, dividends or royalties
(1) This section applies if—
(a) a non-UK resident company carries on a trade in the United Kingdom, and
(b) tax-exempt receipts of interest, dividends or royalties arise to the company.
(2) The receipts are not to be excluded from the profits of the trade so as to give rise to a
loss to be deducted under any of these provisions—
(a) section 37,
(b) section 45, or
(c) section 436A of ICTA.
(3) For the purposes of subsection (1) a receipt is “tax-exempt” if it has been treated as
tax-exempt under arrangements having effect under section 2 of TIOPA 2010.
CHAPTER 3
LIMITED PARTNERS AND MEMBERS OF LIMITED LIABILITY PARTNERSHIPS
Introduction
55 Introduction to Chapter
(1) This Chapter restricts the amount of relief that may be given for any loss made by a
company in a trade carried on by the company—
(a) as a limited partner (see sections 56 to 58), or
(b) as a member of a limited liability partnership (an “LLP”) (see sections 59 to
61).
(2) In this Chapter persons carrying on a trade in partnership are referred to collectively
as a “firm”.

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Limited partners
56 Restriction on reliefs for limited partners
(1) This section applies if—
(a) at any time in an accounting period a company carries on a trade (“the limited
partnership trade”) as a limited partner in a firm, and
(b) the company makes a loss in the limited partnership trade in that period (“the
loss-making period”).
(2) There is a restriction on the amount of relief that may be given for the loss—
(a) under section 37 (relief for trade losses against total profits) other than against
profits of the limited partnership trade, or
(b) under Part 5 (group relief).
(3) The restriction is that the sum of—
(a) the amount of the relief given, and
(b) the total amount of all other relief within subsection (4),
must not exceed the company's contribution to the firm as at the time mentioned in
subsection (5).
(4) Relief is within this subsection if it is given under section 37 or Part 5 for a loss made in
the limited partnership trade by the company in an accounting period at any time during
which it carries on that trade as a limited partner.
(5) The time referred to in subsection (3) is—
(a) the end of the loss-making period, or
(b) if the company ceases to carry on the limited partnership trade during that
period, the time when it does so.
(6) If the firm is carrying on, or has carried on, other trades apart from the limited
partnership trade, for the purpose of determining the total amount of all other relief
within subsection (4), apply that subsection in relation to each other trade as well as the
limited partnership trade and then add the results together.
57 Meaning of “contribution to the firm”
(1) For the purposes of section 56 the company's contribution to the firm is the sum of
amounts A and B.
(2) Amount A is the amount which the company has contributed to the firm as capital less
so much of that amount (if any) as is within subsection (4).
(3) In particular, the company's share of any profits of the firm is to be included in the
amount which the company has contributed to the firm as capital so far as that share
has been added to the firm's capital.
(4) An amount of capital is within this subsection if it is an amount which the company—
(a) has previously drawn out or received back,
(b) is or may be entitled to draw out or receive back at any time when the company
is carrying on a trade as a limited partner in the firm, or
(c) is or may be entitled to require another person to reimburse to it.

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(5) In subsection (4) any reference to drawing out or receiving back an amount is to doing
so directly or indirectly but does not include drawing out or receiving back an amount
which, because of its being drawn out or received back, is chargeable to tax as profits
of a trade.
(6) Amount B is the amount of the company's total share of profits within subsection (7)
except so far as—
(a) that share has been added to the firm's capital, or
(b) the company has received that share in money or money's worth.
(7) Profits are within this subsection if they are from the limited partnership trade.
(8) In determining the amount of the company's total share of profits within subsection (7)
ignore the company's share of any losses from the limited partnership trade which would
(apart from this subsection) reduce that amount.
(9) In subsections (3), (7) and (8) any reference to profits or losses are to profits or
losses calculated in accordance with generally accepted accounting practice (before
any adjustment required or authorised by law in calculating profits or losses for tax
purposes).
(10) If the firm is carrying on, or has carried on, other trades apart from the limited
partnership trade, subsections (7) and (8) have effect as if references to the limited
partnership trade were references to the limited partnership trade or any of the other
trades.
58 Meaning of “limited partner”
(1) In sections 56 and 57 “limited partner” means a company which carries on a trade—
(a) as a limited partner in a limited partnership registered under the Limited
Partnerships Act 1907,
(b) as a partner in a firm which in substance acts as a limited partner in relation to
the trade (see subsection (2)), or
(c) while the condition mentioned in subsection (3) is met in relation to the
company.
(2) A company in substance acts as a limited partner in relation to a trade if the company—
(a) is not entitled to take part in the management of the trade, and
(b) is entitled to have any liabilities (or those beyond a certain limit) for debts or
obligations incurred for the purposes of the trade met or reimbursed by some
other person.
(3) The condition referred to in subsection (1)(c) is that—
(a) the company carries on the trade jointly with other persons,
(b) under the law of a territory outside the United Kingdom, the company is not
entitled to take part in the management of the trade, and
(c) under that law, the company is not liable beyond a certain limit for debts or
obligations incurred for the purposes of the trade.
(4) In the case of a company which is a limited partner as a result of subsection (1)(c),
references in sections 56 and 57 to the firm are to be read as references to the relationship
between the company and the other persons mentioned in subsection (3)(a).

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Members of LLPs
59 Restriction on relief for members of LLPs
(1) This section applies if—
(a) a company carries on a trade (“the LLP trade”) as a member of an LLP at any
time in an accounting period, and
(b) the company makes a loss in the LLP trade in that period (“the loss-making
period”).
(2) There is a restriction on the amount of relief that may be given for the loss—
(a) under section 37 (relief for trade losses against total profits) other than against
profits of the LLP trade, or
(b) under Part 5 (group relief).
(3) The restriction is that the sum of—
(a) the amount of the relief given, and
(b) the total amount of all other relief within subsection (4),
must not exceed the company's contribution to the LLP as at the time mentioned in
subsection (5).
(4) Relief is within this subsection if it is given under section 37 or Part 5 for a loss made
in the LLP trade by the company in an accounting period at any time during which it
carries on that trade as a member of an LLP.
(5) The time mentioned in subsection (3) is—
(a) the end of the loss-making period, or
(b) if the company ceases to carry on the LLP trade during that period, at the time
when it does so.
(6) If the LLP is carrying on, or has carried on, other trades apart from the LLP trade, for
the purpose of determining the total amount of all other relief within subsection (4),
apply that subsection in relation to each other trade as well as the LLP trade and then
add the results together.
60 Meaning of “contribution to the LLP”
(1) For the purposes of section 59 the company's contribution to the LLP at any time (“the
relevant time”) is the sum of amounts A and B.
(2) Amount A is the amount which the company has contributed to the LLP as capital less
so much of that amount (if any) as is within subsection (5).
(3) In particular, the company's share of any profits of the LLP is to be included in the
amount which the company has contributed to the LLP as capital so far as that share
has been added to the LLP's capital.
(4) In subsection (3) the reference to profits is to profits calculated in accordance with
generally accepted accounting practice (before any adjustment required or authorised
by law in calculating profits for tax purposes).
(5) An amount of capital is within this subsection if it is an amount which the company—
(a) has previously drawn out or received back,

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(b) draws out or receives back during the period of 5 years beginning with the
relevant time,
(c) is or may be entitled to draw out or receive back at any time when it is a member
of the LLP, or
(d) is or may be entitled to require another person to reimburse to it.
(6) In subsection (5) any reference to drawing out or receiving back an amount is to doing
so directly or indirectly but does not include drawing out or receiving back an amount
which, because of its being drawn out or received back, is chargeable to tax as profits
of a trade.
(7) Amount B is the amount of the company's liability on a winding up of the LLP so far
as that amount is not included in amount A.
(8) For the purposes of subsection (7) the amount of the company's liability on a winding
up of the LLP is the amount which—
(a) the company is liable to contribute to the assets of the LLP in the event of the
LLP being wound up, and
(b) the company remains liable to contribute for the period of at least 5 years
beginning with the relevant time (or until the LLP is wound up, if that happens
before the end of that period).
61 Unrelieved losses brought forward
(1) This section applies if—
(a) a company (“the member company”) carries on a trade as a member of an LLP
at a time during an accounting period (“the current period”), and
(b) as a result of section 59, relief under section 37 or Part 5 (group relief) has not
been given for an amount of loss made in the trade by the member company as
a member of the LLP in a previous accounting period.
(2) For the purpose of determining the relief under section 37 or Part 5 to be given to any
company, the amount of loss is treated as having been made by the member company
in the current period so far as it is not excluded by subsection (3) or (4).
(3) An amount of loss is excluded so far as—
(a) under this section the amount has been treated as made by the member company
in a previous accounting period, and
(b) as a result of that, relief under section 37 or Part 5 has been given for the amount
or would have been given had a claim been made.
(4) An amount of loss is also excluded so far as relief under the Corporation Tax Acts has
been given for the amount other than as a result of this section.

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CHAPTER 4
PROPERTY LOSSES
UK property businesses
62 Relief for losses made in UK property business
(1) This section applies if, in an accounting period, a company carrying on a UK property
business makes a loss in the business.
(2) Relief for the loss is given to the company under this section.
(3) The relief is given by deducting the loss from the company's total profits of the
accounting period.
(4) Subsection (5) applies if—
(a) not all the loss can be deducted as mentioned in subsection (3), and
(b) the company continues to carry on the UK property business in the next
accounting period.
(5) So far as the loss cannot be deducted, it—
(a) is carried forward to the next accounting period, and
(b) is treated for the purposes of this section as a loss made by the company in the
UK property business in that period.
(6) Relief under this section is subject to restriction or modification in accordance with
provisions of the Corporation Tax Acts.
63 Company with investment business ceasing to carry on UK property business
(1) This section applies if, in an accounting period, a company with investment business
(as defined in section 1218 of CTA 2009)—
(a) ceases to carry on a UK property business or to be within the charge to
corporation tax in respect of such a business, but
(b) continues to be a company with investment business.
(2) Subsection (3) applies if, as a result of the company ceasing to carry on the UK property
business or to be within the charge to corporation tax in respect of it, an amount of
loss made in carrying on that business cannot be carried forward to the next accounting
period for the purposes of section 62.
(3) The amount of loss—
(a) is, nevertheless, carried forward to the next accounting period, and
(b) is treated for the purposes of Chapter 2 of Part 16 of CTA 2009 as an expense
of management deductible for that period or a succeeding period in accordance
with that Chapter.
64 UK property business to be commercial or carried on for statutory functions
(1) Sections 62 and 63 apply to a UK property business only so far as it is carried on—
(a) on a commercial basis, or

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(b) in the exercise of functions conferred by or under an Act (including an Act of
the Scottish Parliament).
(2) A business (or part) is not carried on on a commercial basis unless it is carried on with
a view to making a profit or so as to afford a reasonable expectation of making a profit.
(3) If during an accounting period there is a change in the way in which a business (or part)
is carried on, it is treated as having been carried on throughout that period in the way
in which it is being carried on by the end of that period.
65 UK furnished holiday lettings business treated as trade
(1) This section applies if a company carries on a UK furnished holiday lettings business.
(2) “UK furnished holiday lettings business” means a UK property business so far as it
consists of the commercial letting of furnished holiday accommodation (within the
meaning of Chapter 6 of Part 4 of CTA 2009).
(3) For the purposes of this Part the company is treated as carrying on a single trade—
(a) which consists of every commercial letting of furnished holiday
accommodation comprised in the company's UK furnished holiday lettings
business, and
(b) in relation to which the profits are chargeable to corporation tax under Chapter
2 of Part 3 of CTA 2009.
(4) Accordingly, sections 62 to 64 apply in relation to the company's UK property business
as if the lettings mentioned in subsection (3)(a) were not included in it.
(5) If there is a letting of accommodation only part of which is furnished holiday
accommodation, just and reasonable apportionments are to be made for the purpose of
determining what is comprised in the trade treated as carried on.
Overseas property businesses
66 Relief for losses made in overseas property business
(1) This section applies if, in an accounting period, a company carrying on an overseas
property business makes a loss in the business.
(2) Relief for the loss is given to the company under this section.
(3) For this purpose—
(a) the loss is carried forward to subsequent accounting periods, and
(b) the profits of the business of any such period are reduced by the loss so far as
it cannot be used under this paragraph to reduce the profits of the business of
an earlier period.
(4) Relief under this section is subject to restriction or modification in accordance with
provisions of the Corporation Tax Acts.
67 Overseas property business to be commercial or carried on for statutory functions
(1) Section 66 applies to an overseas property business only so far as it is carried on—
(a) on a commercial basis, or

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(b) in the exercise of functions conferred by or under an Act (including an Act of
the Scottish Parliament) or by or under the law of a territory outside the United
Kingdom.
(2) A business (or part) is not carried on on a commercial basis unless it is carried on with
a view to making a profit or so as to afford a reasonable expectation of making a profit.
(3) If during an accounting period there is a change in the way in which a business (or part)
is carried on, it is treated as having been carried on throughout that period in the way
in which it is being carried on by the end of that period.
CHAPTER 5
LOSSES ON DISPOSAL OF SHARES
Share loss relief against income
68 Share loss relief
(1) A company which has subscribed for shares in a qualifying trading company is eligible
for relief under this Chapter (“share loss relief”) if—
(a) it incurs an allowable loss (for the purposes of corporation tax on chargeable
gains) on the disposal of the shares in any accounting period, and
(b) it meets the eligibility conditions (see section 69).
(2) Subsection (1) applies only if the disposal of the shares is—
(a) by way of a bargain made at arm's length,
(b) by way of a distribution in the course of dissolving or winding up the qualifying
trading company,
(c) a disposal within section 24(1) of TCGA 1992 (entire loss, destruction,
dissipation or extinction of asset), or
(d) a deemed disposal under section 24(2) of that Act (claim that value of the asset
has become negligible).
(3) Subsection (1) does not apply to any allowable loss incurred on the disposal if—
(a) the shares are the subject of an exchange or arrangement of the kind mentioned
in section 135 or 136 of TCGA 1992 (company reconstructions etc), and
(b) because of section 137 of that Act, the exchange or arrangement involves a
disposal of the shares.
(4) For the meaning of “qualifying trading company”, see section 78.
69 Eligibility conditions
(1) These are the eligibility conditions mentioned in section 68(1)(b) that a company which
has subscribed for shares in a qualifying trading company must meet to be eligible for
share loss relief on the disposal of the shares.
(2) Condition A is that the subscribing company (“the investor”) is an investment company
on the date of the disposal of the shares (“the disposal date”).
(3) Condition B is that the investor has been an investment company—

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(a) for a continuous period of 6 years ending on the disposal date, or
(b) for a shorter continuous period ending on the disposal date and has not before
the beginning of that period been a trading company or an excluded company
(see section 90(1)).
(4) Condition C is that the investor was not associated with, or a member of the same group
as, the qualifying trading company at any time during the period—
(a) beginning with the date when the investor subscribed for the shares, and
(b) ending with the disposal date.
(5) For the purposes of condition C, two companies are associated with each other if—
(a) one controls the other, or
(b) both are under the control of the same person or persons.
(6) Sections 450 and 451 (which contain provision as to when a person is to be taken to
have control of a company) apply for the purposes of subsection (5).
70 Entitlement to claim
(1) This section applies where a company is eligible for share loss relief.
(2) The company may make a claim for the loss to be deducted in calculating for corporation
tax purposes the company's income—
(a) for the accounting period in which the loss is incurred, and
(b) if the claim so requires, for previous accounting periods so far as they fall
(wholly or partly) within the period of 12 months ending immediately before
the beginning of the accounting period in which the loss is incurred.
(3) The company may make a claim under subsection (2)(b) for any accounting period only
if the company was an investment company throughout that period.
(4) A claim for share loss relief must be made before the end of the period of two years
after the end of the accounting period in which the loss is incurred.
71 How relief works
(1) This subsection explains how deductions in respect of share loss relief claimed by a
company under section 70 are to be made.
Step 1
Deduct the loss in calculating the company's income for the accounting period in
which the loss is incurred.
Step 2
If not all of the loss can be deducted at Step 1, deduct the remaining loss in
calculating the company's income for any accounting period falling (wholly or
partly) within the 12 month period that ends immediately before the beginning of
the accounting period in which the loss is incurred.
(2) The amount of a deduction to be made at Step 2 for any accounting period is the
amount of the loss so far as it cannot be deducted under subsection (1) for a subsequent
accounting period.

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(3) Subsection (1) is subject to sections 72, 74(5) and 75 (which set limits on the amount
of share loss relief that may be obtained in particular cases).
(4) A deduction at Step 2 from the income of an accounting period may be made only after
all other deductions have been made from the income for that period in respect of share
loss relief given for an earlier loss.
(5) Deductions made on the basis of relief claimed under Part 7 of Schedule 15 to FA 2000
(relief for losses on disposal of shares to which investment relief is attributable) must,
in accordance with paragraph 70 of that Schedule, be made before making deductions
for share loss relief.
(6) A claim for share loss relief does not affect any claim for a deduction under TCGA
1992 for so much of the allowable loss as is not deducted under subsection (1).
72 Limit on deduction if accounting period falls partly within 12 month period
(1) This section applies if an accounting period falls partly within the period of 12 months
ending immediately before the beginning of the accounting period in which the loss is
incurred.
(2) The amount of the deduction under Step 2 in section 71(1) for the accounting period is
not to exceed an amount equal to the overlapping proportion of the company's income
of that period.
(3) The overlapping proportion is the same as the proportion that the part of the accounting
period falling within the 12 month period mentioned in subsection (1) bears to the whole
of the accounting period.
Shares: subscription and disposal
73 Subscription for shares
(1) This section has effect for the purposes of this Chapter.
(2) A company subscribes for shares in another company if they are issued to the company
by the other company in consideration of money or money's worth.
(3) If—
(a) a company has subscribed for, or is treated under this subsection as having
subscribed for, any shares, and
(b) any corresponding bonus shares are subsequently issued to the company,
the company is treated as having subscribed for the bonus shares.
(4) If—
(a) a company subscribed for any shares (“the original shares”) on a particular date,
and
(b) any corresponding bonus shares are treated as having been subscribed for by
the company under subsection (3),
the company is treated as having subscribed for the bonus shares on that date.

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74 Disposals of new shares
(1) This section applies if—
(a) a company disposes of shares (“the new shares”), and
(b) the new shares are, by virtue of section 127 of TCGA 1992 (reorganisation etc
treated as not involving disposal), identified with other shares (“the old shares”)
previously held by the company.
(2) The company is not eligible for share loss relief on the disposal of the new shares unless
condition A or B is met.
This is subject to section 87(3).
(3) Condition A is that the company would have been eligible for share loss relief on a
disposal of the old shares—
(a) if the company had incurred an allowable loss in disposing of them by way of
a bargain made at arm's length on the occasion of the disposal that would have
occurred but for section 127 of TCGA 1992, and
(b) where applicable, if this Chapter had then been in force.
(4) Condition B is that the company gave for the new shares consideration in money or
money's worth other than consideration of the kind mentioned in paragraph (a) or (b)
of section 128(2) of TCGA 1992 (“new consideration”).
(5) If the company relies on condition B, the amount of share loss relief on the disposal of
the new shares must not exceed the amount or value of the new consideration taken into
account as a deduction in calculating the amount of the loss incurred on the disposal.
75 Limits on relief
(1) Subsection (2) applies if—
(a) a company disposes of any shares for which it has subscribed in a qualifying
trading company (“qualifying shares”),
(b) those shares either—
(i) form part of a section 104 holding or a 1982 holding at the time of the
disposal, or
(ii) formed part of such a holding at an earlier time, and
(c) the company makes a claim under section 70 in respect of a loss incurred on
the disposal.
(2) The amount of share loss relief on the disposal is not to exceed the sums that would be
allowed as deductions in calculating the amount of the loss if the qualifying shares had
not formed part of the holding.
(3) Subsection (4) applies if—
(a) a company disposes of any qualifying shares,
(b) the qualifying shares, and other shares that are not capable of being qualifying
shares, are for the purposes of TCGA 1992 to be treated as acquired by a
single transaction by virtue of section 105(1)(a) of that Act (disposal of shares
acquired on same day etc), and
(c) the company makes a claim under section 70 in respect of a loss incurred on
the disposal.

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(4) The amount of share loss relief on the disposal is not to exceed the sums that would be
allowed as deductions in calculating the amount of the loss if—
(a) the qualifying shares were to be treated as acquired by a single transaction, and
(b) the other shares were not to be so treated.
(5) Subsection (6) applies if—
(a) a company (“the investor”) disposes of any qualifying shares,
(b) the qualifying shares (taken as a single asset), and other shares in the same
company that are not capable of being qualifying shares (taken as a single
asset), are for the purposes of TCGA 1992 to be treated as the same asset by
virtue of section 127 of that Act (reorganisation etc treated as not involving
disposal), and
(c) the investor makes a claim under section 70 in respect of a loss incurred on
the disposal.
References in this subsection and subsection (6) to other shares in the same company
include debentures of the same company.
(6) The amount of share loss relief on the disposal is not to exceed the sums that would be
allowed as deductions in calculating the amount of the loss if the qualifying shares and
the other shares in the same company were not to be treated as the same asset.
(7) In this section—
“section 104 holding” has the meaning given by section 104(3) of TCGA
1992, and
“1982 holding” has the meaning given by section 109(1) of that Act.
(8) For the purposes of this section and section 76, shares are not capable of being
qualifying shares at any time if—
(a) the company concerned acquired the shares otherwise than by subscription,
(b) condition C in section 78(4) was not met in relation to the issue of the shares, or
(c) condition D in section 78(5) would not be met if the shares were disposed of
at that time.
(9) For the purposes of subsection (5), shares are not capable of being qualifying shares at
any time if they are shares of a different class from the shares mentioned in paragraph (a)
of that subsection.
76 Disposal of shares forming part of mixed holding
(1) This section applies if a company disposes of shares forming part of a mixed holding
of shares, that is, a holding of shares in a company which includes—
(a) shares that are not capable of being qualifying shares, and
(b) other shares.
(2) Any question—
(a) whether a disposal by the company of shares forming part of the mixed holding
is of qualifying shares, or
(b) as to which of any qualifying shares acquired by the company at different times
such a disposal relates to,
is to be determined as provided by the following provisions of this section.

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(3) Any such question as is mentioned in subsection (2) is to be determined—
(a) except in a case falling within paragraph (b)—
(i) in accordance with subsection (4), and
(ii) in the case of shares which under that subsection are identified with
the whole or any part of a section 104 holding or a 1982 holding, in
accordance with subsection (5),
(b) in the case of a mixed holding which includes any shares—
(i) to which investment relief is attributable under Schedule 15 to FA 2000
(corporate venturing scheme), and
(ii) which have been held continuously (within the meaning of paragraph
97 of that Schedule) from the time they were issued until the disposal,
in accordance with subsection (6).
(4) For the purposes of subsection (3)(a)(i), the question is to be determined by identifying
the shares disposed of in accordance with sections 105 and 107 of TCGA 1992.
(5) For the purposes of subsection (3)(a)(ii), the question is to be determined by treating
the disposal and any previous disposal by the company out of the section 104 or 1982
holding as relating to shares acquired later rather than earlier.
(6) For the purposes of subsection (3)(b), the question is to be determined—
(a) as provided by paragraph 93 of Schedule 15 to FA 2000 (identification of shares
on a disposal of part of a holding where investment relief is attributable to any
shares in the holding held continuously by the disposing company), but
(b) as if the references in that paragraph to a disposal had the same meaning as in
the preceding provisions of this section.
(7) Any such question as is mentioned in subsection (2) which cannot be determined as
provided by subsections (3) to (6) is to be determined on a just and reasonable basis.
(8) In this section “holding” means any number of shares of the same class held by
one company in the same capacity, growing or diminishing as shares of that class are
acquired or disposed of.
For this purpose shares are not to be treated as being of the same class unless they are
so treated by the practice of a recognised stock exchange or would be so treated if dealt
in on such an exchange.
(9) In this section “section 104 holding”, “1982 holding” and “qualifying shares” have
the same meaning as in section 75.
77 Section 76: supplementary
(1) In a case to which section 127 of TCGA 1992 (reorganisation etc treated as not involving
disposal) applies (including a case where that section applies by virtue of an enactment
relating to chargeable gains), shares included in the new holding are treated for the
purposes of section 76 as acquired when the original shares were acquired.
(2) Any shares held or disposed of by a nominee or bare trustee for a company are treated
for the purposes of section 76 as held or disposed of by that company.

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(3) In this section “new holding” and “original shares” have the same meaning as in
section 127 of TCGA 1992 (or, as the case may be, that section as applied by the
enactment concerned).
Qualifying trading companies: the requirements
78 Qualifying trading companies
(1) For the purposes of this Chapter a qualifying trading company is a company which
meets each of conditions A to D.
(2) Condition A is that the company either—
(a) meets each of the following requirements on the date of the disposal—
(i) the trading requirement (see section 79),
(ii) the control and independence requirement (see section 81),
(iii) the qualifying subsidiaries requirement (see section 82), and
(iv) the property managing subsidiaries requirement (see section 83), or
(b) has ceased to meet any of those requirements at a time which is not more than
3 years before that date and has not since that time been an excluded company,
an investment company or a trading company.
(3) Condition B is that the company either—
(a) has met each of the requirements mentioned in condition A for a continuous
period of 6 years ending on that date or at that time, or
(b) has met each of those requirements for a shorter continuous period ending on
that date or at that time and has not before the beginning of that period been an
excluded company, an investment company or a trading company.
(4) Condition C is that the company—
(a) met the gross assets requirement (see section 84) both immediately before and
immediately after the issue of the shares in respect of which the share loss relief
is claimed, and
(b) met the unquoted status requirement (see section 85) at the relevant time within
the meaning of that section.
(5) Condition D is that the company has carried on its business wholly or mainly in the
United Kingdom throughout the period—
(a) beginning with the incorporation of the company or, if later, 12 months before
the shares in question were issued, and
(b) ending with the date of the disposal.
79 The trading requirement
(1) The trading requirement is that—
(a) the company, ignoring any incidental purposes, exists wholly for the purpose
of carrying on one or more qualifying trades, or
(b) the company is a parent company and the business of the group does not consist
wholly or as to a substantial part in the carrying on of non-qualifying activities.
(2) If the company intends that one or more other companies should become its qualifying
subsidiaries with a view to their carrying on one or more qualifying trades—

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(a) the company is treated as a parent company for the purposes of subsection (1)
(b), and
(b) the reference in subsection (1)(b) to the group includes the company and
any existing or future company that will be its qualifying subsidiary after the
intention in question is carried into effect.
This subsection does not apply at any time after the abandonment of that intention.
(3) For the purpose of subsection (1)(b) the business of the group means what would be
the business of the group if the activities of the group companies taken together were
regarded as one business.
(4) For the purpose of determining the business of a group, activities are ignored so far
as they are activities carried on by a mainly trading subsidiary otherwise than for its
main purpose.
(5) For the purposes of determining the business of a group, activities of a group company
are ignored so far as they consist in—
(a) the holding of shares in or securities of a qualifying subsidiary of the parent
company,
(b) the making of loans to another group company,
(c) the holding and managing of property used by a group company for the purpose
of one or more qualifying trades carried on by a group company, or
(d) the holding and managing of property used by a group company for the purpose
of research and development from which it is intended—
(i) that a qualifying trade to be carried on by a group company will be
derived, or
(ii) that a qualifying trade carried on or to be carried on by a group company
will benefit.
(6) Any reference in subsection (5)(d)(i) or (ii) to a group company includes a reference to
any existing or future company which will be a group company at any future time.
(7) In this section—
“excluded activities” has the meaning given by section 192 of ITA 2007 read
with sections 193 to 199 of that Act,
“group” means a parent company and its qualifying subsidiaries,
“group company”, in relation to a group, means the parent company or any
of its qualifying subsidiaries,
“incidental purposes” means purposes having no significant effect (other
than in relation to incidental matters) on the extent of the activities of the
company in question,
“mainly trading subsidiary” means a subsidiary which, apart from incidental
purposes, exists wholly for the purpose of carrying on one or more qualifying
trades, and any reference to the main purpose of such a subsidiary is to be read
accordingly,
“non-qualifying activities” means—
(a) excluded activities, and
(b) activities (other than research and development) carried on otherwise than
in the course of a trade,
“parent company” means a company that has one or more qualifying
subsidiaries,

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“qualifying subsidiary” is to be read in accordance with section 191 of ITA
2007,
“qualifying trade” has the meaning given by section 189 of that Act, and
“research and development” has the meaning given by section 1138 of this
Act.
(8) In sections 189(1)(b) and 194(4)(c) of ITA 2007 (as applied by subsection (7) for the
purposes of the definitions of “excluded activities” and “qualifying trade”) “period
B” means the continuous period that is relevant for the purposes of section 78(3).
(9) In section 195 of ITA 2007 (as applied by subsection (7) for the purpose of the definition
of “excluded activities”), references to the issuing company are to be read as references
to the company mentioned in subsection (1).
80 Ceasing to meet trading requirement because of administration etc
(1) A company is not regarded as ceasing to meet the trading requirement merely because
of anything done in consequence of the company or any of its subsidiaries being in
administration or receivership.
This has effect subject to subsections (2) and (3).
(2) Subsection (1) applies only if—
(a) the entry into administration or receivership, and
(b) everything done as a result of the company concerned being in administration
or receivership,
is for genuine commercial reasons, and is not part of a scheme or arrangement the main
purpose or one of the main purposes of which is the avoidance of tax.
(3) A company ceases to meet the trading requirement if before the time that is relevant
for the purposes of section 78(2)—
(a) a resolution is passed, or an order is made, for the winding up of the company
or any of its subsidiaries (or, in the case of a winding up otherwise than under
the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989 (S.I.
1989/2405 (N.I. 19)), any other act is done for the like purpose), or
(b) the company or any of its subsidiaries is dissolved without winding up.
This is subject to subsection (4).
(4) Subsection (3) does not apply if —
(a) the winding up is for genuine commercial reasons, and is not part of a scheme
or arrangement the main purpose or one of the main purposes of which is the
avoidance of tax, and
(b) the company continues, during the winding up, to be a trading company.
(5) References in this section to a company being “in administration” or “in receivership”
are to be read in accordance with section 252 of ITA 2007.
81 The control and independence requirement
(1) The control element of the requirement is that—
(a) the company must not control (whether on its own or together with any person
connected with it) any company which is not a qualifying subsidiary of the
company, and

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(b) no arrangements must be in existence by virtue of which the company could
fail to meet paragraph (a) (whether at a time during the continuous period that
is relevant for the purposes of section 78(3) or otherwise).
(2) The independence element of the requirement is that—
(a) the company must not—
(i) be a 51% subsidiary of another company, or
(ii) be under the control of another company (or of another company and
any other person connected with that other company), without being a
51% subsidiary of that other company, and
(b) no arrangements must be in existence by virtue of which the company could
fail to meet paragraph (a) (whether at a time during the continuous period that
is relevant for the purposes of section 78(3) or otherwise).
(3) This section is subject to section 87(3).
(4) In this section—
“arrangements” includes any scheme, agreement or understanding (whether
or not legally enforceable),
“control”, in subsection (1)(a), is to be read in accordance with sections 450
and 451 (but see section 1124 for the meaning of “control” in subsection (2)
(a)(ii)), and
“qualifying subsidiary” is to be read in accordance with section 191 of ITA
2007.
82 The qualifying subsidiaries requirement
(1) The qualifying subsidiaries requirement is that any subsidiary that the company has
must be a qualifying subsidiary of the company.
(2) In this section “qualifying subsidiary” is to be read in accordance with section 191 of
ITA 2007.
83 The property managing subsidiaries requirement
(1) The property managing subsidiaries requirement is that any property managing
subsidiary that the company has must be a qualifying 90% subsidiary of the company.
(2) In this section—
“property managing subsidiary” has the meaning given by section 188(2) of
ITA 2007, and
“qualifying 90% subsidiary” has the meaning given by section 190 of that
Act.
84 The gross assets requirement
(1) The gross assets requirement in the case of a single company is that the value of the
company's gross assets—
(a) must not exceed £7 million immediately before the shares in respect of which
the share loss relief is claimed are issued, and
(b) must not exceed £8 million immediately afterwards.

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(2) The gross assets requirement in the case of a parent company is that the value of the
group assets—
(a) must not exceed £7 million immediately before the shares in respect of which
the share loss relief is claimed are issued, and
(b) must not exceed £8 million immediately afterwards.
(3) The value of the group assets means the sum of the values of the gross assets of each
of the members of the group, ignoring any that consist in rights against, or shares in or
securities of, another member of the group.
(4) In this section—
“group” means a parent company and its qualifying subsidiaries,
“parent company” means a company that has one or more qualifying
subsidiaries,
“qualifying subsidiary” is to be read in accordance with section 191 of ITA
2007, and
“single company” means a company that does not have one or more
qualifying subsidiaries.
85 The unquoted status requirement
(1) The unquoted status requirement is that, at the time (“the relevant time”) at which the
shares in respect of which the share loss relief is claimed are issued—
(a) the company must be an unquoted company,
(b) there must be no arrangements in existence for the company to cease to be an
unquoted company, and
(c) there must be no arrangements in existence for the company to become a
subsidiary of another company (“the new company”) by virtue of an exchange
of shares, or shares and securities, if—
(i) section 87 applies in relation to the exchange, and
(ii) arrangements have been made with a view to the new company ceasing
to be an unquoted company.
(2) The arrangements referred to in subsection (1)(b) and (c)(ii) do not include
arrangements in consequence of which any shares, stocks, debentures or other securities
of the company or the new company are at any subsequent time—
(a) listed on a stock exchange that is a recognised stock exchange by virtue of an
order made under section 1005(1)(b) of ITA 2007, or
(b) listed on an exchange, or dealt in by any means, designated by an order made
for the purposes of section 184(3)(b) or (c) of that Act,
if the order was made after the relevant time.
(3) In this section—
“arrangements” includes any scheme, agreement or understanding (whether
or not legally enforceable),
“debenture” has the meaning given by section 738 of the Companies Act
2006, and
“unquoted company” has the meaning given by section 184(2) of ITA 2007.

50 Corporation Tax Act 2010 (c. 4) Part 4 – Loss relief Chapter 5 – Losses on disposal of shares Document Generated: 2011-03-30
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86 Power to amend requirements by Treasury order
The Treasury may by order make such amendments of sections 79 to 85 as they consider
appropriate.
Qualifying trading companies: supplementary
87 Relief after an exchange of shares for shares in another company
(1) This section and section 88 apply in relation to shares if—
(a) a company (“the new company”) in which the only issued shares are subscriber
shares acquires all the shares (“old shares”) in another company (“the old
company”),
(b) the consideration for the old shares consists wholly of the issue of shares (“new
shares”) in the new company,
(c) the consideration for the new shares of each description consists wholly of old
shares of the corresponding description,
(d) new shares of each description are issued to the holders of old shares of the
corresponding description in respect of and in proportion to their holdings, and
(e) by virtue of section 127 of TCGA 1992 as applied by section 135(3) of that Act
(company reconstructions etc), the exchange of shares is not to be treated as
involving a disposal of the old shares or an acquisition of the new shares.
In this subsection references to shares, except the first and that in the expression
“subscriber shares”, include securities.
(2) For the purposes of this Chapter the exchange of shares is not regarded as involving
any disposal of the old shares or any acquisition of the new shares.
(3) Nothing in—
(a) section 74(2) (disposal of new shares), and
(b) section 81 (the control and independence requirement),
applies in relation to such an exchange of shares, or shares and securities, as is
mentioned in subsection (1) or, in the case of section 81, arrangements with a view to
such an exchange.
(4) For the purposes of this section old shares and new shares are of a corresponding
description if, on the assumption that they were shares in the same company, they would
be of the same class and carry the same rights.
(5) References in section 88 to “old shares”, “new shares”, “the old company” and “the
new company” are to be read in accordance with this section.
88 Substitution of new shares for old shares
(1) Subsection (2) applies if, in the case of any new shares held by a company or by a
nominee for a company, the old shares for which they were exchanged were shares
which had been subscribed for by the company (“the investor”).
(2) This Chapter has effect in relation to any subsequent disposal or other event as if—
(a) the new shares had been subscribed for by the investor at the time when, and
for the amount for which, the old shares were subscribed for by the investor,

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(b) the new shares had been issued by the new company at the time when the old
shares were issued to the investor by the old company, and
(c) any requirements of this Chapter which were met at any time before the
exchange by the old company had been met at that time by the new company.
(3) Nothing in subsection (2) applies in relation to section 195(7) of ITA 2007 as applied
by section 79(7) above for the purpose of the definition of “excluded activities”.
89 Deemed time of issue for certain shares
(1) This section applies for the purposes of the following provisions—
section 78(5)(a),
section 84(1)(a) and (2)(a),
section 85(1), and
section 88(2)(b).
(2) If—
(a) any shares (“the original shares”) have been issued to a company, or are treated
under this subsection as having been issued to the company at a particular time,
and
(b) any corresponding bonus shares are subsequently issued to the company,
the bonus shares are treated as having been issued at the time the original shares were
issued to the company or are treated as having been so issued.
Interpretation
90 Interpretation of Chapter
(1) In this Chapter (subject to subsections (2) to (7))—
“bonus shares” means shares which are issued otherwise than for payment
(whether in cash or otherwise),
“corresponding bonus shares”, in relation to any shares, means bonus shares
which—
(a) are issued in respect of those shares, and
(b) are in the same company, are of the same class, and carry the same rights,
as those shares,
“excluded company” means a company which—
(a) has a trade which consists wholly or mainly of dealing in land,
in commodities or futures or in shares, securities or other financial
instruments,
(b) has a trade which is not carried on on a commercial basis and in such a
way that profits in the trade can reasonably be expected to be realised,
(c) is a holding company of a group other than a trading group, or
(d) is a building society or a registered industrial and provident society,
“group” (except in sections 79 and 84) means a company which has one or
more 51% subsidiaries together with that or those subsidiaries,
“holding company” means a company whose business consists wholly or
mainly in the holding of shares or securities of companies which are its 51%
subsidiaries,

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“investment company” means a company—
(a) whose business consists wholly or mainly in the making of investments,
and
(b) which derives the principal part of its income from the making of
investments,
but does not include the holding company of a trading group,
“registered industrial and provident society” means a society registered or
treated as registered under the Industrial and Provident Societies Act 1965 or
the Industrial and Provident Societies Act (Northern Ireland) 1969 (c. 24 (N.I.)),
“shares”—
(a) includes stock, but
(b) does not include shares or stock not forming part of a company's ordinary
share capital,
“share loss relief” has the meaning given by section 68(1),
“trading company” means a company other than an excluded company
which is—
(a) a company whose business consists wholly or mainly in the carrying on
of a trade or trades, or
(b) the holding company of a trading group, and
“trading group” means a group the business of whose members, when taken
together, consists wholly or mainly in the carrying on of a trade or trades.
(2) For the purposes of the definition of “corresponding bonus shares” in subsection (1),
shares are not treated as being of the same class unless they would be so treated if they
were—
(a) included in the official UK list, and
(b) admitted to trading on the London Stock Exchange.
(3) Except as provided by subsection (4), paragraph (b) of the definition of shares in
subsection (1) does not apply in the definition of “excluded company” in subsection (1)
or in sections 75(3) to (6), (8) and (9) and 87(1) to (4).
(4) Paragraph (b) of that definition applies in relation to the first reference to “shares” in
section 87(1).
(5) The definition of “shares” in subsection (1) does not apply in sections 79(5)(a), 84(3)
and 85(1)(c) and (2).
(6) For the purposes of the definition of “trading group” in subsection (1), any trade carried
on by a subsidiary which is an excluded company is treated as not constituting a trade.
(7) For the purposes of this Chapter a disposal of shares which results in an allowable loss
for the purposes of corporation tax on chargeable gains is treated as made at the time
when the disposal is made or treated as made for the purposes of TCGA 1992.

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CHAPTER 6
LOSSES FROM MISCELLANEOUS TRANSACTIONS
91 Relief for losses from miscellaneous transactions
(1) This section applies if, in an accounting period (“the loss-making period”), a company
makes a loss in a transaction within subsection (2).
(2) A transaction is within this subsection if income arising from it would be miscellaneous
income of the company.
(3) Relief for the loss is given to the company under this section.
(4) For this purpose the company's miscellaneous income of the loss-making period is
reduced by the loss.
(5) Subsection (6) applies to the loss so far as it cannot be used under subsection (4) to
reduce the company's income.
(6) The loss—
(a) is carried forward to subsequent accounting periods, and
(b) the company's miscellaneous income of any such period is reduced by the loss
so far as it cannot be used under this paragraph to reduce the income of an
earlier period.
(7) A company's miscellaneous income is so much of the company's income which—
(a) arises from transactions, and
(b) is chargeable to corporation tax under or by virtue of any provision to which
section 1173 applies, other than regulation 18(4) of the Offshore Funds (Tax)
Regulations 2009 (S.I. 2009/3001) (offshore income gains).
CHAPTER 7
W RITE -OFF OF GOVERNMENT INVESTMENT
92 Loss relief to be reduced if government investment is written off
(1) This section applies if an amount of government investment in a company (“the written-
off amount”) is written off.
(2) The written-off amount is set off against the company's carry-forward losses as at the
end of the accounting period ending last before the day of the write-off.
(3) If the written-off amount exceeds those losses, the excess is set off against the company's
carry-forward losses as at the end of the next accounting period and so on until the
whole of the written-off amount has been set off.
(4) In this Chapter “company” has the meaning given by section 1121 but does not include
an unincorporated association.
(5) This section needs to be read with—
section 93 (which applies if the company is in a group of companies),

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section 94 (which explains what is meant by government investment being written
off and how the written-off amount is calculated), and
section 95 (which explains what is meant by carry-forward losses).
93 Groups of companies
(1) This section applies if—
(a) at the end of an accounting period a company in which an amount of
government investment is written off is in a group of companies, and
(b) under section 92(2) or (3) an amount could be set off against the company's
carry-forward losses as at the end of that period (or could be so set off if there
were enough of those losses).
(2) The amount may be set off (wholly or partly) against the carry-forward losses of one or
more companies within subsection (3), as may be just and reasonable.
(3) A company (other than the company referred to in subsection (1)(a)) is within this
subsection if at the end of the accounting period it is in the group of companies.
(4) A “group of companies” consists of a company that has one or more 51% subsidiaries,
together with that or those subsidiaries.
94 Cases in which government investment is written off
(1) Government investment in a company is written off if any of the following occurs in
relation to the company. This is subject to subsection (2).
Case 1
The company's liability to repay any money lent to it out of public funds by a
Minister is extinguished. In this case the written-off amount is the amount of the
liability extinguished and the write-off occurs when the liability is extinguished.
Case 2
Any of the company's shares for which a Minister has subscribed out of public
funds are cancelled. In this case the written-off amount is the amount subscribed
for the shares and the write-off occurs when the shares are cancelled.
Case 3
The company's commencing capital debt (see subsection (3)) is reduced otherwise
than by being paid off or its public dividend capital (see subsection (4)) is reduced
otherwise than by being repaid (including, in either case, a reduction to nil). In
this case the written-off amount is the amount of the reduction and the write-off
occurs when the reduction occurs.
(2) The written-off amount is reduced so far as it is replaced by—
(a) money lent, or a payment made, out of public funds, or
(b) shares subscribed for by a Minister for money or money's worth.
(3) “Commencing capital debt” means a debt to a Minister assumed as such under an
enactment.
(4) “Public dividend capital” means an amount paid by a Minister—
(a) under an enactment in which that amount is so described, or

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(b) under an enactment corresponding to an enactment in which a payment made
on similar terms to another body is so described.
(5) In this section—
“enactment” includes an Act of the Scottish Parliament, and
“Minister” means a Minister of the Crown, the Scottish Ministers or a
Northern Ireland department.
95 Meaning of “carry-forward losses”
(1) A company's carry-forward losses as at the end of an accounting period are as follows.
Type 1
Losses of the company to be carried forward under section 45, 62 or 66 to the next
accounting period. These include losses to be treated as expenses of management
of the company under section 63 for the next accounting period.
Type 2
Any excess of the company to be carried forward for deduction to the next
accounting period under section 1223(3) of CTA 2009.
Type 3
Any excess of the company to be carried forward for deduction to the next
accounting period under section 260(2) of CAA 2001.
Type 4
Any qualifying charitable donations made by the company so far as they exceed
the company's profits of the accounting period and are available for surrender for
the next accounting period under Part 5 (group relief).
Type 5
Allowable losses of the company available under section 8 of TCGA 1992 so far
as not allowed for the accounting period or any previous accounting period.
(2) For the purposes of section 92(2) an amount is excluded from a company's carry-
forward losses if, before the day of the write-off, a claim is made in relation to the
amount under section 37 or Part 5 (group relief) of this Act or section 260(3) of CAA
2001.
(3) But, for the purposes of section 92(3), any such claim made on or after that day is to
be disregarded in determining the company's carry-forward losses as at the end of any
accounting period.
(4) The set off of an amount against a company's carry-forward losses as at the end of any
accounting period is to be done—
first, against those within Types 1 to 4, and
second, against those within Type 5.
96 Interaction with other tax provisions
(1) A company, in calculating its profits of a trade for corporation tax purposes, is
not prevented from deducting a sum by reason only that an amount of government
investment in the company is written off.

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(2) Subsection (3) applies for the purposes of section 50 of TCGA 1992 and section 532 of
CAA 2001 in their application in relation to a company.
(3) Expenditure is not met by a public body (as defined in section 532(2) of CAA 2001) by
reason only that an amount of government investment in the company is written off.
(4) Section 464(1) of CTA 2009 does not prevent section 92 of this Act from applying
if the writing-off of an amount of government investment in a company involves the
extinguishment (in whole or in part) of a liability under a loan relationship.
PART 5
GROUP RELIEF
CHAPTER 1
INTRODUCTION
97 Introduction to Part
(1) This Part—
(a) allows a company to surrender losses and other amounts, and
(b) enables, in certain cases involving groups or consortiums of companies, other
companies to claim corporation tax relief for the losses and other amounts that
are surrendered.
(2) The corporation tax relief mentioned in subsection (1) is called “group relief”.
(3) Chapter 2 allows a company within the charge to corporation tax to surrender losses
and other amounts it has for an accounting period.
(4) Chapter 3 allows a non-UK resident company that is resident or carrying on a trade in
the European Economic Area to surrender losses and other amounts it has for a period.
(5) Chapter 4 sets out how a company may claim group relief in respect of losses and other
amounts surrendered, how group relief is given and limitations on the amount of group
relief to be given on a claim.
(6) Chapter 5 explains certain key concepts for the purposes of group relief, including (in
particular) how to determine if a company is a member of a group of companies or is
a member of, or is owned by, a consortium.
(7) Chapter 6 contains provision about persons holding equity in companies and about
distributions of companies' profits and assets (which is relevant for the purposes of
sections 143(3)(b) and (c) and 144(3)(b) and (c) (in Chapter 4) and section 151(4)(a)
and (b) (in Chapter 5)).
(8) Chapter 7 contains definitions that apply for the purposes of this Part and miscellaneous
provisions.
(9) For provision about making claims for group relief, see Part 8 of Schedule 18 to FA
1998 (which includes provision in paragraph 76 of that Schedule for the making of

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assessments or other adjustments if group relief has been given which is, or has become,
excessive).
CHAPTER 2
SURRENDER OF COMPANY 'S LOSSES ETC FOR AN ACCOUNTING PERIOD
Introduction
98 Overview of Chapter
(1) This Chapter allows a company to surrender losses and other amounts it has for an
accounting period.
(2) Sections 99 to 104 set out the basic provisions about the surrendering of losses and
other amounts.
(3) Sections 105 to 110 place restrictions on the surrendering of losses and other amounts.
Basic provisions about surrendering losses and other amounts
99 Surrendering of losses and other amounts
(1) This section applies if a company has one or more of the following for an accounting
period—
(a) a trading loss (see section 100),
(b) a capital allowance excess (see section 101),
(c) a deficit within Chapter 16 of Part 5 of CTA 2009 (non-trading deficit on loan
relationship),
(d) amounts allowable as qualifying charitable donations (see Part 6),
(e) a UK property business loss (see section 102),
(f) management expenses (see section 103), and
(g) a non-trading loss on intangible fixed assets (see section 104).
(2) The company may surrender the losses and other amounts under this Chapter so far as
the losses and other amounts are eligible for corporation tax relief (apart from this Part).
(3) Subsection (2) applies in relation to losses and other amounts within subsection (1)
(a) to (c) even if the company has other profits in the accounting period mentioned in
subsection (1) from which the losses and other amounts could be deducted.
(4) But so far as losses and other amounts are within subsection (1)(d) to (g), subsection (2)
is subject to the restriction in section 105.
(5) Subsection (2) is also subject to—
(a) sections 106 to 110 (which place further restrictions on what the surrendering
company may surrender),
(b) sections 432 and 433 (which restrict relief for expenses treated as incurred
under Chapter 3 or 4 of Part 9), and
(c) sections 887 and 888 (which restrict relief in certain cases involving partnership
losses in a business of leasing plant or machinery).

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(6) Under paragraph 70(1) of Schedule 18 to FA 1998, the company surrenders losses or
other amounts, so far as eligible for surrender under this Chapter, by consenting to
one or more claims for group relief in relation to the amounts (see Requirement 1 in
section 130).
(7) In this Part, in relation to losses or other amounts within subsection (1) that a company
has for an accounting period—
“the surrenderable amounts” means the losses or other amounts so far as
eligible for surrender under this Chapter,
“surrendering company” means the company that has the losses or other
amounts, and
“the surrender period” means the accounting period for which the company
has the losses or other amounts.
100 Meaning of “trading loss”
(1) In section 99(1)(a) “trading loss” means a loss made in a trade in the surrender period.
(2) But it does not include—
(a) a loss made in a trade carried on wholly outside the United Kingdom, or
(b) a loss that is not eligible for relief under section 37 as a result of section 44 or 48.
101 Meaning of “capital allowance excess”
(1) In section 99(1)(b) “capital allowance excess” means an excess of the kind mentioned
in section 260(1) of CAA 2001 for the surrender period.
(2) In determining if there is such an excess for the surrender period and, if there is, its
amount, apply section 260(1) of CAA 2001 but subject to subsections (3) and (4).
(3) Capital allowances brought forward from previous accounting periods are to be ignored.
(4) The reference in section 260(1) of CAA 2001 to a description of the company's income
is to be read as a reference to that description of income before deductions for—
(a) losses of any accounting period other than the surrender period, or
(b) capital allowances.
102 Meaning of “UK property business loss”
(1) In section 99(1)(e) “UK property business loss” means a loss made in a UK property
business in the surrender period.
(2) But it does not include a loss treated as made in the surrender period as a result of
section 62(5).
103 Meaning of “management expenses”
(1) In section 99(1)(f) “management expenses” means expenses that are deductible for the
surrender period under section 1219 of CTA 2009.
(2) But it does not include—

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(a) expenses that are deductible for the surrender period as a result of section 1223
of CTA 2009, or
(b) amounts treated as expenses deductible for the surrender period as a result of
section 63 above.
104 Meaning of “non-trading loss on intangible fixed assets”
(1) In section 99(1)(g) “non-trading loss on intangible fixed assets” is to be read in
accordance with Part 8 of CTA 2009.
(2) But so much of such a loss as is made up of an amount carried forward under
section 753(3) of CTA 2009 is excluded from the scope of section 99(1)(g).
Restrictions on losses and other amounts that may be surrendered
105 Restriction on surrender of losses etc within section 99(1)(d) to (g)
(1) This section applies if the surrendering company has for the surrender period losses or
other amounts within section 99(1)(d) to (g) (“relevant amounts”) that are eligible for
corporation tax relief (apart from this Part).
(2) The surrendering company may not surrender any relevant amount under this Chapter
unless the total of the relevant amounts exceeds the surrendering company's gross
profits of the surrender period.
(3) If the total of the relevant amounts does exceed those gross profits—
(a) the surrendering company may surrender relevant amounts, but
(b) the total amount that may be surrendered is limited to the amount of the excess.
(4) If the surrendering company surrenders relevant amounts, the amount surrendered is
treated as consisting of—
(a) first, donations within section 99(1)(d),
(b) second, losses within section 99(1)(e),
(c) third, expenses within section 99(1)(f), and
(d) fourth, losses within section 99(1)(g).
(5) For the purposes of this section the surrendering company's gross profits of the
surrender period are its profits for that period without any of the following—
(a) a deduction in respect of any of the kinds of thing mentioned in section 99(1),
(b) a deduction falling to be made in respect of losses, allowances or other amounts
of any other period (whether or not in respect of a kind of thing so mentioned),
and
(c) a deduction falling to be made by virtue of section 63 of this Act or
section 1223(3) of CTA 2009 (other amounts carried forward).
(6) This section is subject to section 305 (oil activities: availability of group relief against
ring fence profits).
106 Restriction on losses etc surrenderable by UK resident
(1) This section applies if the surrendering company is UK resident.

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(2) The surrendering company may not surrender a loss or other amount under this Chapter
so far as the loss or other amount—
(a) is attributable to a permanent establishment through which the company carries
on a trade outside the United Kingdom (see subsection (3)), and
(b) is, or represents, an amount within subsection (5).
(3) A loss or other amount is attributable to a permanent establishment of the surrendering
company if (ignoring this section) the amount could be included in the company's
surrenderable amounts for the surrender period if those amounts were determined—
(a) by reference to that establishment alone, and
(b) by applying, in relation to that establishment, principles corresponding in all
material respects to those mentioned in subsection (4).
(4) The principles are those that would be applied for corporation tax purposes in
determining an equivalent loss or other amount in the case of a permanent establishment
through which a non-UK resident company carries on a trade in the United Kingdom.
(5) An amount is within this subsection if, for the purposes of non-UK tax (see section 187)
chargeable under the law of the territory in which the permanent establishment is
situated, the amount is (in any period) deductible from or otherwise allowable against
non-UK profits (see section 108) of a person other than the surrendering company.
(6) Subsection (7) applies for the purposes of subsection (5) if, in order to determine if an
amount is deductible or otherwise allowable for the purposes of non-UK tax chargeable
under the law of a territory, it is necessary under that law to know if the amount (or
a corresponding amount) is deductible or otherwise allowable for tax purposes in the
United Kingdom.
(7) The amount is to be treated as deductible or otherwise allowable for the purposes of
the non-UK tax chargeable under the law of the territory concerned if (and only if) the
surrendering company is treated as resident in that territory for the purposes of the non-
UK tax.
107 Restriction on losses etc surrenderable by non-UK resident
(1) This section applies if the surrendering company is a non-UK resident company
carrying on a trade in the United Kingdom through a permanent establishment.
(2) The surrendering company may surrender a loss or other amount under this Chapter
only so far as conditions A, B and C are met in relation to the loss or other amount.
(3) Condition A is that the loss or other amount is attributable to activities of the
surrendering company in respect of which it is within the charge to corporation tax for
the surrender period.
(4) Condition B is that the loss or other amount is not attributable to activities of the
surrendering company that are double taxation exempt for the surrender period (see
section 186).
(5) Condition C is that—
(a) the loss or other amount does not correspond to, and is not represented in, an
amount within subsection (6), and
(b) no amount brought into account in calculating the loss or other amount
corresponds to, or is represented in, an amount within subsection (6).

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(6) An amount is within this subsection if, for the purposes of non-UK tax chargeable
under the law of a territory, the amount is (in any period) deductible from or otherwise
allowable against non-UK profits of any person.
(7) But an amount is not to be taken to be within subsection (6) by reason only that it is—
(a) an amount of profits brought into account for the purpose of being excluded
from non-UK profits of the person, or
(b) an amount brought into account in calculating an amount of profits brought into
account as mentioned in paragraph (a).
(8) Subsection (9) applies for the purposes of subsection (6) if, in order to determine if an
amount is deductible or otherwise allowable for the purposes of non-UK tax chargeable
under the law of a territory, it is necessary under that law to know if the amount (or
a corresponding amount) is deductible or otherwise allowable for tax purposes in the
United Kingdom.
(9) The amount is to be treated as deductible or otherwise allowable for the purposes of the
non-UK tax chargeable under the law of the territory concerned.
108 Meaning of “non-UK profits”
(1) In sections 106 and 107 “non-UK profits”, in relation to a person, means—
(a) amounts within subsection (2), or
(b) amounts taken into account in calculating amounts within subsection (2).
(2) Amounts are within this subsection if they—
(a) are taken for the purposes of the non-UK tax in question to be the amount of
the profits, income or gains on which (after allowing for deductions) the person
is charged with that tax, and
(b) are not amounts corresponding to, and are not represented in, the total profits
of any person of any accounting period.
(3) For the purposes of subsection (2)(b) amounts that arise from activities of a non-
UK resident company that are double taxation exempt for an accounting period (see
section 186) are excluded from the company's total profits of that period.
109 Restriction on losses etc surrenderable by dual resident
(1) This section applies if in the surrender period the surrendering company is UK resident
and is also within a charge to non-UK tax under the law of a territory because—
(a) it derives its status as a company from that law,
(b) its place of management is in that territory, or
(c) it is for some other reason treated under that law as resident in that territory for
the purposes of that tax.
(2) If condition A, B or C is met, the surrendering company may not surrender any losses
or other amounts under this Chapter.
(3) Condition A is that the surrendering company is not a trading company throughout the
surrender period.

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(4) Condition B is that in the surrender period the surrendering company carries on a trade
of such a description that the company's main function, or one of its main functions,
consists of one or more of the following activities.
Activity 1
Acquiring and holding shares, securities or investments of any other kind (whether
directly or indirectly).
Activity 2
Making, under loan relationships, payments in relation to which debits fall to be
brought into account for the purposes of Part 5 of CTA 2009.
Activity 3
Making payments which are qualifying charitable donations.
Activity 4
Making payments similar to those within Activity 3 but which are deductible in
calculating the profits of the surrendering company for corporation tax purposes.
Activity 5
Obtaining funds for the purposes of, or otherwise in connection with, any of
Activities 1 to 4.
(5) Condition C is that in the surrender period the surrendering company carries on one or
more of Activities 1 to 5—
(a) to an extent that does not appear to be justified by any trade which it carries
on, or
(b) for a purpose that does not appear to be appropriate to any such trade.
110 Restriction on surrender of losses etc from alternative finance arrangements
(1) This section applies if the surrendering company is prevented from obtaining a
deduction in respect of an amount by section 520 of CTA 2009 (provision not at arm's
length: non-deductibility of relevant return).
(2) The amount may not be surrendered under this Chapter.
CHAPTER 3
SURRENDERS MADE BY NON -UK RESIDENT COMPANY RESIDENT OR TRADING IN THE EEA
Introduction
111 Overview of Chapter
(1) This Chapter allows a non-UK resident company that is resident or carrying on a trade in
the European Economic Area to surrender losses and other amounts it has for a period.
(2) Section 113 sets out the basic provisions about the surrendering of losses and other
amounts.

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(3) Sections 114 to 121 set out conditions that must be met if losses and other amounts are
to be surrendered (see Step 2 in section 113(2)).
(4) Sections 122 to 128 set out other rules, assumptions and exclusions (see Steps 3 and
5 in section 113(2)).
112 EEA related definitions
In this Chapter—
“EEA accounting period” means a period for which an EEA related company
has a loss or other amount,
“EEA amount” has the meaning given under Step 1 of section 113(2),
“EEA related company” means a non-UK resident company that—
(a) is resident in an EEA territory, or
(b) is not resident in any EEA territory but is carrying on a trade in an EEA
territory through a permanent establishment, and
“EEA territory”, in relation to any time, means a territory outside the United
Kingdom that is within the European Economic Area at that time.
Basic provisions about surrendering losses and other amounts
113 Steps to determine extent to which loss etc can be surrendered
(1) This section applies if an EEA related company has a loss or other amount for an EEA
accounting period.
(2) Take the following steps to determine the extent to which the EEA related company
may surrender the loss or other amount under this Chapter.
Step 1
Determine the extent to which (if at all) the loss or other amount is eligible for
corporation tax relief (apart from this Chapter). The loss or other amount may be
surrendered only so far as it is not so eligible. A loss or other amount, so far as
surrenderable under this Step, is referred to in this Chapter as an “EEA amount”.
Step 2
Determine the extent to which the EEA amount in question meets—
(a) the equivalence condition (see section 114),
(b) the EEA tax loss condition (see sections 115 and 116),
(c) the qualifying loss condition (see sections 117 to 120), and
(d) the precedence condition (see section 121).
References to “the qualifying part of the EEA amount” are references to the EEA
amount so far as it meets all those conditions.
Step 3
Recalculate the EEA amount in accordance with section 128 using the
assumptions set out in sections 123 to 126. The result is called “the recalculated
EEA amount”.
Step 4

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Determine the amount that may be surrendered. That amount is—
(a) the qualifying part of the EEA amount, or
(b) if less, an amount equal to the relevant proportion of the recalculated EEA
amount.
If the recalculated EEA amount is an amount of income or other profits, the
amount that may be surrendered is nil.“The relevant proportion” is the same as the
proportion that the qualifying part of the EEA amount bears to the EEA amount.
Step 5
Determine the extent to which (if at all) the amount resulting from Step 4 is
excluded by section 127. If any of that amount is excluded, reduce it accordingly.
(3) If in recalculating the EEA amount at Step 3 it is to be assumed under section 125 that
there are two or more accounting periods in relation to the EEA accounting period,
the total of the amounts apportioned to the assumed accounting periods available for
surrender under subsection (2) is not to exceed the qualifying part of the EEA amount.
(4) Under paragraph 70(1) of Schedule 18 to FA 1998, an EEA related company surrenders
an EEA amount, so far as eligible for surrender under this Chapter, by consenting to
one or more claims for group relief in relation to the amount (see Requirement 1 in
section 135).
(5) In this Part, in relation to losses or other amounts that an EEA related company has for
an EEA accounting period—
“the surrenderable amounts” means the losses or other amounts so far as
eligible for surrender under this Chapter,
“surrendering company” means the company that has the losses or other
amounts, and
“the surrender period” means the assumed accounting period under
section 125 for which the company is taken to have the surrenderable amounts.
Conditions that must be met
114 The equivalence condition
An EEA amount meets the equivalence condition so far as it corresponds (in all material
respects) to a loss or other amount within section 99(1)(a) to (g).
115 The EEA tax loss condition: companies resident in EEA territory
(1) In the case of a surrendering company that is resident in an EEA territory (“the resident
EEA territory”), an EEA amount meets the EEA tax loss condition so far as—
(a) subsection (2) applies to the amount, and
(b) the amount is not excluded by subsection (3).
(2) This subsection applies to the EEA amount so far as it is calculated in accordance
with the rules of the resident EEA territory that are applicable for determining, in the
surrendering company's case, the amount of any loss or other amount eligible for relief
from any non-UK tax (see section 187) chargeable under the law of the resident EEA
territory.

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(3) The EEA amount is excluded so far as, for corporation tax purposes, it is attributable to
a permanent establishment through which the surrendering company carries on a trade
in the United Kingdom.
116 The EEA tax loss condition: companies not resident in EEA territory
(1) In the case of a surrendering company that is not resident in any EEA territory but
is carrying on a trade in an EEA territory (“the relevant EEA territory”) through a
permanent establishment, an EEA amount meets the EEA tax loss condition so far as—
(a) subsection (2) applies to the amount, and
(b) the amount is not excluded by subsection (3).
(2) This subsection applies to the EEA amount so far as it is calculated in accordance
with the rules in the relevant EEA territory that are applicable for determining, in the
surrendering company's case, the amount of any loss or other amount eligible for relief
from any non-UK tax chargeable under the law of the relevant EEA territory.
(3) The EEA amount is excluded so far as it is attributable to activities of the surrendering
company that are subject to relieving arrangements.
(4) “Relieving arrangements” means arrangements within subsection (5) that have the
effect mentioned in subsection (6) (or would have that effect if a claim were made).
(5) Arrangements are within this subsection if they are made with a view to affording relief
from double taxation in relation to—
(a) any non-UK tax chargeable under the law of the relevant EEA territory and any
non-UK tax chargeable under the law of any other territory, or
(b) any non-UK tax chargeable under the law of the relevant EEA territory and
United Kingdom income or corporation tax.
(6) The effect referred to in subsection (4) is that the income or gains arising for the
EEA accounting period from the activities are ignored in calculating the surrendering
company's profits, income or gains chargeable to non-UK tax under the law of the
relevant EEA territory for that period.
117 The qualifying loss condition: general
(1) An EEA amount meets the qualifying loss condition so far as sections 118, 119 and
120 apply to it.
(2) In this section and sections 118 to 120, “the relevant EEA territory” means—
(a) the EEA territory in which the surrendering company is resident, or
(b) (as the case may be) the EEA territory in which the surrendering company
carries on a trade through a permanent establishment.
(3) In sections 118 and 119 “relevant non-UK tax” means any non-UK tax chargeable
under the law of the relevant EEA territory or any other resident territory.
(4) A “resident territory” is—
(a) if the surrendering company is resident in an EEA territory and is also resident
in another territory outside the United Kingdom, that other territory, or
(b) if the surrendering company is not resident in any EEA territory, the territory
(or territories) in which it is resident.

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118 The qualifying loss condition: relief for current and previous periods
(1) This section applies to an EEA amount so far as subsections (2) and (3) apply to it (but
subject to subsection (4)).
(2) This subsection applies to the EEA amount so far as, for the purposes of any relevant
non-UK tax, the EEA amount cannot be taken into account in calculating any profits,
income or gains that—
(a) arise in the EEA accounting period or any previous period to the surrendering
company or any other person, and
(b) are chargeable to that tax for the EEA accounting period or any previous period.
(3) This subsection applies to the EEA amount so far as, for the purposes of any relevant
non-UK tax, the EEA amount cannot be relieved in the EEA accounting period or any
previous period—
(a) by the payment of a credit,
(b) by the elimination or reduction of a tax liability, or
(c) in any other way.
(4) This section applies to the EEA amount (or a part of it) only if every step is taken
(whether by the surrendering company or any other person) to secure that the EEA
amount (or part) is—
(a) taken into account as mentioned in subsection (2), or
(b) relieved as mentioned in subsection (3).
119 The qualifying loss condition: relief for future periods
(1) This section applies to an EEA amount so far as subsections (2) and (3) apply to it.
(2) This subsection applies to the EEA amount so far as, for the purposes of any relevant
non-UK tax, the EEA amount cannot be taken into account in calculating any profits,
income or gains that—
(a) might arise in any period after the EEA accounting period to the surrendering
company or any other person, and
(b) (if there were any) would be chargeable to that tax for any period after the EEA
accounting period.
(3) This subsection applies to the EEA amount so far as, for the purposes of any relevant
non-UK tax, the EEA amount cannot be relieved in any period after the EEA accounting
period—
(a) by the payment of a credit,
(b) by the elimination or reduction of a tax liability, or
(c) in any other way.
(4) The determination as to the extent to which the EEA amount—
(a) cannot be taken into account as mentioned in subsection (2), or
(b) cannot be relieved as mentioned in subsection (3),
is to be made as at the time immediately after the end of the EEA accounting period.

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120 The qualifying loss condition: non-UK tax relief in another territory
(1) This section applies to an EEA amount so far as it is not excluded by subsection (2)
or (3).
(2) The EEA amount is excluded so far as, for the purposes of any non-UK tax chargeable
under the law of any territory other than the relevant EEA territory, it has been taken
into account in calculating any profits, income or gains that—
(a) have arisen in any period to the surrendering company or any other person, and
(b) were chargeable to that tax for the period (or would have been so chargeable
had the EEA amount not been so taken into account).
(3) The EEA amount is excluded so far as, for the purposes of any non-UK tax chargeable
under the law of any territory other than the relevant EEA territory, it has been relieved
in any period—
(a) by the payment of a credit,
(b) by the elimination or reduction of a tax liability, or
(c) in any other way.
121 The precedence condition
(1) An EEA amount meets the precedence condition so far as no relief can be given for it
in any territory which—
(a) is outside the United Kingdom,
(b) is not the relevant EEA territory (as defined by section 117(2)), and
(c) is within subsection (2).
(2) A territory is within this subsection if—
(a) a company resident in the territory owns (directly or indirectly) ordinary share
capital in the surrendering company,
(b) a UK resident company owns (directly or indirectly) ordinary share capital in
the company resident in the territory,
(c) the surrendering company is a 75% subsidiary of the UK resident company, and
(d) the surrendering company is not such a subsidiary as a result of its being a 75%
subsidiary of another UK resident company.
(3) In subsection (1) the reference to relief being given in any territory is a reference to
relief being given—
(a) by taking the EEA amount (or a part of it) into account in calculating any profits,
income or gains of any person chargeable to non-UK tax under the law of the
territory,
(b) by the payment of a credit to any person under that law,
(c) by the elimination or reduction of a tax liability of any person under that law, or
(d) in any other way.
(4) Chapter 5 explains how to determine if a company is a 75% subsidiary of another
company.

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Other rules, assumptions and exclusions
122 Assumptions to be made in recalculating EEA amount
Sections 123 to 126 apply for the purpose of recalculating the EEA amount at Step 3
in section 113.
123 Assumptions as to UK residence
(1) Assume that the surrendering company is UK resident throughout the EEA accounting
period.
(2) But this does not require it to be assumed—
(a) that there is any change in the place or places at which the surrendering
company carries on its activities (although see section 124), or
(b) that the surrendering company ceases to be UK resident at the end of the EEA
accounting period.
(3) Assume that the surrendering company becomes UK resident (and, therefore, within
the charge to corporation tax) at the beginning of the EEA accounting period.
124 Assumptions as to places in which activities carried on
(1) If during the EEA accounting period the surrendering company carries on a trade wholly
or partly in the relevant EEA territory, assume that the trade is carried on wholly or
partly in the United Kingdom.
(2) If the surrendering company holds any estate, interest or rights in or over land in the
relevant EEA territory, assume that the land is in the United Kingdom.
(3) For the purposes of subsection (2) the reference to holding an estate, interest or rights
in or over land in the relevant EEA territory is to be read so as to produce the result
that most closely corresponds with that produced by applying those concepts of law in
relation to a UK property business or land in the United Kingdom.
(4) In this section “the relevant EEA territory” means—
(a) the EEA territory in which the surrendering company is resident, or
(b) (as the case may be) the EEA territory in which the surrendering company
carries on a trade through a permanent establishment.
125 Assumptions as to accounting periods
(1) Assume that an accounting period of the surrendering company begins at the beginning
of the EEA accounting period.
(2) Assume that the accounting period ends—
(a) when the EEA accounting period ends, or
(b) if earlier, at the end of 12 months.
(3) If the accounting period ends before the end of the EEA accounting period, assume that
a further accounting period then begins and so on until the EEA accounting period ends.
(4) Assume that any further accounting period ends—
(a) at the end of 12 months, or

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(b) if earlier, when the EEA accounting period ends.
126 Assumptions in relation to capital allowances
(1) This section applies if, before the EEA accounting period, the surrendering company
incurs capital expenditure on the provision of plant or machinery for the purposes of
any activity.
(2) For the purposes of Part 2 of CAA 2001 assume that the plant or machinery—
(a) was provided for purposes wholly other than those of the activity, and
(b) was not brought into use for the purposes of the activity until the beginning of
the EEA accounting period,
and section 13 of CAA 2001 is to apply accordingly.
(3) This section is to be read as if contained in Part 2 of CAA 2001.
127 Amounts excluded because of certain arrangements
(1) An amount (or part of an amount) resulting from Step 4 in section 113 is excluded if—
(a) it is not attributable for corporation tax purposes to any permanent
establishment through which the surrendering company carries on a trade in
the United Kingdom, and
(b) the following condition is met.
(2) The condition is that the amount (or part)—
(a) would not have resulted from Step 4 but for any arrangements within
subsection (3), or
(b) would not have arisen to the surrendering company but for any such
arrangements.
(3) Arrangements are within this subsection if their main purpose, or one of their main
purposes, is to secure that the amount (or part) may be surrendered for the purposes
of group relief.
(4) “Arrangements” includes any agreement, understanding, scheme, transaction or series
of transactions (whether or not legally enforceable).
128 Rules for recalculating EEA amount
(1) For the purposes of Step 3 in section 113 the EEA amount is to be recalculated in
accordance with any provision made by or under the Corporation Tax Acts—
(a) that applies for the purpose of calculating for corporation tax purposes losses
or other amounts to which the EEA amount corresponds, or
(b) that otherwise affects in any way the amount of those losses or other amounts
that is eligible for corporation tax relief.
(2) For the purposes of subsection (1) the Treasury may by regulations provide for the
modification of any provision made by or under the Corporation Tax Acts—
(a) that applies as mentioned in subsection (1)(a), or
(b) that otherwise affects an amount as mentioned in subsection (1)(b).
(3) Regulations under subsection (2) may make provision in relation to—

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(a) all classes of trade or business, or
(b) any particular class or classes of trade or business.
(4) Regulations under subsection (2) may—
(a) make different provision for different cases or different purposes,
(b) contain incidental, supplemental, consequential and transitional provision and
savings, and
(c) make provision having retrospective effect.
CHAPTER 4
CLAIMS FOR GROUP RELIEF
Introduction
129 Overview of Chapter
(1) This Chapter sets out how a company may claim group relief, how group relief is given
and limitations on the amount of group relief to be given on a claim.
(2) Sections 130 to 134 deal with claims in relation to surrenderable amounts under Chapter
2.
(3) Sections 135 and 136 deal with claims in relation to surrenderable amounts under
Chapter 3.
(4) Section 137 deals with how group relief is given.
(5) Sections 138 to 142 set out a limitation on the amount of group relief to be given on
any claim.
(6) Sections 143 to 149 set out limitations on the amount of group relief to be given
on claims based on consortium condition 1, consortium condition 2 or consortium
condition 3 (see Requirement 3 in section 130).
Surrenderable amounts under Chapter 2
130 Group relief claims on amounts surrenderable under Chapter 2
(1) This section applies in relation to the surrendering company's surrenderable amounts
for the surrender period under Chapter 2.
(2) A company (“the claimant company”) may make a claim for group relief for an
accounting period (“the claim period”) in relation to those amounts (in whole or in part)
if the following requirements are met.
Requirement 1
The surrendering company consents to the claim.
Requirement 2
There is a period (“the overlapping period”) that is common to the claim period
and the surrender period.

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Requirement 3
At a time during the overlapping period—
(a) the group condition is met (see section 131),
(b) consortium condition 1 is met (see section 132),
(c) consortium condition 2 is met (see section 133(1), (3) and (4)), or
(d) consortium condition 3 is met (see section 133(2), (3) and (4)).
(3) More than one company may make a claim for group relief in relation to any
surrenderable amounts (but the giving of group relief in relation to any claim is subject
to the provisions of this Chapter).
131 The group condition
(1) The group condition is met if the surrendering company and the claimant company—
(a) are members of the same group of companies (see section 152), and
(b) are both UK related.
(2) For the meaning of “UK related” in subsection (1)(b) and in sections 132 and 133, see
section 134.
132 Consortium condition 1
(1) Consortium condition 1 is met if subsection (2) or (3) applies.
(2) This subsection applies if—
(a) the surrendering company is a trading company or a holding company,
(b) the surrendering company is owned by a consortium,
(c) the claimant company is a member of the consortium, and
(d) both companies are UK related.
(3) This subsection applies if—
(a) the claimant company is a trading company or a holding company,
(b) the claimant company is owned by a consortium,
(c) the surrendering company is a member of the consortium, and
(d) both companies are UK related.
(4) But consortium condition 1 is not met if a profit on a sale within subsection (5) by the
company that is the member of the consortium would be a trading receipt of the member.
(5) A sale is within this subsection if it is a sale of—
(a) the share capital the member owns in the company owned by the consortium, or
(b) if that company is owned by the consortium as a result of section 153(3)
(consortiums involving holding companies), the share capital the member owns
in the holding company in question.
133 Consortium conditions 2 and 3
(1) Consortium condition 2 is met if—
(a) the surrendering company is a trading company or a holding company,
(b) the surrendering company is owned by a consortium,

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(c) the claimant company is not a member of the consortium,
(d) the claimant company is a member of the same group of companies as a third
company (“the link company”),
(e) the link company is a member of the consortium, and
(f) the surrendering company, the claimant company and the link company are all
UK related.
(2) Consortium condition 3 is met if—
(a) the claimant company is a trading company or a holding company,
(b) the claimant company is owned by a consortium,
(c) the surrendering company is not a member of the consortium,
(d) the surrendering company is a member of the same group of companies as a
third company (“the link company”),
(e) the link company is a member of the consortium, and
(f) the surrendering company, the claimant company and the link company are all
UK related.
(3) But neither consortium condition 2 nor consortium condition 3 is met if a profit on a sale
within subsection (4) by the link company would be a trading receipt of that company.
(4) A sale is within this subsection if it is a sale of—
(a) the share capital the link company owns in the company (“the consortium
company”) owned by the consortium as mentioned in subsection (1)(b) or (2)
(b), or
(b) if the consortium company is owned by the consortium as a result of
section 153(3) (consortiums involving holding companies), the share capital
the link company owns in the holding company in question.
134 Meaning of “UK related” company
For the purposes of sections 131 to 133 a company is UK related if—
(a) it is a UK resident company, or
(b) it is a non-UK resident company carrying on a trade in the United Kingdom
through a permanent establishment.
Surrenderable amounts under Chapter 3
135 Group relief claims on amounts surrenderable under Chapter 3
(1) This section applies in relation to the surrendering company's surrenderable amounts
for the surrender period under Chapter 3.
(2) A company (“the claimant company”) may make a claim for group relief for an
accounting period (“the claim period”) in relation to those amounts (in whole or in part)
if the following requirements are met.
Requirement 1
The surrendering company consents to the claim.
Requirement 2

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There is a period (“the overlapping period”) that is common to the claim period
and the surrender period.
Requirement 3
The EEA group condition is met (see section 136) at a time during the overlapping
period.
(3) More than one company may make a claim for group relief in relation to any
surrenderable amounts (but the giving of group relief in relation to any claim is subject
to the provisions of this Chapter).
136 The EEA group condition
(1) The EEA group condition is met if subsection (2) or (3) applies.
(2) This subsection applies if—
(a) the surrendering company is a 75% subsidiary of the claimant company, and
(b) the claimant company is UK resident.
(3) This subsection applies if—
(a) both the surrendering company and the claimant company are 75% subsidiaries
of a third company, and
(b) the third company is UK resident.
(4) Chapter 5 explains how to determine if a company is a 75% subsidiary of another
company.
Giving of group relief
137 Deduction from total profits
(1) If the claimant company makes a claim as mentioned in section 130 or 135, the group
relief is given by the making of a deduction from the claimant company's total profits
of the claim period.
(2) The amount of the deduction is—
(a) an amount equal to the surrendering company's surrenderable amounts for the
surrender period, or
(b) if the claim is in relation to only part of those amounts, an amount equal to
that part.
(3) Subsection (2) is subject to—
(a) subsections (4) to (7),
(b) the limitation set out in sections 138 to 142 that applies in relation to all claims
for group relief,
(c) the limitations set out in sections 143 to 149 that apply in relation to claims
based on consortium condition 1, consortium condition 2 or consortium
condition 3,
(d) Chapter 3 of Part 4 (relief in cases involving trading losses made in limited
partnerships or limited liability partnerships), and
(e) section 305(1) (group relief in cases involving oil activities etc).

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(4) The deduction is to be made—
(a) before deductions for relief within subsection (5), but
(b) after all other deductions to be made at Step 2 in section 4(2) (apart from
deductions for group relief on other claims).
(5) The deductions within this subsection are deductions for relief—
(a) under section 37 in relation to a loss made in an accounting period after the
claim period,
(b) under section 260(3) of CAA 2001 in relation to capital allowances for an
accounting period after the claim period, and
(c) under section 389 or 459 of CTA 2009 in relation to a deficit for a deficit period
after the claim period.
(6) For the purposes of subsection (4)(b) it is to be assumed that the claimant company
has claimed all relief available to it for the claim period under section 37 of this Act
or section 260(3) of CAA 2001.
(7) Corporation tax relief is not to be given more than once for the same amount, whether—
(a) by giving group relief and by giving some other relief (for any accounting
period) to the surrendering company, or
(b) by giving group relief more than once.
General limitation on amount of group relief to be given
138 Limitation on amount of group relief applying to all claims
The amount of group relief to be given on a claim (“the current claim”) is limited to—
(a) the unused part of the surrenderable amounts (see section 139), or
(b) if less, the unrelieved part of the claimant company's available total profits of
the claim period (see section 140).
139 Unused part of the surrenderable amounts
(1) The unused part of the surrenderable amounts is the amount equal to—
(a) the surrenderable amount for the overlapping period (see subsection (2)), less
(b) the amount of prior surrenders for that period (see subsections (3) to (5)).
(2) To determine the surrenderable amount for the overlapping period—
(a) take the proportion of the surrender period included in the overlapping period,
and
(b) apply that proportion to the surrenderable amounts for the surrender period.
The surrenderable amount for the overlapping period is the amount given as a result
of paragraph (b).
(3) To determine the amount of prior surrenders for the overlapping period—
(a) identify any prior claims for the purposes of this section (see subsection (4)),
and
(b) take the steps set out in subsection (5) in relation to each such claim.
The amount of prior surrenders for the overlapping period is the total of the previously
used amounts given at Step 3 in subsection (5) for all the prior claims.

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(4) A claim is a prior claim for the purposes of this section if—
(a) it is a claim by any company for group relief in respect of the whole or a part of
the amounts that, in relation to the current claim, are the surrendering company's
surrenderable amounts for the surrender period,
(b) it is made before the current claim, and
(c) it has not been withdrawn.
(5) These are the steps referred to in subsection (3)(b) to be taken in relation to each prior
claim.
Step 1
Identify the overlapping period for the prior claim.
Step 2
Identify any period that is common to the overlapping period for the current claim
and the overlapping period for the prior claim. If there is a common period, go
to Step 3. If there is no common period, there is no previously used amount in
relation to the prior claim (and ignore Step 3).
Step 3
Determine the previously used amount of group relief in relation to the prior claim
(see subsection (6)).
(6) To determine the previously used amount of group relief in relation to a prior claim—
(a) take the proportion of the overlapping period for the prior claim that is included
in the common period identified at Step 2 in relation to that claim, and
(b) apply that proportion to the amount of group relief given on the prior claim.
The previously used amount of group relief in relation to the prior claim is the amount
given as a result of paragraph (b).
(7) For the meaning of “the overlapping period” see section 142.
140 Unrelieved part of claimant company's available total profits
(1) The unrelieved part of the claimant company's available total profits of the claim period
is the amount equal to—
(a) the company's available total profits for the overlapping period (see
subsection (2)), less
(b) the amount of previously claimed group relief for that period (see
subsection (3)).
(2) To determine the available total profits for the overlapping period—
(a) take the proportion of the claim period included in the overlapping period, and
(b) apply that proportion to the available total profits of the claim period.
The available total profits for the overlapping period is the amount given as a result of
paragraph (b).
(3) To determine the amount of previously claimed group relief for the overlapping period
—
(a) identify any prior claims for the purposes of this section (see subsection (4)),
and
(b) take the steps set out in subsection (5) in relation to each such claim.

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The amount of previously claimed group relief for the overlapping period is the total of
the previously claimed amounts given at Step 3 in subsection (5) for all the prior claims.
(4) A claim is a prior claim for the purposes of this section if—
(a) it is a claim by the claimant company for group relief which would be given by
way of a deduction from the company's total profits of the claim period,
(b) it is made before the current claim, and
(c) it has not been withdrawn.
(5) These are the steps referred to in subsection (3)(b) to be taken in relation to each prior
claim.
Step 1
Identify the overlapping period for the prior claim.
Step 2
Identify any period that is common to the overlapping period for the current claim
and the overlapping period for the prior claim. If there is a common period, go to
Step 3. If there is no common period, there is no previously claimed amount in
relation to the prior claim (and ignore Step 3).
Step 3
Determine the previously claimed amount of group relief in relation to the prior
claim (see subsection (6)).
(6) To determine the previously claimed amount of group relief in relation to a prior claim—
(a) take the proportion of the overlapping period for the prior claim that is included
in the common period identified at Step 2 in relation to that claim, and
(b) apply that proportion to the amount of group relief given on the prior claim.
The previously claimed amount of group relief in relation to the prior claim is the
amount given as a result of paragraph (b).
(7) In this section references to the claimant company's “available total profits” are
references to its total profits after the deductions mentioned in section 137(4)(b).
(8) Further, if the claimant company is non-UK resident its available total profits do not
include any part of its total profits that arise from activities that are double taxation
exempt for the claim period (see section 186) (so far as those profits are not covered
by the deductions mentioned in section 137(4)(b)).
(9) For the meaning of “the overlapping period” see section 142.
141 Sections 139 and 140: supplementary
(1) If two or more claims for group relief are made at the same time, for the purposes of
sections 139 and 140 treat the claims as made—
(a) in such order as the company making them may elect or the companies making
them may jointly elect, or
(b) if no such election is made, in such order as an officer of Revenue and Customs
may direct.
(2) For the purposes of Step 3 in subsection (5) of each of sections 139 and 140 the amount
of group relief given on a prior claim is determined on the basis that relief is given on
the claim before it is given on any later claim.

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(3) If the use of the proportion mentioned in section 139(2) or (6), or in section 140(2) or
(6), would, in the circumstances of a particular case, produce a result that is unjust or
unreasonable, the proportion is to be modified so far as necessary to produce a result
that is just and reasonable.
142 Meaning of “the overlapping period”
(1) In sections 139 and 140 “the overlapping period”, in relation to a claim for group relief,
means the period that is common to the claim period and the surrender period (see
Requirement 2 in section 130(2) or, as the case may be, section 135(2)).
(2) But if during any part of the overlapping period the group relief condition is not met, that
part is treated as not forming part of the overlapping period but instead as forming—
(a) a part of the surrender period that is not included in the overlapping period, and
(b) a part of the claim period that is not included in the overlapping period.
(3) The group relief condition is the condition on which the claim for group relief is based,
that is—
the group condition,
consortium condition 1,
consortium condition 2,
consortium condition 3, or
the EEA group condition.
Limitations on group relief if claim based on consortium condition 1, 2 or 3
143 Condition 1: surrendering company owned by consortium
(1) This section applies if—
(a) the claimant company makes a claim for group relief based on consortium
condition 1, and
(b) it is the surrendering company that is owned by the consortium.
(2) The group relief to be given on the claim is limited to the ownership proportion of the
surrenderable amount for the overlapping period (see section 139(2) to determine the
surrenderable amount for the overlapping period).
(3) The ownership proportion is the same as the lowest of the following proportions—
(a) the proportion of the ordinary share capital of the surrendering company that
is beneficially owned by the claimant company,
(b) the proportion of any profits available for distribution to equity holders of the
surrendering company to which the claimant company is beneficially entitled
(see Chapter 6), and
(c) the proportion of any assets of the surrendering company available for
distribution to such equity holders on a winding up to which the claimant
company would be beneficially entitled (see Chapter 6).
(4) For the purposes of subsection (3)—
(a) the proportions mentioned in paragraphs (a) to (c) of that subsection are those
prevailing during the overlapping period, and

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(b) if any of those proportions changes during that period, use the average of that
proportion during that period.
(5) If the surrendering company is owned by the consortium as a result of section 153(3)
(consortiums involving holding companies), references in subsection (3) to the
surrendering company are to be read as references to the holding company in question.
(6) In this section “the overlapping period” is to be read in accordance with section 142.
144 Condition 1: claimant company owned by consortium
(1) This section applies if—
(a) the claimant company makes a claim for group relief based on consortium
condition 1, and
(b) it is the claimant company that is owned by the consortium.
(2) The group relief to be given on the claim is limited to the ownership proportion of
the claimant company's total profits of the overlapping period (see section 140(2) to
determine the total profits of the overlapping period).
(3) The ownership proportion is the same as the lowest of the following proportions—
(a) the proportion of the ordinary share capital of the claimant company that is
beneficially owned by the surrendering company,
(b) the proportion of any profits available for distribution to equity holders of the
claimant company to which the surrendering company is beneficially entitled
(see Chapter 6), and
(c) the proportion of any assets of the claimant company available for distribution
to such equity holders on a winding up to which the surrendering company
would be beneficially entitled (see Chapter 6).
(4) For the purposes of subsection (3)—
(a) the proportions mentioned in paragraphs (a) to (c) of that subsection are those
prevailing during the overlapping period, and
(b) if any of those proportions changes during that period, use the average of that
proportion during that period.
(5) If the claimant company is owned by the consortium as a result of section 153(3)
(consortiums involving holding companies), references in subsection (3) to the claimant
company are to be read as references to the holding company in question.
(6) In this section “the overlapping period” is to be read in accordance with section 142.
145 Conditions 2 and 3: limitations in sections 143 and 144
(1) This section applies if the claimant company makes a claim for group relief based on
consortium condition 2 or consortium condition 3.
(2) If the claim is based on consortium condition 2, the limitation on group relief in
section 143(2) applies in relation to the claim, but for this purpose references in
section 143(3) to the claimant company are to be read as references to the link company.
(3) If the claim is based on consortium condition 3, the limitation on group relief in
section 144(2) applies in relation to the claim, but for this purpose references in

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section 144(3) to the surrendering company are to be read as references to the link
company.
146 Conditions 2 and 3: companies in link company's group
(1) If the claimant company makes a claim for group relief based on consortium condition
2, the amount of group relief to be given on the claim is limited by subsections (2) and
(3).
(2) There is a limit on the amount of group relief that can be given, in total, on consortium
claims made by the link company and group companies in relation to the surrendering
company's surrenderable amounts for the surrender period.
(3) That limit is the maximum amount of group relief that could be given to the link
company in relation to those amounts on consortium claims—
(a) assuming that no consortium claims in relation to those amounts were made by
group companies based on consortium condition 2, and
(b) ignoring any lack of profits of the link company from which deductions could
be made as mentioned in section 137(1).
(4) If the claimant company makes a claim for group relief based on consortium condition
3, the amount of group relief to be given on the claim is limited by subsections (5) to (7).
(5) There is a limit on the amount of group relief that can be given, in total, to the claimant
company for the claim period on consortium claims made in relation to losses and other
amounts surrendered by the link company and group companies.
(6) That limit is the same as the limit that, as a result of section 144(2), would apply for the
purposes of a consortium claim made by the claimant company for the claim period in
relation to losses or other amounts surrendered by the link company.
(7) In determining the limit that would apply as a result of section 144(2) it is to be assumed
that the accounting period of the link company is the same as the accounting period of
the claimant company.
(8) In this section—
“consortium claim” means a claim for group relief based on consortium
condition 1, consortium condition 2 or consortium condition 3, and
“group company”, for the purpose of determining in accordance with this
section a limitation on the amount of group relief to be given on a claim based
on consortium condition 2 or consortium condition 3, means a company that
is a member of the same group of companies as the link company (other than
the link company itself).
147 Conditions 1 and 2: surrenderable amounts including trading loss
(1) This section applies if—
(a) the claimant company makes a claim for group relief based on consortium
condition 1,
(b) it is the surrendering company that is owned by the consortium,
(c) the surrendering company's surrenderable amounts for the surrender period
include a loss within section 99(1)(a), and

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(d) the surrendering company has profits (of any description) of that period from
which the loss could be deducted under section 37.
(2) This section also applies if—
(a) the claimant company makes a claim for group relief based on consortium
condition 2,
(b) the surrendering company's surrenderable amounts for the surrender period
include a loss within section 99(1)(a), and
(c) the surrendering company has profits (of any description) of that period from
which the loss could be deducted under section 37.
(3) The amount of group relief to be given on the claim is to be determined on the
assumption that—
(a) the surrendering company makes a claim under section 37 in relation to the loss
mentioned in subsection (1)(c) or (2)(b), and
(b) relief under that section is to be given in relation to the loss before the group
relief is given.
(4) If section 148 also applies in relation to the claim for group relief, in giving effect to
subsection (3) of this section the surrenderable amounts for the purposes of subsections
(3) and (4) of that section are to be reduced by the amount of relief to be given on the
surrendering company's claim as mentioned in subsection (3)(b) of this section.
148 Conditions 1 and 2: surrendering company in group of companies
(1) This section applies if—
(a) the claimant company makes a claim for group relief based on consortium
condition 1,
(b) it is the surrendering company that is owned by the consortium, and
(c) the surrendering company is also a member of a group of companies.
(2) This section also applies if—
(a) the claimant company makes a claim for group relief based on consortium
condition 2, and
(b) the surrendering company is a member of a group of companies.
(3) No group relief is to be given on the claim (“the current claim”) unless the surrendering
company's surrenderable amounts for the surrender period exceed the group's potential
relief.
(4) If the surrenderable amounts exceed the group's potential relief, the group relief to be
given on the current claim is limited to the amount of the excess.
(5) The group's potential relief is the maximum amount of group relief that could be given
if every claim that could be made based on the group condition in respect of the
surrenderable amounts was in fact made (and for this purpose it is to be assumed that
the maximum possible claim is made in each case).
(6) Before determining the maximum amount of potential group relief under subsection (5),
take account of any claim made before the current claim that—
(a) is a claim for group relief based on the group condition, and

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(b) is in relation to losses or other amounts surrendered by a member of the same
group of companies as the surrendering company (other than the surrendering
company itself).
149 Conditions 1 and 3: claimant company in group of companies
(1) This section applies if—
(a) the claimant company makes a claim for group relief based on consortium
condition 1,
(b) it is the claimant company that is owned by the consortium, and
(c) the claimant company is also a member of a group of companies.
(2) This section also applies if—
(a) the claimant company makes a claim for group relief based on consortium
condition 3, and
(b) the claimant company is a member of a group of companies.
(3) No group relief is to be given on the claim (“the current claim”) unless the claimant
company's total profits of the claim period exceed the group's potential relief.
(4) If those total profits exceed the group's potential relief, the group relief to be given on
the current claim is limited to the amount of the excess.
(5) The group's potential relief is the maximum amount of group relief that could be claimed
by the claimant company for the claim period on claims based on the group condition.
(6) Before determining the maximum amount of potential group relief under subsection (5),
take account of any claim made before the current claim that—
(a) is a claim for group relief based on the group condition made by another
member of the same group of companies as the claimant company, and
(b) is in relation to losses or other amounts surrendered by a company that is also
a member of that group.
CHAPTER 5
SUBSIDIARIES , GROUPS AND CONSORTIUMS
Introduction
150 Overview of Chapter
(1) This Chapter explains how to determine if a company—
(a) is a 75% or 90% subsidiary of another company (see section 151),
(b) is a member of a group of companies (see section 152),
(c) is owned by a consortium (see section 153), or
(d) is a member of a consortium (see section 153).
(2) Sections 154 to 156 qualify those explanations in cases involving transfers of
companies.

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Explanations of terms
151 Meaning of “75% subsidiary” and “90% subsidiary”
(1) In this Part “75% subsidiary” and “90% subsidiary” are to be read in accordance with
Chapter 3 of Part 24, but subject to subsections (2) to (4).
(2) In applying the definition of “75% subsidiary” in section 1154(3), share capital of a
registered industrial or provident society is to be treated as if it were ordinary share
capital.
(3) If—
(a) a company (“the shareholder”) directly owns shares in another company, and
(b) a profit on the sale of those shares would be a trading receipt of the shareholder,
the shareholder is treated as not being the owner of those shares for the purpose of
determining if any company is a 75% subsidiary of any other company.
(4) If a company (“the subsidiary”) would, apart from this subsection, be treated as a 75%
or 90% subsidiary of another company (“the parent”) at any time, the subsidiary is not
to be so treated unless at that time the parent—
(a) is beneficially entitled to at least 75% or 90% (as the case may be) of any profits
available for distribution to equity holders of the subsidiary (see Chapter 6), and
(b) would be beneficially entitled to at least 75% or 90% (as the case may be) of
any assets of the subsidiary available for distribution to such equity holders on
a winding up (see Chapter 6).
152 Groups of companies
For the purposes of this Part two companies are members of the same group of
companies if—
(a) one is the 75% subsidiary of the other, or
(b) both are 75% subsidiaries of a third company.
153 Companies owned by consortiums and members of consortiums
(1) For the purposes of this Part a company is owned by a consortium if—
(a) the company is not a 75% subsidiary of any company, and
(b) at least 75% of the company's ordinary share capital is beneficially owned by
other companies each of which beneficially owns at least 5% of that capital.
(2) The other companies each owning at least 5% of the share capital are the members of
the consortium for the purposes of this Part.
(3) If—
(a) a trading company is a 90% subsidiary of a holding company and is not a 75%
subsidiary of any company apart from the holding company, and
(b) as a result of subsection (1), the holding company is owned by a consortium,
then for the purposes of this Part the trading company is also owned by the consortium.

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Arrangements for transfers of companies
154 Arrangements for transfer of member of group of companies etc
(1) This section applies if, apart from this section, one company (“the first company”) and
another company (“the second company”) would be members of the same group of
companies.
(2) For the purposes of this Part the companies are not members of the same group of
companies if—
(a) one of the companies has surrenderable amounts for an accounting period (“the
current period”), and
(b) arrangements within subsection (3) are in place.
(3) Arrangements are within this subsection if they have any of the following effects.
Effect 1
At some time during or after the current period, the first company or any successor
of it—
(a) could cease to be a member of the same group of companies as the second
company, and
(b) could become a member of the same group of companies as a third
company (see subsection (4)).
Effect 2
At some time during or after the current period a person (other than the first
or second company) has or could obtain, or persons together (other than those
companies) have or could obtain, control of the first company but not of the second
company.
Effect 3
At some time during or after the current period, a third company could start to
carry on the whole or a part of a trade that at a time during the current period is
carried on by the first company and could do so—
(a) as the successor of the first company, or
(b) as the successor of another company which is not a third company and
which started to carry on the whole or a part of the trade during or after
the current period.
(4) A “third company” means a company that is not, apart from any arrangements within
subsection (3), a member of the same group of companies as the first company.
155 Arrangements for transfer of company owned by consortium etc
(1) This section applies if, apart from this section, a trading company would be owned by
a consortium.
(2) The trading company is not owned by the consortium if—
(a) for an accounting period (“the current period”) the trading company or a
member of the consortium has surrenderable amounts, and
(b) arrangements within subsection (3) are in place.
(3) Arrangements are within this subsection if they have any of the following effects.

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Effect 1
The trading company or a successor of it could, at some time during or after the
current period, become a 75% subsidiary of a third company (see subsection (4)).
Effect 2
Any person who owns, or any persons who together own, less than 50% of the
ordinary share capital of the trading company—
(a) has, or together have, control of the trading company, or
(b) could obtain such control at some time during or after the current period.
Effect 3
Any person (“P”), either alone or together with persons connected with P—
(a) holds or could obtain at least 75% of the qualifying votes, or
(b) controls or could control the exercise of at least 75% of those votes.
For this purpose—
“connected” is to be read in accordance with section 1122 but as if
subsection (4) of that section were omitted, and
“qualifying votes” means the votes which may be cast in a poll taken at
a general meeting of the trading company held during or after the current
period.
Effect 4
A third company could start to carry on the whole or a part of a trade that at a time
during the current period is carried on by the trading company and could do so—
(a) as the successor of the trading company, or
(b) as the successor of another company which is not a third company and
which started to carry on the whole or a part of the trade during or after
the current period.
(4) A “third company” means a company that is not, apart from any arrangements within
subsection (3), a member of the same group of companies as the trading company.
(5) If the trading company would, apart from this section, be owned by a consortium as a
result of section 153(3) (consortiums involving holding companies)—
(a) references in this section (apart from references under Effect 4) to the trading
company are to be read as including references to the holding company
concerned, and
(b) Effect 3 does not apply if P is that holding company.
156 Sections 154 and 155: supplementary
(1) This section applies for the purposes of sections 154 and 155.
(2) “Arrangements”—
(a) means arrangements of any kind (whether or not in writing), but
(b) does not include a power of a Minister of the Crown, the Scottish Ministers or
a Northern Ireland department to give directions to a statutory body as to the
disposal of assets belonging to the body or to a subsidiary of the body.
(3) A company is the successor of another company if it carries on a trade which, in whole
or in part, the other company used to carry on and the circumstances are such that—

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(a) Chapter 1 of Part 22 (transfers of trade without a change of ownership) applies
in relation to the companies as, respectively, the successor and the predecessor
within the meaning of that Chapter, or
(b) the two companies are connected with each other in accordance with
section 1122.
CHAPTER 6
EQUITY HOLDERS AND PROFITS OR ASSETS AVAILABLE FOR DISTRIBUTION
Introduction
157 Introduction to Chapter
(1) This Chapter applies for the purposes of sections 143(3)(b) and (c), 144(3)(b) and (c)
and 151(4)(a) and (b).
(2) For the purposes of this Chapter—
(a) “new consideration” has the meaning given by section 1115, and
(b) all loans are regarded as being securities.
Equity holders
158 Meaning of “equity holder”
(1) An equity holder of a company (“the relevant company”) is any person who—
(a) holds ordinary shares in the company (see section 160), or
(b) is a loan creditor of the company in relation to a loan other than a normal
commercial loan (see section 162).
(2) For the purposes of subsection (1)(b) a person is a loan creditor of a company if the
person is a creditor in respect of any redeemable loan capital issued by the company or
in respect of a debt incurred by the company—
(a) for any money borrowed or capital assets acquired by the company,
(b) for any right to receive income created in favour of the company, or
(c) for consideration the value of which to the company was, at the time when the
debt was incurred, substantially less than the amount of the debt (including any
premium on the debt).
(3) Subsection (1) is subject to section 159.
159 Use of relevant company's assets
(1) Subsection (2) applies if—
(a) a person (“P”) has, directly or indirectly, provided new consideration for any
shares or securities in the relevant company,
(b) assets of the relevant company are used by P for the purposes of a trade carried
on by P or are used by a person connected with P for the purposes of a trade
carried on by that connected person, and

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(c) in respect of those assets an allowance within subsection (3) has been made to
the relevant company.
(2) P (and no other person) is to be treated as being an equity holder in relation to the shares
or securities mentioned in subsection (1)(a).
(3) The allowances within this subsection are—
(a) an annual investment allowance, within the meaning of Chapter 5 of Part 2 of
CAA 2001, in relation to expenditure incurred by the relevant company on the
provision of plant or machinery,
(b) a first-year allowance, within the meaning of that Chapter, in relation to
expenditure so incurred,
(c) a writing-down allowance, within the meaning of that Chapter, in relation to
expenditure so incurred, and
(d) an allowance under Chapter 3 of Part 6 of CAA 2001 in relation to expenditure
incurred by the relevant company on research and development (within the
meaning of that Part).
(4) If—
(a) P is a bank,
(b) the only new consideration provided by P is provided in the normal course of
banking business by way of a normal commercial loan (see section 162), and
(c) the cost to the relevant company of the assets mentioned in subsection (1)(b) is
less than the amount of the new consideration,
the reference in subsection (2) to the shares or securities is to be read as a reference to
only so much of that normal commercial loan as is equal to that cost of those assets.
160 Meaning of “ordinary shares”
(1) For the purposes of section 158(1)(a) “ordinary shares” means shares other than
restricted preference shares.
(2) For the purposes of subsection (1) restricted preference shares are shares that meet each
of conditions A to E.
(3) Condition A is that the shares are issued for consideration which is or includes new
consideration.
(4) Condition B is that the shares do not carry any right to conversion into shares or
securities other than a right to conversion into—
(a) shares to which section 164(1) applies,
(b) securities to which section 164(2) applies, or
(c) shares or securities in the relevant company's quoted parent company (see
section 164(3) to (7)).
(5) Condition C is that the shares do not carry any right to the acquisition of shares or
securities.
(6) Condition D is that the shares—
(a) do not carry a right to dividends, or
(b) carry a restricted right to dividends (see section 161).

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(7) Condition E is that the shares, on repayment, do not carry rights to an amount exceeding
the new consideration mentioned in subsection (3) except so far as those rights are
reasonably comparable with those generally carried by fixed dividend shares listed on
a recognised stock exchange.
161 Meaning of “restricted right to dividends”
(1) For the purposes of condition D in section 160, a right to dividends carried by shares
in a company is a “restricted right to dividends” if—
(a) the dividends represent no more than a reasonable commercial return on the
new consideration received by the company in respect of the shares, and
(b) subsection (2), (3) or (4) applies.
(2) This subsection applies if—
(a) the dividends are of a fixed amount or are at a fixed percentage rate of the
nominal value of the shares, and
(b) the company is not entitled, by virtue of any term subject to which the shares
are issued or held, to reduce the amount of, or not to pay, any of the dividends.
(3) This subsection applies if—
(a) the dividends are of a fluctuating percentage rate of the nominal value of the
shares, and
(b) the company is not entitled, by virtue of any term subject to which the shares
are issued or held, to reduce the amount of, or not to pay, any of the dividends.
(4) This subsection applies if paragraph (a) of subsection (2) or (3) is met but paragraph (b)
of that subsection is not met and—
(a) the company is only entitled to reduce the amount of, or not to pay, any of the
dividends in special circumstances, or
(b) having regard to all the circumstances, it is reasonable to assume that the
company is only likely to reduce the amount of, or not to pay, any of the
dividends in special circumstances.
(5) For the purposes of subsection (3)(a) dividends are of a “fluctuating percentage rate”
of the nominal value of shares if the rate fluctuates in accordance with—
(a) a standard published rate of interest,
(b) the retail prices index, or
(c) any other general index of prices similar to the retail prices index that is
published by the government, or by an agent of the government, of the country
or territory in whose currency the shares are denominated.
(6) For the purposes of subsection (4) a company reduces the amount of, or does not pay,
dividends “in special circumstances” if—
(a) at the time the dividend is or would be payable, the company is in severe
financial difficulties, or
(b) the company does so for the purpose of following a recommendation of a
relevant regulatory body.
(7) The Treasury may by order specify circumstances in which a company is to be treated
as in severe financial difficulties for the purposes of subsection (6)(a).
(8) In subsection (6)(b) “relevant regulatory body” means—

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(a) in relation to a dividend paid by a company that is authorised for the purposes
of the FISMA 2000, the Financial Services Authority, and
(b) in relation to a dividend paid by any other company, a body discharging
functions in relation to the company under the law of a country or territory
outside the United Kingdom that correspond to functions discharged by the
Financial Services Authority in relation to a company authorised as mentioned
in paragraph (a).
162 Meaning of “normal commercial loan”
(1) For the purposes of sections 158(1)(b) and 159(4)(b) “normal commercial loan” means
a loan—
(a) which is of or includes new consideration, and
(b) in relation to which each of conditions A to D is met.
(2) Condition A is that the loan does not carry any right to conversion into shares or
securities other than a right to conversion into—
(a) shares to which section 164(1) applies,
(b) securities to which section 164(2) applies, or
(c) shares or securities in the relevant company's quoted parent company (see
section 164(3) to (7)).
(3) Condition B is that the loan does not carry any right to the acquisition of shares or
securities.
(4) Condition C is that the loan does not entitle the loan creditor to any amount by way
of interest which—
(a) depends to any extent on the results of the relevant company's business or on
the results of any part of that business,
(b) depends to any extent on the value of any of the relevant company's assets, or
(c) exceeds a reasonable commercial return on the new consideration lent.
This subsection needs to be read with section 163.
(5) Condition D is that the loan is a loan in relation to which the loan creditor is entitled,
on repayment, to an amount which—
(a) does not exceed the new consideration lent, or
(b) is reasonably comparable with the amount generally repayable (in relation to
an equal amount of new consideration) under the terms of issue of securities
listed on a recognised stock exchange.
163 Normal commercial loans: company's results or value of assets
(1) Interest is not within section 162(4)(a) by reason only that the terms of the loan provide
for the rate of interest—
(a) to be reduced if the results of the relevant company's business or any part of
the business improve, or
(b) to be increased if such results worsen.
(2) Interest is not within section 162(4)(b) by reason only that the terms of the loan provide
for the rate of interest—
(a) to be reduced if the value of any of the relevant company's assets increases, or

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(b) to be increased if the value of any such assets decreases.
(3) Subsection (4) applies if—
(a) a loan is made to the relevant company for the purpose of facilitating the
acquisition of land,
(b) the loan is made on the basis mentioned in subsection (5), and
(c) none of the land that the loan is used to acquire is acquired with a view to resale
at a profit.
(4) Interest on the loan is not within section 162(4)(b) by reason only that the terms of the
loan are such that the only way the loan creditor can enforce payment of an amount due
is by exercising rights granted by way of security over the land that the loan is used
to acquire.
(5) The basis referred to in subsection (3)(b) is that—
(a) the whole of the loan is to be applied in the acquisition of land by the relevant
company or in meeting incidental costs incurred wholly and exclusively for the
purpose of obtaining the loan or providing security for the loan,
(b) the payment of any amount due in connection with the loan to the person
making it is to be secured on the land that the loan is used to acquire, and
(c) no other security is to be required for the payment of any such amount.
(6) “Incidental costs” means expenditure on fees, commissions, advertising, printing or
other incidental matters.
164 Sections 160 and 162: supplementary
(1) This subsection applies to any shares—
(a) in relation to which conditions A, C, D and E in section 160 are met, and
(b) which do not carry any rights to conversion into shares or securities other than
rights to conversion into shares or securities in the relevant company's quoted
parent company (see subsections (3) to (6)).
(2) This subsection applies to any securities—
(a) which represent a loan of or including new consideration,
(b) in relation to which conditions B, C and D in section 162 are met, and
(c) which do not carry any rights to conversion into shares or securities other than
rights to conversion into shares or securities in the relevant company's quoted
parent company.
(3) For the purposes of this section and sections 160 and 162 a company (“the candidate
company”) is the relevant company's quoted parent company if (and only if)—
(a) the relevant company is a 75% subsidiary of the candidate company,
(b) the candidate company is not a 75% subsidiary of any company, and
(c) the candidate company's ordinary shares are listed on a recognised stock
exchange.
(4) If the candidate company's ordinary share capital is divided into two or more classes,
subsection (3)(c) is met only if its ordinary shares of each class are listed on a recognised
stock exchange.
(5) In subsections (3) and (4) “ordinary shares” means shares forming part of ordinary
share capital.

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(6) Subsection (7) applies if, in determining under subsection (3)(a) whether the relevant
company is a 75% subsidiary of the candidate company, it is necessary to know, for the
purposes of subsection (1)(b) or (2)(c) or section 160(4)(c) or 162(2)(c), whether the
candidate company is the relevant company's quoted parent company.
(7) It is to be assumed for those purposes that the candidate company is the relevant
company's quoted parent company.
Company's entitlement to profits or assets available for distribution: basic provisions
165 Proportion of profits available for distribution to which company is entitled
(1) This section applies for the purpose of determining the proportion to which a company
(“company A”) is, at any time, beneficially entitled of any profits available for
distribution to the equity holders of another company (“company B”).
(2) The proportion is the proportion to which company A would, at that time, be beneficially
entitled on a distribution in money to the equity holders of company B (“the profit
distribution”) of—
(a) an amount of profits equal to company B's total profits of the relevant
accounting period (see section 168), or
(b) if there are no such total profits, profits of £100.
(3) It does not matter for the purposes of subsection (2) if any of company B's total profits
are not actually distributed.
(4) If company B is non-UK resident, company B's total profits are to be calculated as if
it were UK resident.
(5) For the purposes of the profit distribution, it is to be assumed that no payment is made
by way of repayment of share capital or of the principal secured by any loan unless that
payment is a distribution.
(6) Subject to subsection (5), if an equity holder is entitled as such to a payment which
(apart from this subsection) would not be a distribution, the equity holder is nevertheless
to be treated as entitled to the payment on the profit distribution.
166 Proportion of assets available for distribution to which company is entitled
(1) This section applies for the purpose of determining the proportion to which a company
(“company A”) would, at any time, be beneficially entitled of any assets available for
distribution to the equity holders of another company (“company B”) on a winding up.
(2) The proportion is the proportion to which company A would, at that time, be beneficially
entitled if company B were to be wound up and on that winding up (“the notional
winding up”) the value of assets available for distribution to company B's equity holders
were equal to—
(a) the assets amount minus the liabilities amount, or
(b) if the assets amount does not exceed the liabilities amount or if company B's
balance sheet is prepared to a date other than the end of the relevant accounting
period (see section 168), £100.

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(3) The “assets amount” is the amount of company B's assets as shown in its balance sheet
as at the end of the relevant accounting period.
(4) The “liabilities amount” is the amount of company B's liabilities as shown in that
balance sheet but excluding liabilities to equity holders as such.
(5) If, on the notional winding up, an equity holder would be entitled as such to an amount
of assets which (apart from this subsection) would not be a distribution of assets, the
equity holder is nevertheless treated as entitled to the amount on the distribution of
assets on the notional winding up.
(6) Subsection (7) applies if—
(a) an equity holder (“E”) of company B provided new consideration for any shares
or securities in company B in relation to which E is an equity holder,
(b) company B makes a loan to E or any person connected with E or acquires shares
or securities in E or any person so connected, and
(c) in making that loan or acquiring those shares or securities, company B applies,
directly or indirectly, an amount (“the returned amount”) corresponding to the
whole or any part of the new consideration.
(7) The following amounts are to be reduced by the returned amount—
(a) the assets amount, and
(b) the amount of assets to which E is beneficially entitled on the notional winding
up.
167 Profits or assets available for distribution and entitlement: supplementary
(1) References to profits or assets available for distribution to equity holders of a company
do not include references to any profits or assets available for distribution to any equity
holder otherwise than as an equity holder.
(2) References to a company being beneficially entitled to profits or assets are references
to the company being so entitled—
(a) directly,
(b) through another company or other companies, or
(c) partly directly and partly through another company or other companies.
(3) If a person is an equity holder in relation to shares or securities as a result of
section 159, that person (and no other) is to be treated as being beneficially entitled to
any distribution of profits or assets attributable to those shares or securities.
168 Meaning of “the relevant accounting period”
(1) For the purpose of determining the proportion of profits or assets to which company
A would be beneficially entitled as mentioned in section 165(2) or 166(2) at any time,
“the relevant accounting period” is the accounting period of company B in which that
time falls.
(2) If company B is non-UK resident and is not within the charge to corporation tax, the
relevant accounting period is to be determined using the assumption in subsection (3).

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(3) The assumption is that company B became UK resident (and, therefore, within the
charge to corporation tax) at the time it became a 75% subsidiary (as mentioned in
section 136) ignoring section 151(4).
Company's entitlement to profits or assets available for distribution: supplementary
169 Application and interpretation of sections 170 to 182
(1) Sections 170 to 182 apply for the purpose of determining the proportion of profits
or assets to which company A would be beneficially entitled as mentioned in
section 165(2) or 166(2) at any time.
(2) In those sections—
“arrangements” means arrangements of any kind (whether or not in writing),
“company A's proportion” means the proportion of profits or assets to which
company A would be beneficially entitled as mentioned in section 165(2) or
166(2) at the relevant time,
“distribution rights” means rights in relation to dividends or interest or assets
on a winding up,
“the participating equity holders”, in relation to the determining of company
A's proportion, means the equity holders of company B—
(a) to whom the profit distribution would be made, or
(b) who would be entitled to participate in the notional winding up, and
“the relevant time” means the time mentioned in subsection (1) when the
beneficial entitlement of company A is to be determined.
170 Shares or securities with limited rights
(1) This section applies if, at the relevant time, one or more of the participating equity
holders holds, as such, shares or securities with distribution rights that are limited
(wholly or partly) by reference to a specified amount or amounts.
(2) Determine what company A's proportion would be if all those distribution rights were
waived so far as they are so limited.
The result is referred to as “the alternative proportion”.
(3) If the alternative proportion is less than what company A's proportion would be ignoring
this section, then company A's proportion is taken to be the alternative proportion.
(4) Subsection (3) is subject to sections 175, 176, 178 and 180.
(5) For the purposes of subsection (1) a limitation on a right may operate—
(a) by specifying the capital or amount of profits by reference to which a
distribution is calculated, or
(b) in any other way.
(6) But in a case to which section 180 applies (see section 179), limitations that are covered
by Case 1 in section 179 are ignored for the purposes of subsection (1).

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171 Shares or securities with temporary rights
(1) Section 172 applies if, at the relevant time, one or more of the participating equity
holders holds, as such, shares or securities—
(a) which have rights within subsection (2), or
(b) in relation to which arrangements within subsection (3) are in place.
(2) The rights within this subsection are distribution rights of such a kind that if—
(a) the profit distribution were to be made, or
(b) the notional winding up were to occur,
at a time after the relevant accounting period, the equity holder's entitlement at that time
would be different from the equity holder's entitlement at the relevant time.
(3) The arrangements within this subsection are arrangements of such a kind that if—
(a) effect were to be given to the arrangements, and
(b) the profit distribution were to be made, or the notional winding up were to
occur, at a time after the relevant accounting period,
then, as a result of effect being given to the arrangements, the equity holder's entitlement
at that time would be different from the equity holder's entitlement at the relevant time.
(4) The references in subsections (2) and (3) to the equity holder's entitlement at a time are
references to the proportion to which the equity holder would be beneficially entitled
(as the case may be)—
(a) of profits on the profit distribution if it were made at that time, or
(b) of assets on the notional winding up if it occurred at that time.
172 Company A's proportion if shares etc have temporary rights
(1) If this section applies, determine what company A's proportion would be if the rights of
all participating equity holders at the relevant time were the same as what they would
be at the relevant future time.
The result is referred to as “the alternative proportion”.
(2) For the purposes of subsection (1)—
(a) “the relevant future time” means the time after the relevant accounting period
mentioned in subsection (2) or (3) of section 171 (as the case may be), and
(b) assume that effect is given to all arrangements (if any) within subsection (3)
of that section.
(3) If the alternative proportion is less than what company A's proportion would be ignoring
this section, then company A's proportion is taken to be the alternative proportion.
(4) Subsection (3) is subject to sections 175, 177, 178 and 180.
173 Cases in which option arrangements are in place
(1) Section 174 applies if option arrangements are in place at the relevant time.
(2) “Option arrangements” means arrangements in relation to which conditions A and B
are met.
(3) Condition A is that the effect of the arrangements is that there could be a change in—

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(a) the proportion of profits to which any of the participating equity holders would
be beneficially entitled on the profit distribution if it were made at a time after
the relevant time, or
(b) the proportion of assets to which any of the participating equity holders would
be beneficially entitled on the notional winding up if it occurred at a time after
the relevant time.
(4) Condition B is that, under the arrangements, the change could result from the exercise
of—
(a) a right to acquire ordinary shares in company B (see section 160) or securities
in company B, or
(b) a right to require a person to acquire such shares or securities.
(5) For the purposes of subsection (4)—
(a) it does not matter whether or not the shares or securities were issued before the
arrangements were put in place,
(b) “right” does not include a right within subsection (6), and
(c) “securities” does not include normal commercial loans (as defined by
section 162).
(6) A right is within this subsection if it—
(a) is a right of an individual to acquire shares,
(b) was obtained because of the individual's office or employment as a director or
employee of company B, and
(c) was obtained in accordance with a share option scheme at a time when the
scheme was an approved share option scheme.
(7) In subsection (6)(c)—
“share option scheme” means—
(a) an SAYE option scheme within the meaning of the SAYE code (see
section 516(4) of ITEPA 2003), or
(b) a CSOP scheme within the meaning of the CSOP code (see section 521(4)
of ITEPA 2003), and
“approved” means—
(a) in relation to an SAYE option scheme, approved under Schedule 3 to
ITEPA 2003, and
(b) in relation to a CSOP scheme, approved under Schedule 4 to ITEPA 2003.
174 Company A's proportion if option arrangements in place
(1) If this section applies, take the following steps.
Step 1
Identify all option rights under the option arrangements (or sets of arrangements
if more than one) which exist at the relevant time but which have not become
effective at or before that time.“Option rights” means rights of the kind mentioned
in section 173(4)(a) or (b), and such a right becomes “effective” when the shares
or securities to which it relates are acquired as a result of its exercise.
Step 2
Identify each possible state of affairs that could subsist at the relevant time if the
option rights identified at Step 1, or any of them or any combination of them,

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became effective at that time. For this purpose it does not matter if an option right
cannot actually become effective at or before the relevant time.
Step 3
Take each state of affairs identified at Step 2 and—
(a) identify what the rights and duties of the participating equity holders
would be at the relevant time if the state of affairs were to subsist at that
time, and
(b) determine what company A's proportion would be if those rights and
duties were the rights and duties of the participating equity holders at the
relevant time.
Step 4
Identify the lowest proportion determined under paragraph (b) of Step 3. That
proportion is referred to as “the alternative proportion”.
(2) If the alternative proportion is less than what company A's proportion would be ignoring
this section, then company A's proportion is taken to be the alternative proportion.
(3) Subsection (2) is subject to sections 176 to 178 and 180.
175 Cases in which both sections 170 and 172 apply
(1) This section applies in a case in which sections 170 and 172 apply but section 174 does
not.
(2) Determine what company A's proportion would be—
(a) on the basis mentioned in section 170(2),
(b) on the basis mentioned in section 172(1),
(c) on those bases taken together, and
(d) ignoring sections 170 and 172.
(3) Company A's proportion is taken to be the lowest proportion determined under
subsection (2).
176 Cases in which both sections 170 and 174 apply
(1) This section applies in a case in which sections 170 and 174 apply but section 172 does
not.
(2) Determine what company A's proportion would be—
(a) on the basis mentioned in section 170(2),
(b) on the basis mentioned at Step 4 in section 174,
(c) on those bases taken together, and
(d) ignoring sections 170 and 174.
(3) Company A's proportion is taken to be the lowest proportion determined under
subsection (2).
177 Cases in which both sections 172 and 174 apply
(1) This section applies in a case in which sections 172 and 174 apply but section 170 does
not.

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(2) Determine what company A's proportion would be—
(a) on the basis mentioned in section 172(1),
(b) on the basis mentioned at Step 4 in section 174,
(c) on those bases taken together, and
(d) ignoring sections 172 and 174.
(3) Company A's proportion is taken to be the lowest proportion determined under
subsection (2).
178 Cases in which sections 170, 172 and 174 all apply
(1) This section applies in a case in which sections 170, 172 and 174 all apply.
(2) Determine what company A's proportion would be—
(a) on the basis mentioned in section 170(2),
(b) on the basis mentioned in section 172(1),
(c) on the basis mentioned at Step 4 in section 174,
(d) on the bases mentioned in sections 170(2) and 172(1) taken together,
(e) on the bases mentioned in section 170(2) and at Step 4 in section 174 taken
together,
(f) on the bases mentioned in section 172(1) and at Step 4 in section 174 taken
together,
(g) on the bases mentioned in section 170(2), section 172(1) and at Step 4 in
section 174 taken together, and
(h) ignoring sections 170, 172 and 174.
(3) Company A's proportion is taken to be the lowest proportion determined under
subsection (2).
179 Cases in which surrendering or claimant company is non-UK resident
(1) If the surrendering company or the claimant company is non-UK resident at the relevant
time, section 180 applies as mentioned in subsections (2) and (3) in the cases set out
in subsection (4).
(2) Section 180 applies in the application of this Chapter for the purposes of sections 143(3)
(b) and (c) and 144(3)(b) and (c) if the non-UK resident company is owned by the
consortium at the relevant time.
(3) Section 180 applies in the application of this Chapter for the purposes of section 151(4)
(a) and (b) in determining if the non-UK resident company is a 75% or 90% subsidiary
of another company at the relevant time.
But section 180 is not to be applied in determining if the EEA group condition is met
(see section 136) at the relevant time.
(4) The cases in which section 180 applies are as follows.
Case 1
One or more of the participating equity holders holds, as such, shares or securities
with distribution rights that have effect (wholly or partly) by reference to whether

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or not, or to what extent, the profits or assets distributed are referable to company
B's UK trade (see section 182).
Case 2
Section 174 applies and any of the proportions to be determined under
paragraph (b) of Step 3 in that section would differ according to whether or not,
or to what extent, the profits or assets distributed are referable to company B's
UK trade.
180 Company A's proportion if non-UK resident involved
(1) If this section applies—
(a) go to subsection (2) if the case is one in which none of sections 170, 172 and
174 applies, and
(b) go to subsection (3) if the case is one in which any of sections 170, 172, and
174 applies.
(2) If the case is as mentioned in subsection (1)(a)—
(a) determine what company A's proportion would be using the assumptions set
out in section 181, and
(b) if the proportion so determined (“the alternative proportion”) is less than what
company A's proportion would be ignoring this section, then company A's
proportion is taken to be the alternative proportion.
(3) If the case is as mentioned in subsection (1)(b), take the following steps.
Step 1
Determine, in each way required by the applicable sections, what company A's
proportion would be ignoring this section. A proportion determined at this step is
referred to as a “normal proportion”.
Step 2
Determine, in each way required by the applicable sections, what company A's
proportion would be using the assumptions set out in section 181. A proportion
determined at this step is referred to as a “section 181 proportion”.
Step 3
If a section 181 proportion determined in a required way is less than the normal
proportion determined in that way, for the purposes of the applicable sections use
the section 181 proportion instead of the normal proportion.
(4) In subsection (3) “the applicable sections” means any of sections 170, 172 and 174
that applies in the case mentioned in subsection (1)(b), together with whichever (if any)
of sections 175 to 178 that applies in that case.
181 Assumptions to be applied if non-UK resident company involved
(1) The assumptions referred to in section 180 are as follows.
Assumption 1
The profit distribution or the distribution on the notional winding up is confined
to a distribution of the profits or assets referable to company B's UK trade (see
section 182).

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Assumption 2
Section 165(2) (in the case of a profit distribution) is applied on the basis
that the amount of company B's total profits referred to in that subsection does not
exceed the amount of those profits referable to its UK trade.
Assumption 3
Section 166(3) and (4) (in the case of a distribution on a notional winding
up) is applied on the basis that the amount of company B's assets and liabilities
referred to in those subsections does not exceed the amount of those assets and
liabilities referable to its UK trade.
Assumption 4
None of the ordinary equity holders has a beneficial entitlement to the profits or
assets referable to company B's UK trade that is greater than the proportion of the
distribution in question to which the equity holder would be beneficially entitled—
(a) if Assumptions 1 to 3 were ignored, and
(b) if it would otherwise be less, the distribution were £100.
(2) In subsection (1) “ordinary equity holder” means an equity holder whose beneficial
entitlement on the profit distribution or the distribution on the notional winding up
does not differ according to whether or not, or the extent to which, the profits or assets
distributed are referable to company B's UK trade.
182 Assets etc referable to UK trade
Profits, assets or liabilities of company B are referable to company B's UK trade so far
as they—
(a) are attributable to, or used for the purposes of, activities the income or
chargeable gains from which are or (if there were any) would be brought into
account in calculating company B's total profits of any accounting period, and
(b) are not attributable to, or used for the purposes of, activities which are double
taxation exempt for any accounting period (see section 186).
CHAPTER 7
MISCELLANEOUS PROVISIONS AND INTERPRETATION OF PART
Miscellaneous
183 Payments for group relief
(1) This section applies if—
(a) the surrendering company and the claimant company have an agreement
between them in relation to losses and other amounts of the surrendering
company (“the agreed loss amounts”),
(b) group relief is given to the claimant company in relation to the agreed loss
amounts, and
(c) as a result of the agreement the claimant company makes a payment to the
surrendering company that does not exceed the total amount of the agreed loss
amounts.

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(2) The payment—
(a) is not to be taken into account in determining the profits or losses of either
company for corporation tax purposes, and
(b) for corporation tax purposes is not to be regarded as a distribution.
184 References to “allowance” in CAA 2001
References in CAA 2001 (apart from Parts 6 and 10) to an allowance include references
to an allowance which would be made—
(a) but for the giving of group relief, or
(b) but for that and for a lack of profits or other income.
Interpretation
185 “Trading company” and “holding company”
(1) In this Part “trading company” means a company the business of which consists wholly
or mainly in the carrying on of a trade or trades.
(2) In this Part “holding company” means a company the business of which consists wholly
or mainly in the holding of shares or securities of companies that—
(a) are its 90% subsidiaries (see section 151), and
(b) are trading companies.
186 When activities of a company are double taxation exempt
(1) For the purposes of this Part activities of a company are double taxation exempt for
an accounting period if, because of double taxation arrangements, the income and
chargeable gains (if any) arising for that period from the activities are to be ignored in
determining the company's chargeable profits for that period.
(2) In determining if any activities are double taxation exempt, assume that any claim that
must be made before effect is given to any provision of double taxation arrangements
is made.
(3) “Double taxation arrangements” means arrangements which have effect under
section 2(1) of TIOPA 2010 (double taxation relief by agreement with territories outside
the United Kingdom).
187 “Non-UK tax”
(1) In this Part “non-UK tax” means a tax chargeable under the law of a territory outside
the United Kingdom which—
(a) is charged on income and corresponds to United Kingdom income tax, or
(b) is charged on income or chargeable gains or both and corresponds to United
Kingdom corporation tax.
(2) A tax is not outside the scope of subsection (1) by reason only that it—
(a) is chargeable under the law of a province, state or other part of a country, or
(b) is levied by or on behalf of a municipality or other local body.

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188 Other definitions
(1) In this Part—
“the claimant company” has the meaning given by section 130(2) or 135(2)
(as the case may be),
“the claim period” has the meaning given by section 130(2) or 135(2) (as
the case may be),
“company” means any body corporate,
“group relief” has the meaning given by section 97(2),
“profits” means income and chargeable gains, except in so far as the context
otherwise requires,
“the surrenderable amounts” has the meaning given by section 99(7) or
113(5) (as the case may be),
“surrendering company” has the meaning given by section 99(7) or 113(5)
(as the case may be), and
“the surrender period” has the meaning given by section 99(7) or 113(5) (as
the case may be).
(2) In this Part, except in so far as the context otherwise requires—
(a) references to a trade include an office, and
(b) references to carrying on a trade include holding an office.
PART 6
CHARITABLE DONATIONS RELIEF
CHAPTER 1
NATURE OF RELIEF
189 Relief for qualifying charitable donations
(1) Qualifying charitable donations made by a company are allowed as deductions from the
company's total profits in calculating the corporation tax chargeable for an accounting
period.
(2) They are deducted from the company's total profits for the period after any other relief
from corporation tax other than group relief.
(3) The amount of the deduction is limited to the amount that reduces the company's taxable
total profits for the period to nil.
(4) Except as otherwise provided, a deduction is allowed only in respect of qualifying
charitable donations made by the company in the accounting period concerned.
(5) The above provisions are subject to any express exceptions in the Corporation Tax Acts.
190 Qualifying charitable donations: meaning
(1) The following are qualifying charitable donations for corporation tax purposes—

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(a) payments which are qualifying payments for the purposes of Chapter 2 (certain
payments to charity), and
(b) amounts treated as qualifying charitable donations under Chapter 3 (certain
disposals of investments to charity).
(2) However, no payment that is otherwise deductible from total profits, or in calculating
any component of total profits, is a qualifying charitable donation.
CHAPTER 2
CERTAIN PAYMENTS TO CHARITY
Qualifying payments
191 Qualifying payments
(1) A payment made to a charity by a company is a qualifying payment for the purposes of
this Chapter if each of conditions A to F is met.
(2) Condition A is that the payment is a payment of a sum of money.
(3) Condition B is that the payment is not subject to a condition as to repayment (but see
section 192).
(4) Condition C is that the company making the payment is not itself a charity.
(5) Condition D is that the payment is not disqualified under section 193 (associated
acquisition etc by the charity).
(6) Condition E is that the payment is not disqualified under section 194 (certain
distributions).
(7) Condition F is that the payment is not disqualified under section 195 (associated
benefits).
192 Condition as to repayment
(1) If—
(a) a company makes a payment to a charity (“the charitable payment”),
(b) the charity makes a payment to the company (“the repayment”), and
(c) each of conditions A to D is met,
the charitable payment is not subject to a condition as to repayment.
(2) Condition A is that the company is wholly owned by the charity, or by a number of
charities that include the charity.
(3) Condition B is that the charitable payment is of an amount which the company estimates
to be the amount necessary to reduce to nil the company's taxable total profits for the
accounting period in which the payment is made (“the relevant period”).
(4) Condition C is that the only purpose for which the charity makes the repayment is to
adjust the amount of the charitable payment so that it is of the amount actually necessary
to reduce to nil the company's taxable total profits for the relevant period.

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(5) Condition D is that the repayment is made no later than 12 months after the end of the
relevant period.
(6) If subsection (1) applies—
(a) the repayment is not non-charitable expenditure for the purposes of section 493
or 515 of this Act or section 543(1)(f) of ITA 2007, and
(b) paragraphs 56 and 62 (but not 64) of Schedule 18 to FA 1998 (supplementary
claims or elections) apply to the repayment.
193 Associated acquisition etc
(1) A payment is disqualified under this section if—
(a) it is conditional on an acquisition of property by the charity from the company
or a person associated with the company,
(b) it is associated with such an acquisition, or
(c) it is part of an arrangement involving such an acquisition.
(2) An acquisition by way of gift is to be ignored for the purposes of this section.
194 Distributions
(1) A payment is disqualified under this section if it is to be regarded as a distribution by
reason of any provision of the Taxes Acts (within the meaning of TMA 1970) except
section 1020 (transfers of assets or liabilities treated as distributions).
(2) In deciding whether a payment is to be regarded as a distribution for the purposes of
subsection (1), section 1002(2) is to be ignored.
(3) A payment (other than a dividend) made by a company which is wholly owned by a
charity is not to be regarded as a distribution for the purposes of subsection (1).
195 Associated benefits
(1) A payment is disqualified under this section if—
(a) benefits are associated with the payment, and
(b) the restrictions on benefits associated with a payment are breached.
(2) Sections 196 to 198 apply for these purposes.
196 Associated benefits: meaning
For the purposes of this Chapter a benefit is associated with a payment if—
(a) it is received by the company which made the payment or by a person associated
with the company, and
(b) it is received in consequence of making the payment.
197 Restrictions on associated benefits
(1) For the purposes of this Chapter the restrictions on benefits associated with a payment
are breached if condition A or B is met.

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(2) Condition A is that the total value of the benefits associated with the payment exceeds
the variable limit, which is—
(a) 25% of the amount of the payment, if the amount of the payment is £100 or less,
(b) £25, if the amount of the payment is more than £100 but not more than £1,000,
(c) 5% of the amount of the payment, if the amount of the payment is more than
£1,000.
(3) Condition B is that the sum of the following total values is more than £500—
(a) the total value of the benefits associated with the payment, and
(b) the total value of the benefits (if any) associated with each relevant prior
payment.
(4) A relevant prior payment is a payment—
(a) which has already been made by the company to the charity in the accounting
period, and
(b) which is a qualifying payment.
(5) This section needs to be read with section 198.
198 Payments and benefits linked to periods of less than 12 months
(1) This section modifies the application of section 197(2) in relation to a payment if
condition A, B, C or D is met.
(2) Condition A is that a benefit associated with the payment relates to a period of less than
12 months.
(3) Condition B is that a benefit associated with the payment consists of a right to receive
benefits at intervals over a period of less than 12 months.
(4) Condition C is that a benefit associated with the payment is one of a series of benefits
which are—
(a) received at intervals, and
(b) associated with a series of payments made at intervals of less than 12 months.
(5) Condition D is that—
(a) a benefit associated with the payment is not one of a series of benefits received
at intervals, and
(b) the payment is one of a series of payments made at intervals of less than 12
months.
(6) If condition A, B or C is met, then for the purposes of section 197(2)—
(a) the value of the benefit is taken to be the annual equivalent of its actual value,
and
(b) the amount of the payment is taken to be the annual equivalent of its actual
amount.
(7) If condition D is met, the amount of the payment is taken for the purposes of
section 197(2) to be the annual equivalent of its actual amount.
(8) The annual equivalent of the value of a benefit, or of the amount of a payment, is found
as follows.
Step 1

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Multiply the value or amount by 365.
Step 2
If condition A or B is met in relation to the benefit (and neither condition C nor
condition D is met in relation to it) divide the result by the number of days in the
period of less than 12 months referred to in subsection (2) or (as the case may
be) subsection (3).
If condition C or D is met in relation to the benefit, divide the result by the average
number of days in the intervals of less than 12 months referred to in subsection (4)(b)
or (as the case may be) subsection (5)(b).
Payment attributed to earlier period
199 Payment attributed to earlier accounting period
(1) This section applies if—
(a) a company makes a qualifying payment,
(b) the company is wholly owned by a charity, and
(c) the company makes a claim for the payment (or part of it) to be treated as a
qualifying charitable donation made in an accounting period falling wholly or
partly within the period of 9 months ending with the date of the making of the
payment.
(2) The payment (or part) is to be treated for corporation tax purposes as a qualifying
charitable donation made in that accounting period and not in any later period.
(3) A claim must be made within the period of two years immediately following the
accounting period in which the payment is made or such longer period as an officer of
Revenue and Customs may allow.
Interpretation
200 Company wholly owned by a charity
(1) For the purposes of this Chapter a company is wholly owned by a charity if condition
A or B is met.
(2) Condition A is that—
(a) the company has an ordinary share capital, and
(b) every part of that share capital is owned by a charity (whether or not the same
charity).
(3) Condition B is that—
(a) the company is limited by guarantee, and
(b) every beneficiary of the company is or must be a charity or a company wholly
owned by a charity.
(4) Ordinary share capital of a company is treated as owned by a charity if a charity—
(a) directly or indirectly owns that share capital within the meaning of Chapter 3
of Part 24, or

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(b) would be taken so to own it if references in that Chapter to a body corporate
included references to a charity which is not a body corporate.
(5) A beneficiary of a company is a person who—
(a) is beneficially entitled to participate in the company's divisible profits, or
(b) will be beneficially entitled to share in any of the company's net assets available
for distribution on its winding up.
201 Associated persons
For the purposes of this Chapter a person is associated with a company if the person
is connected with—
(a) the company, or
(b) a person connected with the company.
202 “Charity”
In this Chapter “charity” means—
(a) a body of persons or trust established for charitable purposes only,
(b) a scientific research association (as defined in section 469),
(c) the Trustees of the National Heritage Memorial Fund,
(d) the Historic Buildings and Monuments Commission for England, or
(e) the National Endowment for Science, Technology and the Arts.
CHAPTER 3
CERTAIN DISPOSALS TO CHARITY
Amounts treated as qualifying charitable donations
203 Certain disposals of investments
(1) This section applies if—
(a) a company disposes of the whole of the beneficial interest in a qualifying
investment to a charity,
(b) the disposal is otherwise than by way of a bargain made at arm's length,
(c) the company is not itself a charity, and
(d) the company makes a claim.
(2) The relievable amount is treated for corporation tax purposes as a qualifying charitable
donation made by the company in the accounting period in which the disposal is made.
(3) No relief in respect of the disposal is to be given under section 105 of CTA 2009 (gifts
of trading stock to charities etc).
(4) For the calculation of the relievable amount, see section 206.
(5) If the qualifying investment is a qualifying interest in land, this section is subject to—
section 213 (certificates),
section 214 (qualifying interests in land held jointly),

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section 215 (calculation of relievable amount etc where joint disposal), and
section 216 (disqualifying events).
204 Meaning of qualifying investment
(1) In this Chapter “qualifying investment” means any of the following—
(a) shares or securities which are listed on a recognised stock exchange or dealt in
on a designated market in the United Kingdom,
(b) units in an authorised unit trust,
(c) shares in an open-ended investment company,
(d) an interest in an offshore fund, and
(e) a qualifying interest in land.
(2) In this section—
“offshore fund” has the meaning given by section 355 of TIOPA 2010, and
“open-ended investment company” is to be read in accordance with sections
613 and 615.
(3) In paragraph (a) of subsection (1) “designated” means designated by an order made
by the Commissioners for Her Majesty's Revenue and Customs for the purposes of that
paragraph.
(4) An order under subsection (3)—
(a) may designate a market by name or by reference to a class or description of
market,
(b) may vary or revoke a previous order under that subsection.
205 Meaning of qualifying interest in land
(1) In this Chapter “qualifying interest in land” means—
(a) a freehold interest in land in the United Kingdom, or
(b) a leasehold interest in land in the United Kingdom which is a term of years
absolute.
This is subject to subsections (2) to (5).
(2) Subsection (3) applies if a company with a beneficial interest in a freehold or leasehold
interest mentioned in subsection (1)(a) or (b) makes a disposal to a charity of—
(a) the whole of the beneficial interest, and
(b) an easement, servitude, right or privilege so far as benefiting the land in
question.
(3) The disposal mentioned in subsection (2)(b) is regarded for the purposes of this Chapter
as a disposal by the company of the whole of its beneficial interest in a qualifying
interest in land separate from the disposal mentioned in subsection (2)(a).
(4) If a company which has a freehold or leasehold interest in land in the United Kingdom
grants a lease for a term of years absolute to a charity of the whole or part of the land,
the grant of the lease is regarded for the purposes of this Chapter as a disposal by the
company of the whole of the beneficial interest in the leasehold interest so granted.
(5) Neither an agreement to acquire a freehold interest nor an agreement for a lease is a
qualifying interest in land.

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(6) In the application of this section to Scotland—
(a) references to a freehold interest in land are to the interest of the owner,
(b) references to a leasehold interest in land which is a term of years absolute are
to a tenant's right over or interest in a property subject to a lease,
(c) references to an agreement for a lease do not include missives of let that
constitute an actual lease, and
(d) the reference in subsection (4) to granting a lease for a term of years absolute
is to granting a lease.
206 The relievable amount
(1) If the disposal is a gift, the relievable amount is given by the formula—
where—
V is the value of the net benefit to the charity at, or immediately after, the time when
the disposal is made (whichever is less),
IC is the amount of the incidental costs of making the disposal to the company making
it, and
B is the total value of any benefits received in consequence of making the disposal by
the company making the disposal or a person connected with the company.
(2) If the disposal is at an undervalue, the relievable amount is given by the formula—
where—
E is the amount (if any) by which V (as defined in subsection (1)) exceeds the amount
or value of the consideration for the disposal,
C is given by subsection (4), and
B is as defined in subsection (1).
(3) But if the amount given by the formula in subsection (1) or (2) is a negative amount,
the relievable amount is nil.
(4) C is found as follows.
Step 1

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Calculate the consideration for which the disposal is treated as made for the
purposes of TCGA 1992 as a result of section 257(2)(a) of that Act (in case of
disposal to charity etc, consideration to be such that no gain or loss accrues).
Step 2
Find the excess (if any) of the amount calculated at step 1 over the amount or
value of the consideration for the disposal.
If there is such an excess, C is the amount of that excess or, if less, the amount of the
incidental costs of making the disposal to the company making it.
If there is no such excess, C is nil.
(5) This section needs to be read with—
(a) section 207 (incidental costs of making disposal),
(b) section 208 (consideration), and
(c) sections 209 to 212 (value of net benefit to charity).
207 Incidental costs of making disposal
References in section 206 to the incidental costs of making the disposal to the company
making it are to—
(a) fees, commission or remuneration paid for the professional services of a
surveyor, valuer, auctioneer, accountant, agent or legal adviser which are
wholly and exclusively incurred by the company for the purposes of the
disposal,
(b) costs of transfer or conveyance wholly and exclusively incurred by the
company for the purposes of the disposal,
(c) costs of advertising to find a buyer, and
(d) costs reasonably incurred in making any valuation or apportionment required
for the purposes of this Chapter.
208 Consideration
If the disposal is at an undervalue, section 48 of TCGA 1992 (consideration due after
time of disposal) applies in relation to the calculation of the relievable amount as it
applies in relation to the calculation of a gain.
Value of net benefit to charity
209 Value of net benefit to charity
(1) For the purposes of this Chapter the value of the net benefit to a charity is—
(a) the market value of the qualifying investment, or
(b) if the charity is, or becomes, subject to a disposal-related obligation, the market
value of the qualifying investment reduced by the total amount of the disposal-
related liabilities of the charity.
(2) This section is supplemented by—
(a) section 210 (market value of qualifying investments),
(b) section 211 (meaning of disposal-related obligation), and

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(c) section 212 (meaning and amount of disposal-related liability).
210 Market value of qualifying investments
(1) For the purposes of this Chapter the market value of a qualifying investment is
determined in accordance with sections 272 to 274 of TCGA 1992 (subject to Part I of
Schedule 11 to that Act).
(2) But, in the case of an interest in an offshore fund for which separate buying and selling
prices are published regularly by the managers of the fund, the market value for the
purposes of this Chapter is an amount equal to the buying price (that is the lower price)
published on—
(a) the day of the disposal, or
(b) if none were published on that day, the latest day on which the prices were
published before that day.
(3) In this section “offshore fund” has the meaning given by section 355 of TIOPA 2010.
211 Meaning of “disposal-related obligation”
(1) For the purposes of this Chapter an obligation is a “disposal-related obligation”, in
relation to a qualifying investment, if condition A or B is met in relation to it.
(2) The obligation may be to any person (whether or not the company making the disposal
or a person connected with it).
(3) Condition A is that it is reasonable to suppose that the disposal of the qualifying
investment to the charity would not have been made in the absence of the obligation.
(4) Condition B is that the obligation (whether in whole or in part) relates to, is framed by
reference to, or is conditional on the charity receiving, the qualifying investment or a
disposal-related investment.
(5) In applying condition A all the circumstances must be taken into account (including in
particular the difference in the value of the net benefit to the charity calculated under
section 209(1)(a) and that value calculated under section 209(1)(b) on the assumption
that the obligation under consideration is a disposal-related obligation).
(6) In subsection (4) “disposal-related investment” means any of the following—
(a) an asset of the same class or description as the qualifying investment
(irrespective of size, quantity or amount),
(b) an asset derived from, or representing, the qualifying investment, whether in
whole or in part and whether directly or indirectly, and
(c) an asset from which the qualifying investment is derived, or which the
qualifying investment represents, whether in whole or in part and whether
directly or indirectly.
(7) In this section “obligation” includes a reference to each of the following—
(a) a scheme, arrangement or understanding of any kind, whether or not legally
enforceable, and
(b) a series of obligations (whether or not between the same parties).

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212 Meaning and amount of “disposal-related liability”
(1) For the purposes of this Chapter a liability is a “disposal-related liability” in the case of a
qualifying investment if it is a liability of the charity under a disposal-related obligation
in relation to the qualifying investment.
(2) If the disposal-related obligation is contingent, the amount to be brought into account
for the purposes of section 209 at any time in respect of the disposal-related liability,
so far as contingent, is—
(a) if the contingency occurs, the amount or value of the liability actually incurred
in consequence of the occurrence of the contingency, or
(b) if the contingency does not occur, nil.
Special provisions about qualifying interests in land
213 Certificate required from charity
(1) This section applies if the qualifying investment is a qualifying interest in land.
(2) A company may not make a claim under section 203 unless the company has received
a certificate given by or on behalf of the charity.
(3) The certificate must—
(a) describe the qualifying interest in land,
(b) specify the date of the disposal, and
(c) state that the charity has acquired the qualifying interest in land.
214 Qualifying interests in land held jointly
(1) This section applies if the qualifying investment is a qualifying interest in land.
(2) It applies if two or more persons (“the owners”)—
(a) are jointly beneficially entitled to the qualifying interest in land, or
(b) are, taken together, beneficially entitled in common to the qualifying interest
in land.
(3) Relief as a result of this Chapter is available if—
(a) at least one of the owners is a qualifying company, and
(b) all the owners dispose of the whole of their beneficial interests in the qualifying
interest in land to the charity.
(4) Relief as a result of this Chapter is available to each of the owners which is a qualifying
company (and section 215 applies).
(5) A company is a qualifying company if it is not itself a charity.
(6) Subsection (7) applies if one or more of the owners is not a company.
(7) For the purpose of determining whether the owners' beneficial interests are disposed
of as mentioned in subsection (3)(b), section 205(2) to (4) applies as if references to a
company included references to a person who is not a company.

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215 Calculation of relievable amount etc where joint disposal of interest in land
(1) If relief as a result of this Chapter is available because of section 214, this section applies
for the purpose of finding—
(a) the relievable amount, and
(b) the amount of relief to be given to a qualifying company.
(2) If one or more of the owners is an individual, subsections (3) and (4) apply.
(3) The relievable amount is taken to be the relievable amount calculated for the purposes
of Chapter 3 of Part 8 of ITA 2007.
(4) The amount of relief to be given to a qualifying company as a result of this Chapter is
calculated on the basis that the reference in section 203(2) to the relievable amount is
read as a reference to such share of the relievable amount found under subsection (3)
above as is allocated to the company by the agreement mentioned in section 442(5) of
ITA 2007.
(5) If none of the owners is an individual, subsections (6) to (9) apply.
(6) Calculate the relievable amount under this Chapter as if—
(a) the owners were a single qualifying company, and
(b) the disposals of the owners' beneficial interests were a single disposal by that
single company of the whole of the beneficial interest in the qualifying interest
in land.
(7) In particular, calculate the consideration mentioned at Step 1 in section 206(4) by—
(a) calculating, for each owner, the consideration for which the disposal of the
owner's beneficial interest is treated as made for the purposes of TCGA 1992
as a result of section 257(2)(a) of that Act, and
(b) adding together all the consideration calculated under paragraph (a).
(8) If one or more of the owners is not a qualifying company, in calculating the relievable
amount make just and reasonable adjustments to reduce the relievable amount to reflect
the fact that relief as a result of this Chapter is not available to that owner or to those
owners.
(9) The amount of relief to be given to a qualifying company as a result of this Chapter
is calculated on the basis that the reference in section 203(2) to the relievable amount
is read as a reference to such share of the relievable amount found under subsections
(6) to (8) above as is allocated to the company by an agreement made between those
owners which are qualifying companies.
216 Disqualifying events
(1) This section applies if the qualifying investment is a qualifying interest in land.
(2) If a disqualifying event occurs at any time in the provisional period, the following are
treated as never having been entitled to relief as a result of this Chapter in respect of
the disposal of the qualifying interest in land—
(a) in a case where sections 214 and 215 do not apply, the company which made
the disposal, and
(b) in a case where those sections apply, each qualifying company which is an
owner.

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(3) All such assessments and adjustments of assessments are to be made as are necessary
to give effect to subsection (2).
(4) A disqualifying event occurs if a person mentioned in subsection (5) becomes
(otherwise than for full consideration in money or money's worth)—
(a) entitled to an interest or right in relation to all or part of the land to which the
disposal relates, or
(b) party to an arrangement under which he enjoys some right in relation to all or
part of that land.
(5) The persons are—
(a) in a case where sections 214 and 215 do not apply, the company which made
the disposal or a person connected with that company, and
(b) in a case where those sections apply, a person who is an owner or a person
connected with such a person.
(6) A disqualifying event does not occur if a person becomes entitled to an interest or
right as mentioned in subsection (4)(a) as a result of a disposition of property on
death (whether the disposition is effected by will, under the law relating to intestacy
or otherwise).
(7) “The provisional period” is the period beginning with the date of the disposal of the
qualifying interest in land and ending with the sixth anniversary of the end of the
accounting period in which the disposal was made.
Interpretation
217 “Charity”
In this Chapter “charity” means—
(a) a body of persons or trust established for charitable purposes only,
(b) the Trustees of the National Heritage Memorial Fund,
(c) the Historic Buildings and Monuments Commission for England, or
(d) the National Endowment for Science, Technology and the Arts.

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PART 7
COMMUNITY INVESTMENT TAX RELIEF
CHAPTER 1
INTRODUCTION
CITR
218 Meaning of “CITR”
This Part provides for community investment tax relief (“CITR”), that is, entitlement to
tax reductions in respect of amounts invested by companies in community development
finance institutions.
219 Eligibility for CITR
(1) A company (“the investor”) which makes an investment (“the investment”) in a body
is eligible for CITR in respect of the investment if—
(a) at the time the investment is made the body is accredited as a community
development finance institution under Chapter 2 of Part 7 of ITA 2007,
(b) the investment is a qualifying investment (see Chapter 2 of this Part), and
(c) the general conditions of Chapter 3 of this Part are met.
(2) In this Part references to “the CDFI” are to the body in which the investment is made.
220 Form and amount of CITR
(1) If the investor is eligible for CITR in respect of the investment, the investor may make
a claim in respect of the investment for any one or more of the relevant accounting
periods.
(2) If the investor makes a claim for a relevant accounting period, the investor is entitled
to a reduction in the amount of its liability for corporation tax for that period.
(3) The amount of that reduction for the relevant accounting period is the smaller of the
following amounts—
(a) 5% of the invested amount in respect of the investment for the period, and
(b) the amount which reduces the investor's liability for corporation tax for the
period to nil.
(4) For this purpose the “relevant” accounting periods are—
(a) the accounting period in which the investment date falls, and
(b) each of the accounting periods in which the subsequent 4 anniversaries of that
date fall.
(5) The investor is entitled to make a claim for CITR for a relevant accounting period if—
(a) the investor considers that the conditions for the CITR are for the time being
met, and

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(b) the investor has received a tax relief certificate (see section 229) relating to the
investment from the CDFI,
but a claim may not be made before the end of the accounting period to which the claim
relates.
(6) Subsection (5) is subject to the following provisions—
(a) section 236 (loans: no claim after disposal or excessive repayments or receipts
of value),
(b) section 237 (securities or shares: no claim after disposal or excessive receipts
of value),
(c) section 238 (no claim after loss of accreditation by the CDFI), and
(d) section 239 (accreditation of investor).
Miscellaneous
221 Meaning of “making an investment”
(1) For the purposes of this Part, a company makes an investment in a body at any time
when—
(a) the company makes a loan (whether secured or unsecured) to the body, or
(b) an issue of securities of or shares in the body, for which the company has
subscribed, is made to the company.
(2) The following provisions of this section apply for the purposes of subsection (1)(a).
(3) A company does not make a loan to a body if—
(a) the body uses overdraft facilities provided by the company, or
(b) the company subscribes for or otherwise acquires securities of the body.
(4) If the loan agreement authorises the body to draw down amounts of the loan over a
period of time, the loan is treated as made at the time when the first amount is drawn
down.
222 Determination of “the invested amount”
(1) This section applies for the purpose of determining “the invested amount” in respect
of any loan, securities or shares included in the investment.
This is subject to sections 246(2) and 252 (which adjust “the invested amount” in
certain cases where value is received).
(2) In the case of a loan, the invested amount is—
(a) for the accounting period in which the investment date falls, the average capital
balance for the first year of the 5 year period,
(b) for the accounting period in which the first anniversary of the investment date
falls, the average capital balance for the second year of the 5 year period, and
(c) for any subsequent accounting period—
(i) the average capital balance for the period of 12 months beginning with
the anniversary of the investment date falling in the accounting period
concerned, or

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(ii) if less, the average capital balance for the period of 6 months beginning
18 months after the investment date.
(3) In the case of securities or shares, the invested amount for an accounting period is the
amount subscribed by the investor for the securities or shares.
(4) For the purposes of this section, the average capital balance of the loan for a period is
the mean of the daily balances of capital outstanding during the period.
223 Meaning of “the 5 year period” and “the investment date”
In this Part—
“the 5 year period” means the period of 5 years beginning with the investment
date, and
“the investment date” means the day the investment is made.
224 Overview of other Chapters of Part
In this Part—
(a) Chapter 4 provides for limitations on claims and the attribution of CITR to
investments,
(b) Chapter 5 provides for CITR to be withdrawn or reduced in the circumstances
mentioned in that Chapter, and
(c) Chapter 6 contains supplementary and general provision.
CHAPTER 2
QUALIFYING INVESTMENTS
225 Qualifying investments: introduction
For the purposes of this Part the investment is a “qualifying investment” in the CDFI
if—
(a) the investment consists of—
(i) a loan in relation to which the conditions of section 226 are met,
(ii) securities in relation to which the conditions of section 227 are met, or
(iii) shares in relation to which the conditions of section 228 are met,
(b) the investor receives from the CDFI a valid tax relief certificate in relation to
the investment (see section 229), and
(c) the requirements of section 230 (no pre-arranged protection against risks) are
met.
226 Conditions to be met in relation to loans
(1) Condition A of this section is that either—
(a) the CDFI receives from the investor, on the investment date, the full amount
of the loan, or

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(b) if the loan agreement authorises the CDFI to draw down amounts of the loan
over a period of time, the end of that period is not later than 18 months after
the investment date.
(2) Condition B is that the loan must not carry any present or future right to be converted
into or exchanged for a loan which is, or securities, shares or other rights which are,
redeemable within the 5 year period.
(3) Condition C is that the loan must not have been made on terms that allow any person
to require—
(a) the repayment during the first two years of the 5 year period of any of the loan
capital advanced in those two years,
(b) the repayment during the third year of that period of more than 25% of the loan
capital outstanding at the end of those two years,
(c) the repayment before the end of the fourth year of that period of more than 50%
of that loan capital, or
(d) the repayment before the end of that period of more than 75% of that loan
capital.
(4) Subsection (3) does not apply if the CDFI is required to make the repayment as a result
of its failure to meet any obligation of the loan agreement which—
(a) is imposed merely because of the commercial risks to which the investor is
exposed as lender under that agreement, and
(b) is no more likely to be breached than any obligation that might reasonably have
been agreed in respect of the loan in the absence of this Part.
(5) The Treasury may by order substitute any other percentage for any percentage for the
time being specified in subsection (3).
(6) Any such substitution is to have effect in relation to loans made by a company on or
after the date specified in the order.
227 Conditions to be met in relation to securities
(1) Condition A of this section is that the securities must be—
(a) subscribed for wholly in cash, and
(b) fully paid for on the investment date.
(2) Condition B is that the securities must not carry—
(a) any present or future right to be redeemed within the 5 year period, or
(b) any present or future right to be converted into or exchanged for a loan which
is, or securities, shares or other rights which are, redeemable within that period.
(3) For the purposes of subsection (1)(b), securities are not fully paid for if there is any
undertaking to pay cash to the CDFI at a future date in connection with the acquisition
of the securities.
228 Conditions to be met in relation to shares
(1) Condition A of this section is that the shares must be—
(a) subscribed for wholly in cash, and
(b) fully paid up on the investment date.

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(2) Condition B is that the shares must not carry—
(a) any present or future right to be redeemed during the 5 year period, or
(b) any present or future right to be converted into or exchanged for a loan which
is, or securities, shares or other rights which are, redeemable within that period.
(3) For the purposes of subsection (1)(b) shares are not fully paid up if there is any
undertaking to pay cash to the CDFI at a future date in connection with the acquisition
of the shares.
229 Tax relief certificates
(1) A “tax relief certificate” means a certificate issued by the CDFI in respect of the
investment which is in the form specified by the Commissioners for Her Majesty's
Revenue and Customs.
(2) The CDFI must not issue tax relief certificates under this section in respect of
investments made in the CDFI in an accreditation period if the total value of—
(a) those investments, and
(b) any investments to which subsection (3) applies,
will exceed the limit for that period.
(3) This subsection applies to investments—
(a) which have been made in the CDFI in the accreditation period, and
(b) in respect of which the CDFI has issued tax relief certificates under section 348
of ITA 2007 (which makes in relation to income tax provision corresponding
to that made by this section).
(4) The limit for an accreditation period is—
(a) £10 million if the CDFI is accredited for the period as a retail community
development finance institution (see section 340(8) of ITA 2007), and
(b) £20 million in any other case.
(5) For the purposes of subsection (2) the value of an investment made in the CDFI is—
(a) if the investment consists of a loan—
(i) the amount of the loan, or
(ii) if the loan agreement authorises the CDFI to draw down amounts of
the loan over a period of time, the amount committed under the loan
agreement, and
(b) if the investment consists of securities or shares, the amount subscribed for
them.
(6) The Treasury may by order substitute any other amount for any amount for the time
being specified in subsection (4).
(7) Any such substitution is to have effect in relation to such accreditation periods as may
be specified in the order; and those periods may, if the substitution increases an amount
for the time being specified in subsection (4), include periods beginning before the order
comes into force.
(8) Any tax relief certificate issued in contravention of subsection (2) is invalid.
(9) A body is liable to a penalty of not more than £3,000 if it issues a tax relief certificate
which is made fraudulently or negligently.

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(10) An accreditation period is a period for which accreditation of the CDFI has effect under
Chapter 2 of Part 7 of ITA 2007.
230 No pre-arranged protection against risks
(1) Any arrangements—
(a) under which the investment is made, or
(b) made, before the investor makes the investment, in relation to or in connection
with the making of the investment,
must not include excluded arrangements.
(2) For the purposes of subsection (1) “excluded arrangements”—
(a) means arrangements the main purpose or one of the main purposes of which is
(by means of any insurance, indemnity or guarantee or otherwise) to provide
partial or complete protection for the investor against what would otherwise be
the risks attached to making the investment, but
(b) does not include any arrangements which are confined to the provision for
the investor of any protection against those risks which might reasonably be
expected to be provided for commercial reasons if the investment were made
in the course of a business of banking.
(3) For the purposes of this section “arrangements” includes any scheme, agreement or
understanding (whether or not legally enforceable).
CHAPTER 3
GENERAL CONDITIONS
231 No control of CDFI by investor
(1) The investor must not control the CDFI at any time during the 5 year period.
(2) In this section references to the investor include any person connected with the investor.
(3) If the CDFI is a body corporate, the question whether the investor controls the CDFI is,
for the purposes of this section, determined in accordance with section 1124.
This is subject to subsection (6).
(4) In any other case the investor is treated, for those purposes, as having control of the
CDFI if the investor has power to secure, as a result of—
(a) the possession of voting power in the CDFI, or
(b) any powers conferred by the constitution of, or any other document regulating,
the CDFI,
that the affairs of the body are conducted in accordance with the investor's wishes.
This is subject to subsections (5) and (6).
(5) If—
(a) the CDFI is a partnership, and
(b) the investor is a member of that partnership,

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for the purposes of determining in accordance with this section whether the investor
controls the CDFI, the other members of that partnership are not, as a result of their
membership of the CDFI, treated as partners of the investor.
(6) In determining whether the investor controls the CDFI there are attributed to the investor
(so far as it would not otherwise be the case)—
(a) any rights or powers that the investor is entitled to acquire at a future date or
will, at a future date, become entitled to acquire, and
(b) any rights or powers which another person holds on behalf of the investor or
may be required to exercise, by direction, on the investor's behalf.
232 Investor must have beneficial ownership
(1) The investor must be the sole beneficial owner of the investment when it is made.
(2) If the investment consists of a loan, the person beneficially entitled to repayment of the
loan is treated as the beneficial owner of the loan for the purposes of this Part.
233 Investor must not be accredited
The investor must not be accredited as a community development finance institution
under Chapter 2 of Part 7 of ITA 2007 on the investment date.
234 No acquisition of share in partnership
(1) If the CDFI is a partnership, the investment must not consist of or include any amount
of capital contributed by the investor on becoming a member of the partnership.
(2) For this purpose the amount of capital contributed by the investor on becoming a
member of the partnership includes any amount which—
(a) purports to be provided by the investor by way of loan capital, and
(b) is accounted for as partners' capital in the accounts of the partnership.
235 No tax avoidance purpose
The investment must not be made as part of a scheme or arrangement the main purpose
or one of the main purposes of which is the avoidance of tax.
CHAPTER 4
LIMITATIONS ON CLAIMS AND ATTRIBUTION
Limitations on claims
236 Loans: no claim after disposal or excessive repayments or receipts of value
(1) If the investment consists of a loan, no claim may be made for an accounting period if—
(a) the investor disposes of the whole or any part of the loan before the qualifying
date relating to that period,

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(b) at any time after the investment is made but before that qualifying date, the
amount of the capital outstanding on the loan is reduced to nil, or
(c) before that qualifying date, paragraphs (a) and (b) of section 245(1)
(repayments of loan in 5 year period exceeding permitted limits) apply in
relation to the investment (whether by virtue of section 246 (receipts of value
treated as repayments) or otherwise).
(2) For the purposes of subsection (1)(a) any repayment of the loan is to be ignored.
(3) For the purposes of this section the qualifying date relating to an accounting period is
the next anniversary of the investment date to occur after the end of that period.
237 Securities or shares: no claim after disposal or excessive receipts of value
(1) If the investment consists of securities or shares, a claim made for an accounting period
must relate only to those securities or shares held by the investor, as sole beneficial
owner, continuously throughout the period—
(a) beginning when the investment is made, and
(b) ending immediately before the qualifying date relating to the accounting period.
(2) No claim may be made for an accounting period if before the qualifying date relating to
that period paragraphs (a) to (d) of section 247(1) (receipts of value in the 6 year period
exceeding permitted limits) apply in relation to the investment or any part of it.
(3) For the purposes of this section the qualifying date relating to an accounting period is
the next anniversary of the investment date to occur after the end of that period.
238 No claim after loss of accreditation by the CDFI
(1) If the CDFI ceases to be accredited under Chapter 2 of Part 7 of ITA 2007 with effect
from a time within the 5 year period, no claim in respect of the investment may be
made—
(a) for the relevant accounting period, or
(b) for any later accounting period.
(2) To find the relevant accounting period proceed under the rest of this section, in which
references to the time of accreditation ceasing are to the time with effect from which
the CDFI ceases to be accredited.
(3) If the time of accreditation ceasing falls within the first year of the 5 year period, the
relevant accounting period is the accounting period in which the investment date fell.
(4) In any other case the relevant accounting period is—
(a) the accounting period in which the last anniversary of the investment date
before the time of accreditation ceasing fell, or
(b) if the time of accreditation ceasing itself falls on an anniversary of the
investment date, the accounting period in which that anniversary falls.
239 Accreditation of investor
(1) This section applies where the investor becomes accredited under Chapter 2 of Part 7
of ITA 2007 with effect from a time within the 5 year period.
(2) No claim in respect of the investment may be made—

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(a) for the relevant accounting period, or
(b) for any later accounting period.
(3) To find the relevant accounting period proceed under the rest of this section, in which
references to the time of accreditation are to the time with effect from which the investor
becomes accredited.
(4) If the time of accreditation falls within the first year of the 5 year period, the relevant
accounting period is the accounting period in which the investment date fell.
(5) In any other case the relevant accounting period is—
(a) the accounting period in which the last anniversary of the investment date
before the time of accreditation fell, or
(b) if the time of accreditation itself falls on an anniversary of the investment date,
the accounting period in which that anniversary falls.
Attribution
240 Attribution: general
(1) In this Part references to the CITR attributable to any loan, securities or shares in respect
of an accounting period are read as references to the reduction which—
(a) is made in the investor's liability to corporation tax for that period, and
(b) is attributed to that loan, or those securities or shares, in accordance with this
section and section 241.
This is subject to the provisions of Chapter 5 for the withdrawal or reduction of CITR.
(2) Subsections (3) and (4) apply if the investor's liability to corporation tax is reduced for
an accounting period under this Part.
(3) If the reduction is obtained because of one loan, or securities or shares included in one
issue, the amount of the tax reduction is attributed to that loan or those securities or
shares.
(4) If the reduction is obtained because of a loan or loans, securities or shares included in
two or more investments, the reduction—
(a) is apportioned between the loan or loans, securities or shares in each of those
investments in the same proportions as the invested amounts in respect of the
loan or loans, securities or shares for the period, and
(b) is attributed to that loan or those loans, securities or shares accordingly.
(5) If under this section an amount of any reduction of corporation tax is attributed to any
securities in the same issue, a proportionate part of that amount is attributed to each
security.
(6) If under this section an amount of any reduction of corporation tax is attributed to any
shares in the same issue, a proportionate part of that amount is attributed to each of
those shares.
(7) If CITR attributable to a loan or any securities or shares falls to be withdrawn under
Chapter 5, the CITR attributable to that loan or each of those securities or shares is
reduced to nil.

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(8) If CITR attributable to any securities or shares falls to be reduced under that Chapter
by any amount, the CITR attributable to each of those securities or shares is reduced
by a proportionate part of that amount.
241 Attribution: bonus shares
(1) This section applies if—
(a) corresponding bonus shares are issued to the investor in respect of any shares
(“the original shares”) included in the investment, and
(b) the original shares have been continuously held by the investor, as sole
beneficial owner, from the time they were issued until the issue of the bonus
shares.
(2) A proportionate part of any amount attributed to the original shares, in respect of an
accounting period, immediately before the bonus shares are issued is attributed to each
of the shares in the holding consisting of the original shares and the bonus shares, in
respect of that period.
(3) After the issue of the bonus shares this Part applies as if—
(a) the original issue had included the bonus shares, and
(b) the bonus shares had been held by the investor, as sole beneficial owner,
continuously from the time the original shares were issued until the bonus
shares were issued.
(4) In this section—
“corresponding bonus shares” means bonus shares that are in the same
company, are of the same class, and carry the same rights as the original shares,
“original issue” means the issue of shares forming the investment.
CHAPTER 5
W ITHDRAWAL OR REDUCTION OF CITR
Introduction
242 Introduction to Chapter
(1) This Chapter provides for CITR to be withdrawn or reduced under—
(a) section 243 (disposal of loan during 5 year period),
(b) section 244 (disposal of securities or shares during 5 year period),
(c) section 245 (repayment of loan capital during 5 year period),
(d) section 246 (value received by investor during 6 year period: loans),
(e) section 247 (value received by investor during 6 year period: securities or
shares),
(f) section 254 (CITR subsequently found not to have been due).
(2) This Chapter also provides for the manner in which CITR is to be withdrawn or reduced
(see section 255).

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(3) In this Chapter “the 6 year period” in relation to the investment is the period of 6 years
beginning 12 months before the investment date.
Disposals
243 Disposal of loan during 5 year period
(1) If the investment consists of a loan and within the 5 year period—
(a) the investor disposes of the whole of the investment, otherwise than by way of
a permitted disposal, or
(b) the investor disposes of a part of the investment,
any CITR attributable to the investment in respect of any accounting period must be
withdrawn.
(2) For the purposes of this section—
(a) a disposal is “permitted” if—
(i) it is by way of a distribution in the course of dissolving or winding up
the CDFI,
(ii) it is a disposal within section 24(1) of TCGA 1992 (entire loss,
destruction, dissipation or extinction of asset),
(iii) it is a deemed disposal under section 24(2) of that Act (claim that value
of asset has become negligible), or
(iv) it is made after the CDFI has ceased to be accredited under Chapter 2
of Part 7 of ITA 2007, and
(b) a full or partial repayment of the loan is not treated as giving rise to a disposal.
244 Disposal of securities or shares during 5 year period
(1) This section applies if the investment consists of securities or shares and—
(a) the investor disposes of the whole or any part of the investment (“the former
investment”) within the 5 year period,
(b) the CDFI has not ceased to be accredited under Chapter 2 of Part 7 of ITA 2007
before the disposal, and
(c) the disposal does not arise as a result of an event within section 249(1)(a)
(repayment, redemption or repurchase of securities or shares included in the
investment).
(2) If the disposal is not a qualifying disposal, any CITR attributable to the former
investment in respect of any accounting period must be withdrawn.
(3) If the disposal is a qualifying disposal, any CITR attributable to the former investment
in respect of an accounting period must—
(a) if it is greater than A, be reduced by A, and
(b) in any other case, be withdrawn.
For this purpose “A” is an amount equal to 5% of the amount or value of the
consideration (if any) which the investor receives for the former investment.
(4) For the purposes of this section “qualifying disposal” means a disposal that is—
(a) by way of a bargain made at arm's length, or
(b) a permitted disposal (within the meaning of section 243).

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(5) If in respect of any accounting period—
(a) the amount of CITR attributable to the former investment (“B”) is less than
(b) the amount (“C”) which is equal to 5% of the invested amount in respect of the
former investment for that period,
subsection (3)(a) has effect in relation to that period as if the amount or value referred
to in subsection (3) were reduced by multiplying it by the fraction—
(6) If the amount of CITR attributable to the former investment in respect of an accounting
period has been reduced before the CITR is obtained, the amount referred to in
subsection (5) as B is to be treated for the purposes of that subsection as the amount it
would have been without that reduction.
(7) Subsection (6) does not apply to a reduction by virtue of section 241 (attribution: bonus
shares).
Repayment of loans
245 Repayment of loan capital during 5 year period
(1) If the investment consists of a loan and—
(a) the average capital balance of the loan for the third, fourth or final year of the
5 year period is less than the permitted balance for the year in question, and
(b) the difference between those balances is not an amount of insignificant value,
any CITR attributable to the investment in respect of any accounting period must be
withdrawn.
(2) For the purposes of this section—
“the average capital balance” of the loan for a period is the mean of the daily
balances of capital outstanding during that period, ignoring any non-standard
repayments of the loan made in that period or at any earlier time, and
“the permitted balance” of the loan is—
(a) for the third year of the 5 year period, 75% of the average capital balance
for the period of 6 months beginning 18 months after the investment date,
(b) for the fourth year of that period, 50% of that balance, and
(c) for the final year of that period, 25% of that balance.
(3) For the purposes of subsection (2) a repayment of the loan is a non-standard repayment
if subsection (4) or (5) applies.

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(4) This subsection applies if the repayment is made at the choice or discretion of the CDFI,
and not as a direct or indirect consequence of any obligation provided for under the
terms of the loan agreement.
(5) This subsection applies if the repayment is made as a result of the failure of the CDFI
to meet any obligation of the loan agreement which—
(a) is imposed merely because of the commercial risks to which the investor is
exposed as lender under that agreement, and
(b) is no more likely to be breached than any obligation that might reasonably have
been agreed in respect of the loan in the absence of this Part.
(6) For the purposes of this section “an amount of insignificant value” means an amount
which—
(a) is not more than £1,000, or
(b) if it is more than £1,000, is insignificant in relation to the average capital
balance of the loan for the year of the 5 year period in question.
Receipts of value
246 Value received by investor during 6 year period: loans
(1) This section applies if the investment consists of a loan and the investor receives any
value (other than an amount of insignificant value) from the CDFI during the 6 year
period (see section 249 for provision about when value is received).
(2) The investor is treated for the purposes of—
(a) section 222 (determination of “invested amount”), and
(b) section 245 (repayments of loan capital),
as having received a repayment of the loan of an amount equal to the amount of the
value received.
(3) For those purposes the repayment is treated as made—
(a) if the value is received in the first or second year of the 6 year period, at the
beginning of that second year, and
(b) if the value is received in a later year of that period, at the beginning of the
year in question.
(4) For the purposes of section 245 the repayment is treated as a repayment other than a
non-standard repayment (within the meaning of that section).
(5) For the purposes of this section “an amount of insignificant value” means an amount
of value which—
(a) is not more than £1,000, or
(b) if it is more than £1,000, is insignificant in relation to the average capital
balance of the loan for the year of the 6 year period in which the value is
received.
(6) For the purposes of subsection (5)(b)—
(a) “the average capital balance” of the loan for a year is the mean of the daily
balances of capital outstanding during the year (ignoring the receipt of value
in question), and

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(b) any value received in the first year of the 6 year period is treated as received at
the beginning of the second year of that period.
(7) This section is subject to section 251 (value received if there is more than one
investment).
(8) Value received is ignored, for the purposes of this section, so far as the CITR attributable
to any loan, securities or shares in respect of any one or more accounting periods has
already been reduced or withdrawn on its account.
247 Value received by investor during 6 year period: securities or shares
(1) This section applies if the investment consists of securities or shares and—
(a) the investor receives any value (other than an amount of insignificant value)
from the CDFI during the 6 year period (see section 249 for provision about
when value is received),
(b) the investment or a part of it is held by the investor at the time the value
is received and has been held by the investor, as sole beneficial owner,
continuously since the investment was made (“the continuing investment”),
(c) the receipt is wholly or partly in excess of the permitted level of receipts in
respect of the continuing investment, and
(d) the amount of that excess is not an amount of insignificant value.
(2) Any CITR attributable to the continuing investment in respect of any accounting period
must be withdrawn.
(3) For the purposes of subsection (1) the permitted level of receipts is exceeded if—
(a) any amount of value is received by the investor (ignoring any amounts of
insignificant value) in the first 3 years of the 6 year period, or
(b) the total amount of value received by the investor (ignoring any amounts of
insignificant value)—
(i) before the beginning of the fifth year of that period, exceeds 25% of
the invested capital,
(ii) before the beginning of the final year of that period, exceeds 50% of
the invested capital, or
(iii) before the end of that period, exceeds 75% of the invested capital.
(4) In this section—
“the invested capital”, in relation to the continuing investment, means the
amount subscribed for the securities or shares concerned, and
“an amount of insignificant value” means an amount of value which—
(a) is not more than £1,000, or
(b) if it is more than £1,000, is insignificant in relation to the amount
subscribed by the investor for the securities or shares included in the
continuing investment.
(5) This section is subject to section 251 (value received if there is more than one
investment).
(6) Value received is ignored, for the purposes of this section, so far as CITR attributable
to any loan, securities or shares in respect of any one or more accounting periods has
already been reduced or withdrawn on its account.

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248 Receipts of insignificant value to be added together
(1) This section applies if—
(a) value is received (“the relevant receipt”) by the investor from the CDFI at any
time during the 6 year period relating to the investment (see section 249 for
provision about when value is received),
(b) the investor has received from the CDFI one or more receipts of insignificant
value at a time or times—
(i) during that period, but
(ii) not later than the time of the relevant receipt, and
(c) the total amount of the value of the receipts within paragraphs (a) and (b) is not
an amount of insignificant value.
(2) The investor is treated for the purposes of this Part as if the relevant receipt had been a
receipt of an amount of value equal to that total amount.
(3) A receipt does not fall within subsection (1)(b) if the whole or any part of it has
previously formed part of a total amount falling within subsection (1)(c).
(4) For the purposes of this section “an amount of insignificant value” means an amount
of value which—
(a) is not more than £1,000, or
(b) if it is more than £1,000, is insignificant in relation to the relevant amount.
(5) If the investment consists of a loan, the relevant amount for the purposes of
subsection (4) is—
(a) if the relevant receipt is received in the first or second year of the 6 year period,
the average capital balance of the loan for the second year of that period, and
(b) if the relevant receipt is received in a later year, the average capital balance of
the loan for the year in question.
(6) For the purposes of subsection (5)—
(a) the average capital balance of the loan for a year is the mean of the daily
balances of capital outstanding during the year, and
(b) the relevant receipt and any receipts within subsection (1)(b) are ignored when
calculating the average capital balance for the year in question.
(7) If the investment consists of securities or shares, the relevant amount for the purposes
of subsection (4) is—
(a) if the relevant receipt is received in the first year of the 6 year period, the amount
subscribed for the securities or shares, and
(b) in any other case, the amount subscribed for such of the securities or shares as—
(i) are held by the investor at the time the relevant receipt is received, and
(ii) have been held by the investor, as sole beneficial owner, continuously
since the investment was made.
(8) This section is subject to section 251 (value received if there is more than one
investment).
249 When value is received
(1) For the purposes of this Chapter the investor receives value from the CDFI at any time
when the CDFI—

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(a) repays, redeems or repurchases any securities or shares included in the
investment,
(b) releases or waives any liability of the investor to the CDFI or discharges, or
undertakes to discharge, any liability of the investor to a third person,
(c) makes a loan or advance to the investor which has not been repaid in full before
the investment is made,
(d) provides a benefit or facility for—
(i) the investor or any associate of the investor, or
(ii) a director or employee of the investor or any associate of a director or
employee of the investor,
(e) disposes of an asset to the investor for no consideration or for a consideration
of an amount or value which is less than the market value of the asset,
(f) acquires an asset from the investor for a consideration of an amount or value
which is more than the market value of the asset, or
(g) makes a payment to the investor other than a qualifying payment.
(2) But if the investor is a bank, the investor does not receive value from the CDFI when the
CDFI makes a deposit with the investor in the course of the CDFI's ordinary banking
arrangements with the investor.
(3) For the purposes of subsection (1)(b) the CDFI is treated as having released or waived
a liability if the liability is not discharged within 12 months of the time when it ought
to have been discharged.
(4) For the purposes of subsection (1)(c) the following are treated as loans made by the
CDFI to the investor—
(a) the amount of any debt due from the investor to the CDFI (other than an
ordinary trade debt), and
(b) the amount of any debt due from the investor to a third person which has been
assigned to the CDFI.
(5) For the purposes of this section—
(a) references to a debt or liability do not, in relation to a person, include references
to any debt or liability which would be discharged by the making by that person
of a qualifying payment,
(b) references to a benefit or facility do not include references to any benefit or
facility provided in circumstances such that, if a payment had been made of an
amount equal to its value, that payment would have been a qualifying payment,
and
(c) any reference to a payment or disposal to a person includes a reference to a
payment or disposal made to that person indirectly or to that person's order or
for that person's benefit.
(6) In subsection (5) references to “a person” include references to any other person who,
at any time in the 6 year period, is connected with that person, whether or not the other
person is so connected at the material time.
(7) In this section—
“bank” has the meaning given by section 1120,
“qualifying payment” means—
(a) any payment by any person for any goods, services or facilities provided
by the investor (in the course of the investor's trade or otherwise) which

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is reasonable in relation to the market value of those goods, services or
facilities,
(b) the payment by any person of any interest which represents no more than
a reasonable commercial return on money lent to that person,
(c) the payment by any company of any dividend or other distribution which
does not exceed a normal return on any investment in shares in or
securities of that company,
(d) any payment for the acquisition of an asset which does not exceed its
market value,
(e) the payment by any person, as rent for any property occupied by the
person, of an amount which is not more than a reasonable and commercial
rent for the property, and
(f) a payment in discharge of an ordinary trade debt, and
“ordinary trade debt” means any debt for goods or services supplied in the
ordinary course of a trade or business if any credit given—
(a) is for not more than 6 months, and
(b) is not longer than that normally given to customers of the person carrying
on the trade or business.
250 The amount of value received
(1) In a case falling within a provision listed in column 1 of the following table, the amount
of value received for the purposes of this Chapter is given by the corresponding entry
in column 2 of the table.
ProvisionThe amount of value receivedSection 249(1)(a)The amount received by the investorSection 249(1)(b)The amount of the liabilitySection 249(1)(c)The amount of the loan or advance, less the amount
of any repayment made before the investment is
made
Section 249(1)(d)(i)The cost to the CDFI of providing the benefit or
facility, less any consideration given for it by the
investor or any associate of the investor
Section 249(1)(d)(ii)The cost to the CDFI of providing the benefit or
facility, less any consideration given for it by the
investor or any associate of the investor or by a
person within subsection (2)
(2) The persons within this subsection are—
(a) in a case where the benefit or facility was provided to a director or employee,
the director or employee or any associate of the director or employee, and
(b) in a case where the benefit or facility was provided to an associate of a director
or employee, the associate or the director or employee.
251 Value received if there is more than one investment
(1) This section applies if—

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(a) the investor makes two or more investments in the CDFI,
(b) the investor is eligible for and claims CITR in respect of those investments, and
(c) the investor receives value (other than value within section 249(1)(a)) which is
received within the 6 year periods relating to two or more of those investments.
(2) Sections 246, 247, 248 and 252 have effect in relation to each investment referred to
in subsection (1)(c) as if the amount of the value received were reduced by multiplying
it by the fraction—
where—
A is the appropriate amount in respect of the investment in question, and
B is the sum of that amount and the appropriate amount or amounts in respect of the
other investment or investments.
(3) If the investment consists of a loan, the appropriate amount for the purposes of
subsection (2) is—
(a) if the value is received in the first or second year of the 6 year period, the
average capital balance of the loan for the second year of that period, and
(b) if the value is received in a later year, the average capital balance of the loan
for the year in question.
(4) For the purposes of subsection (3)—
(a) the average capital balance of the loan for a year is the mean of the daily
balances of capital outstanding during the year, and
(b) the receipt of value is ignored when calculating the average capital balance for
the year in question.
(5) If the investment consists of securities or shares, the appropriate amount for the
purposes of subsection (2) is—
(a) if the value is received in the first year of the 6 year period, the amount
subscribed for the securities or shares, and
(b) in any other case, the amount subscribed for such of the securities or shares as—
(i) are held by the investor at the time the value is received, and
(ii) have been held by the investor, as sole beneficial owner, continuously
since the investment was made.
252 Effect of receipt of value on future claims
(1) This section applies if the investment consists of securities or shares and—
(a) the investor receives any value (other than an amount of insignificant value)
from the CDFI during the 6 year period, and

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(b) the investment or a part of it is held by the investor at the time the value
is received and has been held by the investor, as sole beneficial owner,
continuously since the investment was made (“the continuing investment”),
but no CITR attributable to the continuing investment is withdrawn under section 247
as a result of the receipt.
(2) For the purposes of calculating any CITR in respect of any securities or shares included
in the continuing investment for any relevant accounting period, the amount subscribed
for the securities or shares included in the continuing investment is treated as reduced
by the amount of the value received.
(3) For this purpose the “relevant” accounting periods are—
(a) any accounting period ending on or after the anniversary of the investment date
immediately before the receipt of value, or
(b) if the value was received on an anniversary of the investment date, any
accounting period ending on or after that anniversary.
(4) For the purposes of this section “an amount of insignificant value” means an amount
of value which—
(a) is not more than £1,000, or
(b) if it is more than £1,000, is insignificant in relation to the amount subscribed by
the investor for the securities or shares included in the continuing investment.
(5) This section is subject to section 251 (value received if there is more than one
investment).
253 Receipts of value by or from connected persons
In sections 246 to 252, if the context permits, references to the investor or the CDFI
include references to any person who at any time in the 6 year period relating to the
investment is connected with the investor or, as the case may be, the CDFI, whether or
not the person is connected at the material time.
CITR not due
254 CITR subsequently found not to have been due
If any CITR has been obtained which is subsequently found not to have been due, the
CITR must be withdrawn.
Manner of withdrawal or reduction
255 Manner of withdrawal or reduction of CITR
(1) This section applies if any CITR has been obtained which falls to be withdrawn or
reduced under this Chapter.
(2) The CITR must be withdrawn or reduced by making an assessment to corporation tax
for the accounting period for which the CITR was obtained.
(3) An assessment under subsection (2) may be made at any time not more than 6 years
after the end of the accounting period for which the CITR was obtained.

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(4) Subsection (3) is not to be taken to limit the application of paragraph 46(2A) of
Schedule 18 to the Finance Act 1998 (loss of tax brought about deliberately).
CHAPTER 6
SUPPLEMENTARY AND GENERAL
Alternative finance arrangements
256 Meaning of “loan” and “interest”
(1) In this Part—
(a) references to a “loan” include references to alternative finance arrangements,
and
(b) references to “interest” include references to alternative finance return.
(2) In subsection (1)—
“alternative finance arrangements” means arrangements to which any of the
following applies—
(a) section 503 of CTA 2009 (purchase and resale arrangements),
(b) section 505 of that Act (deposit arrangements),
(c) section 506 of that Act (profit share agency arrangements), and
“alternative finance return” has the meaning given by section 511 and 513(1)
and (2) of that Act.
(3) Subsection (1) needs to be read with—
(a) section 257, in the case of arrangements to which section 503 of CTA 2009
applies,
(b) section 258, in the case of arrangements to which section 505 of that Act
applies, and
(c) section 259, in the case of arrangements to which section 506 of that Act
applies.
257 Purchase and resale arrangements
(1) This section applies if, under arrangements to which section 503 of CTA 2009 applies,
a person (“the first purchaser”) purchases an asset that is sold to another person (“the
second purchaser”).
(2) This Part has effect in relation to the arrangements in accordance with subsections (3)
to (9).
(3) The first purchaser is treated as making a loan to the second purchaser.
(4) The amount of the loan is treated as being equal to the first purchase price.
(5) If the arrangements provide that the first purchaser will transfer ownership of the asset
to the second purchaser in instalments—
(a) references to the loan being drawn down over a period of time include
references to the asset being transferred to the second purchaser in instalments,

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(b) references to the date on which the first amount of the loan is drawn down
include references to the date on which the first instalment is transferred to the
second purchaser, and
(c) references to the amount drawn down at a given date include references to the
value of the instalments transferred at that date.
(6) In calculating the amount of capital outstanding on the loan, each payment of the second
purchase price (or part of the second purchase price), as reduced by any amount of
alternative finance return (within the meaning of Chapter 6 of Part 6 of CTA 2009)
included within each payment, is treated as repayment of the loan capital.
(7) References to the beneficial owner of the loan include references to the person
beneficially entitled to payment of the second purchase price.
(8) References to the disposal of the whole or any part of the loan include references to
the disposal of the right to receive payment of the whole or any part of the outstanding
second purchase price.
(9) If arrangements to which section 503 of CTA 2009 applies are, by virtue of this section,
qualifying investments under Chapter 2 of this Part, paragraph (f) of section 249(1)
above is to be ignored in relation to the arrangements concerned.
(10) In this section “the first purchase price” and “the second purchase price” have the same
meaning as in section 503 of CTA 2009.
258 Deposit arrangements
(1) This section applies if, under arrangements to which section 505 of CTA 2009 applies,
a person (“the depositor”) deposits money with a financial institution.
(2) This Part has effect in relation to the arrangements in accordance with subsections (3)
to (9).
(3) The depositor is treated as making a loan to the financial institution.
(4) The amount of the loan is treated as being equal to the money deposited under the
arrangements.
(5) If the arrangements provide that the depositor will deposit a sum of money with the
financial institution in instalments—
(a) references to the loan being drawn down over a period of time include
references to the depositor depositing a sum of money with the financial
institution in instalments,
(b) references to the date on which the first amount of the loan is drawn down
include references to the date on which the first instalment is deposited with
the financial institution, and
(c) references to the amount drawn down at a given date include references to the
value of the instalments deposited with the financial institution at that date.
(6) The capital outstanding on the loan is treated as being equal to the balance of the
repayable deposit.
(7) References to any repayment of the loan include references to any repayment of the
deposit.

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(8) References to the beneficial owner of the loan include references to the person
beneficially entitled to repayment of the deposit.
(9) References to the disposal of the whole or any part of the loan include references to the
disposal of the right to receive repayment of the whole or any part of the deposit.
(10) In this section “financial institution” has the same meaning as in Chapter 6 of Part 6
of CTA 2009 (see section 502 of that Act).
259 Profit share agency arrangements
(1) This section applies if, under arrangements to which section 506 of CTA 2009 applies,
a person (“the principal”) appoints a financial institution as agent.
(2) This Part has effect in relation to the arrangements in accordance with subsections (3)
to (9).
(3) The principal is treated as making a loan to the agent.
(4) The amount of the loan is treated as being equal to the money provided by the principal
to the agent under the arrangements.
(5) If the arrangements provide that the principal will provide a sum of money to the agent
in instalments—
(a) references to the loan being drawn down over a period of time include
references to the principal providing a sum of money to the agent in instalments,
(b) references to the date on which the first amount of the loan is drawn down
include references to the date on which the first instalment is provided to the
agent, and
(c) references to the amount drawn down at a given date include references to the
value of the instalments provided to the agent at that date.
(6) The capital outstanding on the loan is treated as being equal to the balance of the
repayable money provided to the agent.
(7) References to any repayment of the loan include references to any repayment of the
money provided to the agent.
(8) References to the beneficial owner of the loan include references to the person
beneficially entitled to repayment of the money provided to the agent.
(9) References to the disposal of the whole or any part of the loan include references to
the disposal of the right to receive repayment of the whole or any part of the money
provided to the agent.
(10) In subsection (1) “financial institution” has the same meaning as in Chapter 6 of Part
6 of CTA 2009 (see section 502 of that Act).
Miscellaneous
260 Information to be provided by the investor
(1) If—
(a) the investor has obtained CITR in respect of the investment, and

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(b) an event occurs because of which CITR attributable to the investment in
respect of any accounting period falls to be withdrawn or reduced by virtue of
section 243, 244, 245 or 247,
the investor must give an officer of Revenue and Customs a notice containing particulars
of the event.
(2) Subject to subsection (3), a notice under subsection (1) must be given not later than
the end of the period of 12 months beginning with the end of the accounting period in
which the event occurred.
(3) If—
(a) the investor is required to give a notice as a result of the receipt of value by a
person connected with the investor (see section 253), and
(b) the end of the period of 60 days beginning when the investor comes to know
of that event is later than the final notice date under subsection (2),
the notice must be given before the end of that 60 day period.
261 Disclosure
(1) No obligation as to secrecy or other restriction on the disclosure of information imposed
by statute or otherwise prevents the disclosure of information—
(a) by the Secretary of State to an officer of Revenue and Customs for the purpose
of assisting Her Majesty's Revenue and Customs to discharge their functions
under the Corporation Tax Acts so far as relating to matters arising under this
Part, or
(b) by an officer of Revenue and Customs to the Secretary of State for the purpose
of assisting the Secretary of State to discharge the Secretary of State's functions
in connection with this Part.
(2) Information obtained by such disclosure is not to be further disclosed except for the
purposes of legal proceedings arising out of the functions referred to.
262 Nominees
(1) For the purposes of this Part—
(a) loans made by or to, or disposed of by, a nominee for a person are treated as
made by or to, or disposed of by, that person, and
(b) securities or shares subscribed for by, issued to, acquired or held by or disposed
of by a nominee for a person are treated as subscribed for by, issued to, acquired
or held by or disposed of by that person.
(2) For the purposes of subsection (1) references to things done by or to a nominee for a
person include things done by or to a bare trustee for a person.
263 Application for postponement of tax pending appeal
No application may be made under section 55(3) or (4) of TMA 1970 (application
for postponement of payment of tax pending appeal) on the ground that a company is
eligible for CITR unless a claim for the CITR has been duly made by the company
under this Part.

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264 Identification of securities or shares on a disposal
(1) This section applies for the purpose of identifying the securities or shares disposed of
in any case where—
(a) the investor disposes of part of a holding of securities or shares (“the holding”),
and
(b) the holding includes securities or shares to which CITR is attributable in respect
of one or more accounting periods that have been held continuously by the
investor from the time they were issued until the disposal.
(2) Any disposal by the investor of securities or shares included in the holding which have
been acquired by the investor on different days is treated as relating to those acquired
on an earlier day rather than to those acquired on a later day.
(3) If there is a disposal by the investor of securities or shares included in the holding which
have been acquired by the investor on the same day, any of those securities or shares—
(a) to which CITR is attributable, and
(b) which have been held by the investor continuously from the time they were
issued until the time of disposal,
are treated as disposed of after any other securities or shares included in the holding
which were acquired by the investor on that day.
(4) For the purposes of this section a holding of securities is any number of securities of
a company which—
(a) carry the same rights,
(b) were issued under the same terms, and
(c) are held by the investor in the same capacity.
It does not matter for this purpose that the number of the securities grows or diminishes
as securities carrying those rights and issued under those terms are acquired or disposed
of.
(5) For the purposes of this section a holding of shares is any number of shares in a company
which—
(a) are of the same class, and
(b) are held by the investor in the same capacity.
It does not matter for this purpose that the number of the shares grows or diminishes as
shares of that class are acquired or disposed of.
(6) In a case to which section 127 of TCGA 1992 (equation of original shares and new
holding) applies, shares comprised in the new holding are to be treated for the purposes
of subsections (2) and (3) as acquired when the original shares were acquired.
(7) In subsection (6)—
(a) the reference to section 127 of TCGA 1992 includes a reference to that section
as it is applied by virtue of any enactment relating to chargeable gains, and
(b) “original shares” and “new holding” have the same meaning as in section 127
of TCGA 1992 or (as the case may be) that section as applied by virtue of the
enactment in question.

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Definitions
265 Meaning of “issue of securities or shares”
(1) In this Part—
(a) references (however expressed) to an issue of securities of any body are to such
securities of that body as carry the same rights and are issued under the same
terms and on the same day, and
(b) references (however expressed) to an issue of shares in any body are to such
shares in that body as are of the same class and issued on the same day.
(2) In this Part references (however expressed) to an issue of securities of or shares in a
body to a company are to such of the securities or shares in an issue of securities of or
shares in that body as are issued to that company in one capacity.
266 Meaning of “disposal”
(1) Subject to subsection (2), in this Part “disposal” is read in accordance with TCGA
1992, and related expressions are read accordingly.
(2) An investor is treated as disposing of any securities or shares which but for
section 151BC(1) of TCGA 1992 the investor—
(a) would be treated as exchanging for other securities or shares by virtue of
section 136 of that Act, or
(b) would be so treated but for section 137(1) of that Act (which restricts
section 136 to genuine reconstructions).
267 Construction of references to being “held continuously”
(1) This section applies if for the purposes of this Part it becomes necessary to determine
whether the investor has held the investment (or any part of it) continuously throughout
any period.
(2) The investor is not treated as having held the investment (or any part of it) continuously
throughout a period if the investor—
(a) is treated, under any provision of TCGA 1992, as having disposed of and
immediately re-acquired the investment (or part) at any time during the period,
or
(b) is treated as having disposed of the investment (or part) at any such time, by
virtue of section 266(2) above.
268 Meaning of “associate”
(1) In this Part “associate”, in relation to a person, means—
(a) any relative or partner of that person,
(b) the trustee or trustees of any settlement in relation to which that person, or any
relative of that person (living or dead), is or was a settlor, and
(c) if that person has an interest in any shares or obligations of a company which
are subject to any trust or are part of the estate of a deceased person—
(i) the trustee or trustees of the settlement concerned or, as the case may
be, the personal representatives of the deceased, and

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(ii) if that person is a company, any other company which has an interest
in those shares or obligations.
(2) In subsection (1)(a) and (b) “relative” means spouse or civil partner, ancestor or lineal
descendant.
(3) In subsection (1)(b) “settlor” and “settlement” have the same meaning as in Chapter
5 of Part 5 of ITTOIA 2005 (see section 620 of that Act).
269 Minor definitions etc
(1) In this Part—
“body” includes an unincorporated association, and
“bonus shares” means shares which are issued otherwise than for payment
(whether in cash or otherwise).
(2) For the purposes of this Part shares in a company are not treated as being of the same
class unless they would be so treated if they were—
(a) included in the official UK list, and
(b) admitted to trading on the London Stock Exchange.
(3) For the purposes of this Part the market value at any time of any asset is the price which
it might reasonably be expected to fetch on a sale at that time in the open market free
from any interest or right which exists by way of security in or over it.
(4) In this Part—
(a) references to CITR obtained by the investor in respect of any investment (or
part of an investment) include references to CITR obtained by the investor in
respect of that investment (or part) at any time after the investor has disposed
of it, and
(b) references to the withdrawal or reduction of CITR obtained by the investor in
respect of the investment (or any part of it) include references to the withdrawal
or reduction of CITR obtained in respect of that investment (or part) at any
such time.
(5) In the case of any condition that cannot be met until a future date—
(a) references in this Part to a condition being met for the time being are to nothing
having occurred to prevent its being met, and
(b) references to its continuing to be met are to nothing occurring to prevent its
being met.

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PART 8
OIL ACTIVITIES
CHAPTER 1
INTRODUCTION
270 Overview of Part
(1) This Part is about the corporation tax treatment of oil activities.
(2) Chapter 2 contains basic definitions used in this Part.
(3) Chapter 3 treats oil-related activities as a separate trade.
(4) Chapter 4 makes provision about the calculation of profits from oil activities.
(5) Chapter 5 makes provision about ring fence expenditure supplement.
(6) Chapter 6 makes provision about the supplementary charge in respect of ring fence
trades.
(7) Chapter 7 makes provision about the reduction of the supplementary charge for certain
new oil fields.
(8) For the meaning of—
(a) “oil-related activities”, see section 274,
(b) “ring fence trade”, see section 277, and
(c) “new oil field”, see section 350.
CHAPTER 2
BASIC DEFINITIONS
271 “Associated companies”
(1) For the purposes of this Part two companies are associated with one another if—
(a) one is a 51% subsidiary of the other,
(b) each is a 51% subsidiary of a third company,
(c) one is owned by a consortium of which the other is a member,
(d) one has control of the other, or
(e) both are under the control of the same person.
(2) For the purposes of this section—
(a) a company is owned by a consortium if at least 75% of the company's
ordinary share capital is beneficially owned by other companies each of which
beneficially owns at least 5% of that capital, and
(b) the other companies each owning at least 5% of that capital are the members
of the consortium.

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(3) In this section “control” has the same meaning as in Part 10 (close companies) (see
sections 450 and 451).
272 “Oil extraction activities”
(1) In this Part “oil extraction activities” means activities within any of subsections (2) to
(5) (but see also section 291(6)).
(2) Activities of a company in searching for oil in the United Kingdom or a designated area
or causing such searching to be carried out for it.
(3) Activities of a company in extracting, or causing to be extracted for it, oil at any place
in the United Kingdom or a designated area under rights which—
(a) authorise the extraction, and
(b) are held by it or by a company associated with it.
(4) Activities of a company in transporting, or causing to be transported for it, oil extracted
at any such place not on dry land under rights which—
(a) authorise the extraction, and
(b) are held as mentioned in subsection (3)(b),
if the transportation meets condition A or B (see subsections (6) and (7)).
(5) Activities of a company in effecting, or causing to be effected for it, the initial treatment
or initial storage of oil won from any oil field under rights which—
(a) authorise its extraction, and
(b) are held as mentioned in subsection (3)(b).
(6) Condition A is that the transportation is to the place where the oil is first landed in the
United Kingdom.
(7) Condition B is that the transportation—
(a) is to the place in the United Kingdom, or
(b) in the case of oil first landed in another country, is to the place in that or any
other country (other than the United Kingdom),
at which the seller in a sale at arm's length could reasonably be expected to deliver it
(or, if there is more than one such place, the one nearest to the place of extraction).
(8) The definition of “initial storage” in section 12(1) of OTA 1975 applies for the purposes
of this section.
(9) But in its application for those purposes in relation to the company mentioned in
subsection (5) and to oil won from any one oil field, that definition is to have effect as
if the reference to the maximum daily production rate of oil for the field mentioned in
that definition were to a share of that maximum daily production rate proportionate to
that company's share of the oil won from that field.
(10) In this section “initial treatment” has the same meaning as in Part 1 of OTA 1975 (see
section 12(1) of that Act).
273 “Oil rights”
In this Part “oil rights” means—

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(a) rights to oil to be extracted at any place in the United Kingdom or a designated
area, or
(b) rights to interests in or to the benefit of such oil.
274 “Oil-related activities”
In this Part “oil-related activities” means—
(a) oil extraction activities, and
(b) any activities consisting of the acquisition, enjoyment or exploitation of oil
rights.
275 “Ring fence income”
In this Part “ring fence income” means income arising from oil extraction activities
or oil rights.
276 “Ring fence profits”
In this Part “ring fence profits”, in relation to an accounting period, means—
(a) if in accordance with section 197(3) of TCGA 1992 a company has an aggregate
gain for that period, that gain and that company's ring fence income (if any)
for that period, or
(b) otherwise, that company's ring fence income for that period.
277 “Ring fence trade”
In this Part “ring fence trade” means activities which—
(a) are within the definition of “oil-related activities” in section 274, and
(b) constitute a separate trade (whether because of section 279 or otherwise).
278 Other definitions
In this Part—
“chargeable period” has the same meaning as in Part 1 of OTA 1975 (see
section 1(3) of that Act),
“designated area” means an area designated by Order in Council under
section 1(7) of the Continental Shelf Act 1964,
“oil” means any substance won or capable of being won under the authority
of a licence granted under Part 1 of the Petroleum Act 1998 or the Petroleum
(Production) Act (Northern Ireland) 1964 (c. 28 (N.I.)), other than methane gas
won in the course of operations for making and keeping mines safe,
“oil field” has the same meaning as in Part 1 of OTA 1975 (see section 12(1)
of that Act),
“OTA 1975” means the Oil Taxation Act 1975, and
“participator” has the same meaning as in Part 1 of OTA 1975 (see
section 12(1) of that Act).

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CHAPTER 3
DEEMED SEPARATE TRADE
279 Oil-related activities treated as separate trade
If a company carries on any oil-related activities as part of a trade, those activities are
treated for the purposes of the charge to corporation tax on income as a separate trade,
distinct from all other activities carried on by the company as part of the trade.
CHAPTER 4
CALCULATION OF PROFITS
Oil valuation
280 Disposal to be valued by reference to section 2(5A) of OTA 1975
(1) This section applies if each of conditions A to G is met.
(2) Condition A is that oil is won from an oil field in the United Kingdom.
(3) Condition B is that there is a disposal of the oil by a company.
(4) Condition C is that the disposal is a disposal of the oil by the company crude in a sale
at arm's length (as defined in paragraph 1 of Schedule 3 to OTA 1975).
(5) Condition D is that the circumstances are such that the price received or receivable—
(a) falls to be taken into account under section 2(5)(a) of that Act in calculating for
petroleum revenue tax purposes the assessable profit or allowable loss accruing
to the company in a chargeable period from the oil field, or
(b) would fall to be so taken into account, had the oil field been a taxable field (as
defined in section 185 of FA 1993).
(6) Condition E is that the terms of the contract are such as are described in the opening
words of section 2(5A) of OTA 1975 (transportation etc).
(7) Condition F is that, but for subsection (9), the company is not entitled to a transportation
allowance in respect of the oil in calculating ring fence profits.
(8) Condition G is that the company does not claim a transportation allowance in respect
of the oil in calculating for corporation tax purposes any profits that are not ring fence
profits.
(9) Section 2(5A) of OTA 1975 is to apply in determining the amount which the company
is to bring into account for the purposes of the charge to corporation tax on income in
respect of the disposal as it applies (or would apply) for petroleum revenue tax purposes.
(10) In this section “transportation allowance”, in relation to any oil, means—
(a) a deduction in respect of the expense of transporting the oil as mentioned in the
opening words of section 2(5A) of OTA 1975,
(b) a deduction in respect of any costs of or incidental to the transportation of the
oil as so mentioned, or

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(c) any such reduction in the price to be regarded as received or receivable for the
oil as would result from the application of section 2(5A) of OTA 1975, if that
provision applied for corporation tax purposes.
281 Valuation where market value taken into account under section 2 of OTA 1975
(1) This section applies if a person disposes of oil in circumstances such that the market
value of the oil—
(a) falls to be taken into account under section 2 of OTA 1975, otherwise than by
virtue of paragraph 6 of Schedule 3 to that Act, in calculating for petroleum
revenue tax purposes the assessable profit or allowable loss accruing to that
person in a chargeable period from an oil field, or
(b) would so fall but for section 10 of that Act.
(2) For the purposes of the charge to corporation tax on income, the disposal of the oil, and
its acquisition by the person to whom it was disposed of, are to be treated as having
been for a consideration equal to the market value of the oil—
(a) as so taken into account under section 2 of that Act, or
(b) as would have been so taken into account under that section but for section 10
of that Act.
282 Valuation where disposal not sale at arm's length
(1) This section applies if conditions A, B and C are met.
(2) Condition A is that a person disposes of oil acquired by the person—
(a) in the course of oil extraction activities carried on by the person, or
(b) as a result of oil rights held by the person.
(3) Condition B is that the disposal is not a sale at arm's length (as defined in paragraph
1 of Schedule 3 to OTA 1975).
(4) Condition C is that section 281 does not apply in relation to the disposal.
(5) For the purposes of the charge to corporation tax on income, the disposal of the oil, and
its acquisition by the person to whom it was disposed of, are to be treated as having
been for a consideration equal to the market value of the oil.
(6) Paragraphs 2 and 3A of Schedule 3 to OTA 1975 (definition of market value of oil
including light gases) apply for the purposes of this section as they apply for the
purposes of Part 1 of that Act, but with the following modifications.
(7) Those modifications are that—
(a) any reference in paragraph 2 to the notional delivery day for the actual oil is to
be read as a reference to the day on which the oil is disposed of as mentioned
in this section, and
(b) paragraph 2(4) is to be treated as omitted.
283 Valuation where excess of nominated proceeds
(1) This section applies if an excess of nominated proceeds for a chargeable period—
(a) is taken into account in calculating a company's profits under section 2(5)(e)
of OTA 1975, or

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(b) would have been so taken into account if the company were chargeable to tax
under OTA 1975 in respect of an oil field.
(2) For the purposes of the charge to corporation tax on income, the amount of the excess
is to be added to the consideration which the company is treated as having received in
respect of oil disposed of by it in the period.
(3) For corporation tax purposes, that amount is to be available to the company as a
deduction in calculating the profits of any trade which (whether because of section 279
or otherwise) does not consist of activities falling within the definition of “oil-related
activities” in section 274.
284 Valuation where relevant appropriation but no disposal
(1) This section applies if conditions A and B are met.
(2) Condition A is that a company makes a relevant appropriation of oil without disposing
of it.
(3) Condition B is that the company does so in circumstances such that the market value
of the oil—
(a) falls to be taken into account under section 2 of OTA 1975 in calculating for
petroleum revenue tax purposes the assessable profit or allowable loss accruing
to it in a chargeable period from an oil field, or
(b) would so fall but for section 10 of that Act.
(4) For the purposes of the charge to corporation tax on income, the company is to be treated
as having, at the time of the appropriation—
(a) sold the oil in the course of the separate trade consisting of activities falling
within the definition of “oil-related activities” in section 274, and
(b) purchased it in the course of the separate trade consisting of activities not so
falling.
(5) For those purposes, that sale and purchase is to be treated as having been at a price
equal to the market value of the oil—
(a) as so taken into account under section 2 of OTA 1975, or
(b) as would have been so taken into account under that section but for section 10
of that Act.
(6) In this section “relevant appropriation” has the meaning given by section 12(1) of OTA
1975.
285 Valuation where appropriation to refining etc
(1) This section applies if conditions A, B and C are met.
(2) Condition A is that a company appropriates oil acquired by it—
(a) in the course of oil extraction activities carried on by it, or
(b) as a result of oil rights held by it.
(3) Condition B is that the oil is appropriated to refining or to any use except the production
purposes of an oil field (as defined in section 12(1) of OTA 1975).
(4) Condition C is that section 284 does not apply in relation to the appropriation.

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(5) For the purposes of the charge to corporation tax on income—
(a) the company is to be treated as having, at the time of the appropriation, sold
and purchased the oil as mentioned in section 284(4)(a) and (b), and
(b) that sale and purchase is to be treated as having been at a price equal to the
market value of the oil.
(6) Paragraphs 2 and 3A of Schedule 3 to OTA 1975 (definition of market value of oil
including light gases) apply for the purposes of this section as they apply for the
purposes of Part 1 of that Act, but with the following modifications.
(7) Those modifications are that—
(a) any reference in paragraph 2 to the notional delivery day for the actual oil is to
be read as a reference to the day on which the oil is appropriated as mentioned
in this section,
(b) any reference in paragraphs 2 and 2A to oil being relevantly appropriated is to
be read as a reference to its being appropriated as mentioned in this section, and
(c) paragraph 2(4) is to be treated as omitted.
Loan relationships
286 Restriction on debits to be brought into account
(1) Debits may not be brought into account for the purposes of Part 5 of CTA 2009 (loan
relationships) in respect of a company's loan relationships in any way that results in
a reduction of what would otherwise be the company's ring fence profits, but this is
subject to subsections (2) to (4).
(2) Subsection (1) does not apply so far as a loan relationship is in respect of money
borrowed by the company which has been—
(a) used to meet expenditure incurred by the company in carrying on oil extraction
activities or in acquiring oil rights otherwise than from a connected person, or
(b) appropriated to meeting expenditure to be so incurred by the company.
(3) Subsection (1) does not apply, in the case of debits falling to be brought into account as
a result of section 329 of CTA 2009 in respect of a loan relationship that has not been
entered into, so far as the relationship would have been one entered into for the purpose
of borrowing money to be used or appropriated as mentioned in subsection (2).
(4) Subsection (1) does not apply, in the case of debits in respect of a loan relationship to
which Chapter 2 of Part 6 of CTA 2009 (relevant non-lending relationships) applies,
so far as—
(a) the payment of interest under the relationship is expenditure incurred as
mentioned in subsection (2)(a), or
(b) the exchange loss arising from the relationship is in respect of a money debt on
which the interest payable (if any) is, or would be, such expenditure.
(5) If a debit—
(a) falls to be brought into account for the purposes of Part 5 of CTA 2009 in respect
of a loan relationship of a company, but
(b) as a result of this section cannot be brought into account in a way that results
in any reduction of what would otherwise be the company's ring fence profits,

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the debit is to be brought into account for those purposes as a non-trading debit despite
anything in section 297 of that Act.
(6) References in this section to a loan relationship, in relation to the borrowing of money,
do not include a relationship to which Chapter 2 of Part 6 of CTA 2009 (relevant non-
lending relationships) applies.
287 Restriction on credits to be brought into account
(1) Credits in respect of exchange gains from a company's loan relationships may not be
brought into account for the purposes of Part 5 of CTA 2009 (loan relationships) in any
way that results in an increase of what would otherwise be the company's ring fence
profits, but this is subject to subsections (2) to (4).
(2) Subsection (1) does not apply so far as a loan relationship is in respect of money
borrowed by the company which has been—
(a) used to meet expenditure incurred by the company in carrying on oil extraction
activities or in acquiring oil rights otherwise than from a connected person, or
(b) appropriated to meeting expenditure to be so incurred by the company.
(3) Subsection (1) does not apply, in the case of credits falling to be brought into account
as a result of section 329 of CTA 2009 in respect of a loan relationship that has not been
entered into, so far as the relationship would have been one entered into for the purpose
of borrowing money to be used or appropriated as mentioned in subsection (2).
(4) Subsection (1) does not apply, in the case of credits in respect of a loan relationship to
which Chapter 2 of Part 6 of CTA 2009 (relevant non-lending relationships) applies,
so far as—
(a) the payment of interest under the relationship is expenditure incurred as
mentioned in subsection (2)(a), or
(b) the exchange gain arising from the relationship is in respect of a money debt
on which the interest payable (if any) is, or would be, such expenditure.
(5) If a credit—
(a) falls to be brought into account for the purposes of Part 5 of CTA 2009 in respect
of any loan relationship of a company, but
(b) as a result of this section cannot be brought into account in a way that results
in any increase of what would otherwise be the company's ring fence profits,
the credit is to be brought into account for those purposes as a non-trading credit despite
anything in section 297 of that Act.
(6) Section 286(6) applies for the purposes of this section.
Sale and lease-back
288 Sale and lease-back
(1) This section applies if conditions A, B and C are met.
(2) Condition A is that a company (“the seller”) carrying on a trade has disposed of—
(a) an asset which was used for the purposes of that trade, or
(b) an interest in such an asset.

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(3) Condition B is that the asset is used, under a lease, by the seller or a company associated
with the seller (“the lessee”) for the purposes of a ring fence trade carried on by the
lessee.
(4) Condition C is that the lessee uses the asset before the end of the period of two years
beginning with the disposal.
(5) Subsection (6) applies to so much (if any) of the expenditure incurred by the lessee
under the lease as—
(a) falls, in accordance with generally accepted accounting practice, to be treated
in the accounts of the lessee as a finance charge, or
(b) falls, if the lease is a long funding operating lease, to be deductible in calculating
the profits of the lessee for corporation tax purposes (after first making against
any such expenditure any reductions falling to be made as a result of section 379
(lessee under long funding operating lease)).
But subsection (6) is subject to subsection (7).
(6) The expenditure is not allowable in calculating for the purposes of Part 3 of CTA 2009
the profits of the ring fence trade.
(7) Expenditure is not to be disallowed because of subsection (6) so far as the disposal
mentioned in subsection (2) is made for a consideration which—
(a) is used to meet expenditure incurred by the seller in carrying on oil extraction
activities or in acquiring oil rights otherwise than from a company associated
with the seller, or
(b) is appropriated to meeting expenditure to be so incurred by the seller.
(8) If any expenditure—
(a) would, but for subsection (6), be allowable in calculating for the purposes of
Part 3 of CTA 2009 the profits of the ring fence trade for an accounting period,
but
(b) because of that subsection is not so allowable,
the expenditure is to be brought into account for the purposes of Part 5 of CTA 2009
(loan relationships) as if it were a non-trading debit in respect of a loan relationship of
the lessee for that period.
(9) In this section—
“long funding operating lease” means a long funding operating lease for the
purposes of Part 2 of CAA 2001 (see section 70YI(1) of that Act), and
“lease”, in relation to an asset, has the same meaning as in Chapter 3 of Part
19 (see section 868).
Regional development grants
289 Reduction of expenditure by reference to regional development grant
(1) This section applies if conditions A and B are met.
(2) Condition A is that a person has incurred expenditure (by way of purchase, rent or
otherwise) on the acquisition of an asset in a transaction to which paragraph 2 of
Schedule 4 to OTA 1975 applies (transactions between connected persons or otherwise
than at arm's length).

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(3) Condition B is that the expenditure incurred by the other person mentioned in that
paragraph in acquiring, bringing into existence or enhancing the value of the asset as
mentioned in that paragraph—
(a) has been or is to be met by a regional development grant, and
(b) falls (in whole or in part) to be taken into account under Part 2 or 6 of
CAA 2001 (capital allowances relating to plant and machinery or research and
development).
(4) Subsection (5) applies for the purposes of the charge to corporation tax on the income
arising from the activities of the person mentioned in subsection (2) which are treated
by section 279 as a separate trade for those purposes.
(5) The expenditure mentioned in subsection (2) is to be reduced by the amount of the
regional development grant mentioned in subsection (3).
(6) In this section “regional development grant” means a grant falling within section 534(1)
of CAA 2001 (Northern Ireland regional development grant).
290 Adjustment as a result of regional development grant
(1) This section applies if conditions A, B and C are met.
(2) Condition A is that expenditure incurred by a company in relation to an asset in
an accounting period (“the initial period”) has been or is to be met by a regional
development grant.
(3) Condition B is that, despite the provisions of section 534(2) and (3) of CAA 2001
(Northern Ireland regional development grants) and section 289 of this Act, in
determining that company's liability to corporation tax for the initial period, the whole
or some part of that expenditure falls to be taken into account under Part 2 or 6 of CAA
2001.
(4) Condition C is that—
(a) expenditure on the asset becomes allowable under section 3 or 4 of OTA 1975 in
an accounting period (an “adjustment period”) subsequent to the initial period,
or
(b) the proportion of any such expenditure which is allowable in an adjustment
period is different as compared with the initial period.
(5) There is to be redetermined for the purposes of subsections (7) and (8) the amount of
the expenditure mentioned in subsection (2) which would have been taken into account
as mentioned in subsection (3) if the circumstances mentioned in subsection (4) had
existed in the initial period.
(6) According to whether the amount as so redetermined is greater or less than the amount
actually taken into account as mentioned in subsection (3), the difference is referred to
in subsections (7) and (8) as the increase or the reduction in the allowance.
(7) If there is an increase in the allowance, an amount of capital expenditure equal to the
increase is to be treated, for the purposes of Part 2 or 6 of CAA 2001, as having been
incurred by the company concerned in the adjustment period on an extension of, or
addition to, the asset mentioned in subsection (2).
(8) If there is a reduction in the allowance, the company concerned is to be treated, for
the purpose of determining its liability to corporation tax, as having received in the

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adjustment period, as income of the trade in connection with which the expenditure
mentioned in subsection (2) was incurred, a sum equal to the amount of the reduction
in the allowance.
(9) In this section “regional development grant” has the meaning given by section 289(6).
Tariff receipts etc
291 Tariff receipts etc
(1) Subsection (5) applies to a sum which meets conditions A, B and C.
(2) Condition A is that the sum constitutes a tariff receipt or tax-exempt tariffing receipt of
a person who is a participator in an oil field.
(3) Condition B is that the sum constitutes consideration in the nature of income rather
than capital.
(4) Condition C is that the sum would not, but for subsection (5), be treated as mentioned
in that subsection.
(5) The sum is to be treated as a receipt of the separate trade mentioned in section 279.
(6) So far as they would not otherwise be so treated, the activities—
(a) of a participator in an oil field, or
(b) of a person connected with the participator,
in making available an asset in a way which gives rise to tariff receipts or tax-exempt
tariffing receipts of the participator are to be treated for the purposes of this Part as oil
extraction activities.
(7) In determining for the purposes of subsection (2) whether a sum constitutes a tariff
receipt or tax-exempt tariffing receipt of a person who is a participator, no account may
be taken of any sum which—
(a) is in fact received or receivable by a person connected with the participator, and
(b) constitutes a tariff receipt or tax-exempt tariffing receipt of the participator.
But in relation to the person by whom such a sum is actually received, subsection (2)
has effect as if the person were a participator and as if condition A were met.
(8) References in this section to a person connected with a participator include a person
with whom the person is associated, within the meaning of paragraph 11 of Schedule 2
to the Oil Taxation Act 1983, but section 1176(1) of this Act (meaning of “connected”
persons) does not apply for the purposes of this section.
(9) In this section—
“tax-exempt tariffing receipt” has the meaning given by section 6A(2) of the
Oil Taxation Act 1983, and
“tariff receipt” has the same meaning as in that Act.

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Abandonment guarantees
292 Expenditure on and under abandonment guarantees
(1) Subsection (2) applies if, as a result of section 3(1)(hh) of OTA 1975 (obtaining
abandonment guarantee), expenditure incurred by a participator in an oil field is
allowable (in whole or in part) for petroleum revenue tax purposes under section 3 of
that Act.
(2) So far as that expenditure is so allowable, it is to be allowed as a deduction in calculating
the participator's ring fence income.
(3) Subsection (4) applies if a payment is made by the guarantor under an abandonment
guarantee.
(4) So far as any expenditure for which the relevant participator is liable is met, directly or
indirectly, out of the payment, the expenditure is not to be regarded for corporation tax
purposes as having been incurred by the relevant participator or any other participator
in the oil field concerned.
(5) See also section 294 (payment under abandonment guarantee not immediately applied).
(6) In this Chapter—
“abandonment guarantee” has the same meaning as it has for the purposes
of section 105 of FA 1991 (see section 104 of that Act), and
“the guarantor” and “the relevant participator” have the same meaning as
in section 104 of that Act.
293 Relief for reimbursement expenditure under abandonment guarantees
(1) This section applies if—
(a) a payment (“the guarantee payment”) is made by the guarantor under an
abandonment guarantee,
(b) as a result of the making of the guarantee payment, the relevant participator
becomes liable under the terms of the abandonment guarantee to pay any sum
to the guarantor, and
(c) expenditure is incurred, or consideration in money's worth is given, by the
relevant participator in or towards meeting that liability.
(2) In this section “reimbursement expenditure” means expenditure incurred as mentioned
in subsection (1)(c) or consideration (or the value of consideration) given as so
mentioned; and any reference to the incurring of reimbursement expenditure is to be
read accordingly.
(3) So much of any reimbursement expenditure as constitutes qualifying expenditure (see
subsection (4)) is to be allowed as a deduction in calculating the relevant participator's
ring fence income; and no part of the expenditure which is so allowed is to be otherwise
deductible or allowable by way of relief for corporation tax purposes.
(4) The amount of reimbursement expenditure incurred in any accounting period by the
relevant participator which constitutes qualifying expenditure is determined by the
formula—

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where—
A is the reimbursement expenditure incurred in the accounting period,
B is so much of the expenditure represented by the guarantee payment as, had it been
incurred by the relevant participator, would have been taken into account (by way of
capital allowance or a deduction) in calculating the relevant participator's ring fence
income, and
C is the total of the sums which, at or before the end of the accounting period, the
relevant participator is or has become liable to pay to the guarantor as mentioned in
subsection (1)(b).
But this is subject to subsection (5).
(5) In relation to the guarantee payment, the total of the reimbursement expenditure
(whenever incurred) which constitutes qualifying expenditure may not exceed
whichever is the less of B and C in subsection (4).
(6) Any limitation on qualifying expenditure under subsection (5) is to be applied to the
expenditure of a later accounting period in preference to an earlier one.
(7) For the purposes of this section, the expenditure represented by the guarantee payment
is any expenditure—
(a) for which the relevant participator is liable, and
(b) which is met, directly or indirectly, out of the guarantee payment (and which,
accordingly, because of section 292(4) is not to be regarded as expenditure
incurred by the relevant participator).
(8) See also—
(a) section 294 (payment under abandonment guarantee not immediately applied),
and
(b) section 295 which excludes amounts from subsection (1).
294 Payment under abandonment guarantee not immediately applied
(1) This section applies if—
(a) a payment made by the guarantor under an abandonment guarantee is not
immediately applied in meeting any expenditure,
(b) the payment is for any period invested (either specifically or together with
payments made by persons other than the guarantor) so as to be represented by,
or by part of, the assets of a fund or account, and
(c) at a subsequent time, any expenditure for which the relevant participator is
liable is met out of the assets of the fund or account.

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(2) The references in sections 292(4) and 293(7) to expenditure which is met, directly or
indirectly, out of the payment are to be read as references to so much of the expenditure
for which the relevant participator is liable as is met out of those assets of the fund
or account which, at the subsequent time mentioned in subsection (1)(c), it is just and
reasonable to attribute to the payment.
295 Amounts excluded from section 293(1)
(1) This section applies if—
(a) the whole of the guarantee payment mentioned in section 293, or of the assets
which under section 294 are attributed to the guarantee payment, is not applied
in meeting liabilities of the relevant participator so mentioned which fall within
section 104(1)(a) and (b) of FA 1991, and
(b) a sum representing the unapplied part of the guarantee payment or of those
assets is repaid, directly or indirectly, to the guarantor so mentioned.
(2) Any liability of the relevant participator to repay that sum is to be excluded
in determining the total liability of the relevant participator which falls within
section 293(1)(b).
(3) The repayment to the guarantor of that sum is not to be regarded as expenditure incurred
by the relevant participator as mentioned in section 293(1)(c).
Abandonment expenditure
296 Introduction to sections 297 and 298
(1) Sections 297 and 298 apply if—
(a) paragraph 2A of Schedule 5 to OTA 1975 applies, or would apply if a claim
under paragraph 2A(2) of that Schedule were made, and
(b) the default payment falls (in whole or part) to be attributed to the contributing
participator under paragraph 2A(2) of that Schedule.
(2) In section 297 “the additional abandonment expenditure” means the amount which is
attributed to the contributing participator as mentioned in subsection (1)(b) (whether
representing the whole or only part of the default payment).
(3) In this Chapter “default payment”, “the defaulter” and “contributing participator”
have the same meaning as in paragraph 2A of Schedule 5 to OTA 1975.
297 Relief for expenditure incurred by a participator in meeting defaulter's
abandonment expenditure
(1) Relief by way of capital allowance, or a deduction in calculating ring fence income, is
to be available to the contributing participator in respect of the additional abandonment
expenditure if any such relief or deduction would have been available to the defaulter
if—
(a) the defaulter had incurred the additional abandonment expenditure, and
(b) at the time that that expenditure was incurred the defaulter continued to carry
on a ring fence trade.

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(2) The basis of qualification for or entitlement to any relief or deduction which is available
to the contributing participator under this section is to be determined on the assumption
that the conditions in subsection (1)(a) and (b) are met.
(3) But, subject to subsection (2), any such relief or deduction is to be available in the same
way as if the additional abandonment expenditure had been incurred by the contributing
participator for the purposes of the ring fence trade carried on by the contributing
participator.
298 Reimbursement by defaulter in respect of certain abandonment expenditure
(1) This section applies if expenditure is incurred, or consideration in money's worth is
given, by the defaulter in reimbursing the contributing participator in respect of, or
otherwise making good to the contributing participator, the whole or any part of the
default payment.
(2) In this section “reimbursement expenditure” means expenditure incurred as mentioned
in subsection (1) or consideration (or the value of consideration) given as so mentioned;
and any reference to the incurring of reimbursement expenditure is to be read
accordingly.
(3) Reimbursement expenditure is to be allowed as a deduction in calculating the defaulter's
ring fence income (but this is subject to subsection (6)).
(4) Reimbursement expenditure received by the contributing participator is to be treated as
a receipt (in the nature of income) of the participator's ring fence trade for the relevant
accounting period (but this is subject to subsection (6)).
(5) Any additional assessment to corporation tax required in order to take account of the
receipt of reimbursement expenditure by the contributing participator may be made
at any time not later than 4 years after the end of the calendar year in which the
reimbursement expenditure is so received.
(6) In relation to a particular default payment, reimbursement expenditure incurred at any
time—
(a) is to be allowed as mentioned in subsection (3), and
(b) is to be taken into account as a result of subsection (4) in calculating the
contributing participator's ring fence income,
only so far as, when aggregated with any reimbursement expenditure previously
incurred in respect of that default payment, it does not exceed so much of the default
payment as falls to be attributed to the contributing participator as mentioned in
section 296(1)(b).
(7) The incurring of reimbursement expenditure is not to be regarded, by virtue of
section 532 of CAA 2001 (the general rule excluding contributions), as the meeting of
the expenditure of the contributing participator in making the default payment.
(8) In subsection (4) “the relevant accounting period” means—
(a) the accounting period in which the reimbursement expenditure is received by
the contributing participator,
(b) if the contributing participator ceases to carry on the ring fence trade before
the receipt of the reimbursement expenditure, the last accounting period of the
trade, or

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(c) if the contributing participator ceases to be within the charge to corporation
tax in respect of the ring fence trade before the receipt of the reimbursement
expenditure, the accounting period during or at the end of which the
contributing participator ceased to be within the charge to corporation tax in
respect of the trade.
Deduction of PRT in calculating income for corporation tax purposes
299 Deduction of PRT in calculating income for corporation tax purposes
(1) This section applies if a participator in an oil field has paid any petroleum revenue tax
with which the participator was chargeable for a chargeable period.
(2) In calculating for corporation tax the amount of the participator's income arising from
oil extraction activities or oil rights in the relevant accounting period, there is to be
deducted an amount equal to that petroleum revenue tax.
(3) There are to be made all such adjustments of assessments to corporation tax as are
required in order to give effect to subsection (2).
(4) In this section “the relevant accounting period”, in relation to any petroleum revenue
tax paid by a company, means—
(a) the accounting period of the company in or at the end of which the chargeable
period for which that tax was charged ends, or
(b) if that chargeable period ends after the accounting period of the company in or
at the end of which the company—
(i) ceases to carry on the trade giving rise to the income referred to above,
or
(ii) ceases to be within the charge to corporation tax in respect of the trade,
that accounting period.
300 Effect of repayment of PRT: general rule
(1) This section applies if some or all of the petroleum revenue tax in respect of which a
deduction has been made under section 299(2) is subsequently repaid.
(2) The deduction is to be reduced or extinguished accordingly.
(3) Any additional assessment to corporation tax required in order to give effect to
subsection (2) may be made at any time not later than 4 years after the end of the calendar
year in which the petroleum revenue tax was repaid.
(4) This section is subject to section 301.
301 Effect of repayment of PRT: special rule
(1) This section applies if, in a case where paragraph 17 of Schedule 2 to OTA 1975 applies,
an amount of petroleum revenue tax in respect of which a deduction has been made
under section 299(2) is repaid as a result of an assessment under that Schedule or an
amendment of such an assessment.
(2) As regards so much of that repayment as constitutes the appropriate repayment—
(a) section 300 does not apply, and

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(b) the following provisions apply in relation to the company which is entitled to
the repayment.
(3) In calculating for corporation tax the amount of the company's income arising in the
relevant accounting period from oil extraction activities or oil rights there is to be added
an amount equal to the appropriate repayment (but this is subject to subsections (4) and
(5)).
(4) Subsection (5) applies if—
(a) two or more carried back losses give rise to the appropriate repayment,
(b) the operative chargeable period in relation to each of the carried back losses
is not the same, and
(c) if this section were applied separately in relation to each of the carried back
losses there would be more than one relevant accounting period.
(5) The appropriate repayment is to be treated as apportioned between each of the relevant
accounting periods mentioned in subsection (4)(c) in such a way as to secure that
the amount added as a result of subsection (3) in relation to each of those relevant
accounting periods is what it would have been if—
(a) relief for each of the carried back losses for which there is a different operative
chargeable period had been given by a separate assessment or amendment of
an assessment under Schedule 2 to OTA 1975, and
(b) relief for a carried back loss accruing in an earlier chargeable period had been so
given before relief for a carried back loss accruing in a later chargeable period.
(6) Any additional assessment to corporation tax required in order to give effect to the
addition of an amount as a result of subsection (3) may be made at any time not later
than 4 years after the end of the calendar year in which the repayment of petroleum
revenue tax comprising the appropriate repayment is made.
(7) In this section—
“allowable loss” has the same meaning as in Part 1 of OTA 1975 (see
section 2 of that Act),
“the appropriate repayment” has the meaning given by paragraph 17(2) of
Schedule 2 to that Act,
“carried back loss”, in relation to the appropriate repayment, means an
allowable loss—
(a) which falls within paragraph 17(1)(a) of Schedule 2 to OTA 1975, and
(b) which (alone or together with one or more other carried back losses) gives
rise to the appropriate repayment,
“the operative chargeable period”, in relation to a carried back loss, means
the chargeable period in which the loss accrued, and
“the relevant accounting period”, in relation to the company which is entitled
to the appropriate repayment, means—
(a) the accounting period in or at the end of which the operative chargeable
period ends,
(b) if the company ceases to carry on its ring fence trade before the end of the
operative chargeable period, the last accounting period of that trade, or
(c) if the company ceases to be within the charge to corporation tax in
respect of that trade before the end of the operative chargeable period, the
accounting period during or at the end of which the company ceased to
be within the charge to corporation tax in respect of that trade.

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Interest on repayment of PRT or APRT
302 Interest on repayment of PRT or APRT
(1) Subsection (3) applies if any amount of petroleum revenue tax paid by a participator
in an oil field is, under any provision of Part 1 of OTA 1975, repaid to the participator
with interest.
(2) Subsection (3) also applies if interest is paid to a participator under paragraph 10(4) of
Schedule 19 to FA 1982 (interest on advance petroleum revenue tax which becomes
repayable).
(3) The interest paid is to be disregarded in calculating the participator's income for
corporation tax purposes.
Relief
303 Management expenses
No deduction under section 1219 of CTA 2009 (expenses of management of a
company's investment business) is to be allowed from a company's ring fence profits.
304 Losses
(1) Relief in respect of a loss incurred by a company may not be given under section 37
(relief for trade losses against total profits) against that company's ring fence profits
except so far as the loss arises from oil extraction activities or from oil rights.
(2) Subsection (5) applies if conditions A and B are met.
(3) Condition A is that a company incurs a loss in an accounting period in activities
(“separate activities”) which, for that or any subsequent accounting period, are treated
by section 279 as a separate trade for the purposes of the charge to corporation tax on
income.
(4) Condition B is that any of the company's trading income in any subsequent accounting
period is derived from activities (“related activities”) which are not part of the separate
activities but which would together with those activities constitute a single trade, were
it not for section 279.
(5) The loss may be used under section 45 (carry forward of trade loss against subsequent
trade profits) to reduce so much of the company's trading income in any subsequent
accounting period as is derived from the related activities.
(6) Subsection (5) applies despite anything in section 279.
305 Group relief
(1) On a claim for group relief made by a claimant company in relation to a surrendering
company, group relief may not be allowed against the claimant company's ring fence
profits except so far as the claim relates to losses incurred by the surrendering company
that arose from oil extraction activities or from oil rights.

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(2) In section 105 (restriction on surrender of losses etc within section 99(1)(d) to (g)) the
references to the surrendering company's gross profits of the surrender period do not
include the company's relevant ring fence profits for that period.
(3) The company's “relevant ring fence profits” for that period are—
(a) if for that period there are no qualifying charitable donations made by the
company that are allowable under Part 6 (charitable donations relief), the
company's ring fence profits for that period, or
(b) otherwise, so much of the company's ring fence profits for that period as
exceeds the amount of the qualifying charitable donations made by the
company that are allowable under section 189 for that period.
(4) In this section “claimant company” and “surrendering company” are to be read in
accordance with Part 5 (group relief) (see section 188).
306 Capital allowances
(1) A capital allowance may not to any extent be given effect under section 259 or 260 of
CAA 2001 (special leasing) by deduction from a company's ring fence profits.
(2) But subsection (1) does not apply to a capital allowance which falls to be made to a
company for any accounting period in respect of an asset which—
(a) is used in the relevant accounting period by a company associated with it, and
(b) is so used in carrying on oil extraction activities.
(3) “The relevant accounting period” means that for which the allowance in question first
falls to be made to the company (whether or not it can to any extent be given effect in
that period under section 259 of CAA 2001).
CHAPTER 5
RING FENCE EXPENDITURE SUPPLEMENT
Introduction
307 Overview of Chapter
(1) This Chapter entitles a company carrying on a ring fence trade, on making a claim in
respect of an accounting period, to a supplement in respect of—
(a) qualifying pre-commencement expenditure incurred before the trade is set up
and commenced,
(b) losses incurred in the trade, and
(c) some or all of the supplement allowed in respect of earlier periods.
(2) Sections 308 to 314 make provision about the application and interpretation of this
Chapter.
(3) Sections 315 to 320 make provision about supplement in relation to expenditure
incurred by the company—
(a) with a view to carrying on a ring fence trade, but
(b) in an accounting period before the company sets up and commences that trade.

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(4) Sections 321 to 329 make provision about supplement in relation to losses incurred in
carrying on the ring fence trade.
(5) There is a limit (of 6) on the number of accounting periods in respect of which a
company may claim supplement.
(6) In determining the amount of supplement allowable, reductions fall to be made in
respect of—
(a) disposal receipts in respect of any asset representing qualifying pre-
commencement expenditure.
(b) ring fence losses that could be deducted under section 37 (relief for trade losses
against total profits) or section 42 (ring fence trades: further extension of period
for relief) from ring fence profits of earlier periods,
(c) ring fence losses incurred in earlier periods that fall to be used under section 45
(carry forward of trade loss against subsequent trade profits) to reduce profits
of succeeding periods,
(d) unrelieved group ring fence profits.
Application and interpretation
308 Qualifying companies
(1) This Chapter applies in relation to any company which—
(a) carries on a ring fence trade, or
(b) is engaged in any activities with a view to carrying on a ring fence trade.
(2) In this Chapter such a company is referred to as a “qualifying company”.
309 Accounting periods
(1) In this Chapter, in the case of a qualifying company—
“the commencement period” means the accounting period in which the
company sets up and commences its ring fence trade,
“post-commencement period” means an accounting period beginning on or
after 1 January 2006—
(a) which is the commencement period, or
(b) which ends after the commencement period, and
“pre-commencement period” means an accounting period—
(a) beginning on or after 1 January 2006, and
(b) ending before the commencement period.
(2) For the purposes of this Chapter, a company not within the charge to corporation tax
which incurs any expenditure is to be treated as having such accounting periods as it
would have if—
(a) it carried on a trade consisting of the activities in respect of which the
expenditure is incurred, and
(b) it had started to carry on that trade when it started to carry on the activities in
the course of which the expenditure is incurred.

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(3) In the case of an accounting period (a “straddling period”) of a qualifying company
beginning before 1 January 2006 and ending on or after that date—
(a) so much of the straddling period as falls before 1 January 2006, and
(b) so much of the straddling period as falls on or after that date,
are treated as separate accounting periods for the purposes of this Chapter.
(4) But special provision is made elsewhere in this Chapter in relation to straddling periods
(see sections 311, 324 and 327(4) to (7)).
310 The relevant percentage
(1) For the purposes of this Chapter, the relevant percentage for an accounting period is 6%.
(2) The Treasury may by order vary the percentage for the time being specified in
subsection (1) for such accounting periods as may be specified in the order.
311 Limit on number of accounting periods for which supplement may be claimed
(1) A company may claim supplement under this Chapter in respect of no more than 6
accounting periods.
(2) The accounting periods in respect of which claims are made need not be consecutive.
(3) A claim for supplement by the company under Schedule 19B to ICTA (exploration
expenditure supplement) in respect of an accounting period is to count for the purposes
of this section as a claim for supplement under this Chapter in respect of that accounting
period.
(4) But, if the company makes a claim for supplement under this Chapter in respect
of the deemed accounting period, any claim for supplement by the company under
Schedule 19B to ICTA in respect of the Schedule 19B deemed accounting period is to
be ignored for the purposes of this section.
(5) In subsection (4)—
“the deemed accounting period” means the deemed accounting period under
section 309(3) beginning on 1 January 2006, and
“the Schedule 19B deemed accounting period” means the deemed
accounting period under paragraph 3(3) of Schedule 19B to ICTA ending before
1 January 2006.
312 Qualifying pre-commencement expenditure
(1) For the purposes of this Chapter, expenditure is “qualifying pre-commencement
expenditure” if it meets each of conditions A to D.
(2) Condition A is that the expenditure is incurred on or after 1 January 2006.
(3) Condition B is that the expenditure is incurred in the course of oil extraction activities.
(4) Condition C is that the expenditure is incurred by a company with a view to carrying on
a ring fence trade but before the company sets up and commences the ring fence trade.
(5) Condition D is that the expenditure—

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(a) is subsequently allowable as a deduction in calculating the profits of the ring
fence trade for the commencement period (whether or not any part of it is so
allowable for any post-commencement period), or
(b) is relevant R&D expenditure incurred by an SME.
(6) For the purposes of this section, expenditure incurred by a company is “relevant R&D
expenditure incurred by an SME” if—
(a) the company makes an election under section 1045 of CTA 2009 (alternative
treatment for pre-trading expenditure: deemed trading loss) in respect of that
expenditure, but
(b) the company does not make a claim for an R&D tax credit under section 1054
of that Act in respect of that expenditure.
(7) In the case of any qualifying pre-commencement expenditure which is relevant R&D
expenditure incurred by an SME, the amount of that expenditure is treated for the
purposes of this Chapter as being equal to 150% of its actual amount.
(8) In the case of any qualifying pre-commencement expenditure which is relevant R&D
expenditure incurred by a large company, the amount of that expenditure is treated for
the purposes of this Chapter as being equal to 125% of its actual amount.
(9) In subsection (8) “relevant R&D expenditure incurred by a large company” means
qualifying Chapter 5 expenditure, as defined in section 1076 of CTA 2009.
313 Unrelieved group ring fence profits for accounting periods
(1) There is an amount of unrelieved group ring fence profits for an accounting period of
a qualifying company (“company Q”) if—
(a) the company and any other company (“company X”) are members of the same
group, and
(b) company X has an amount of taxable ring fence profits (see section 314) for a
corresponding accounting period.
(2) An accounting period of company X corresponds to an accounting period of company
Q if—
(a) it coincides with, or falls wholly within, the accounting period of company Q, or
(b) it falls partly within the accounting period of company Q.
(3) If an accounting period of company X—
(a) coincides with an accounting period of company Q, or
(b) falls wholly within an accounting period of company Q,
there is, for the accounting period of company Q, an amount of unrelieved group
ring fence profits equal to the whole of company X's taxable ring fence profits for its
accounting period.
(4) If an accounting period of company X falls partly within an accounting period of
company Q—
(a) there is an amount of unrelieved group ring fence profits for the accounting
period of company Q, and
(b) that amount is an amount equal to the part of company X's taxable ring fence
profits for its accounting period that is attributable, on an apportionment in
accordance with section 1172, to the part of that period which falls within the
accounting period of company Q.

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(5) For the purposes of this section, two companies are members of the same group if they
are members of the same group of companies within the meaning of Part 5 (group relief).
(6) This section applies for the purposes of this Chapter.
314 Taxable ring fence profits for an accounting period
For the purposes of this Chapter, a company has taxable ring fence profits for an
accounting period if it has an amount of ring fence profits which is chargeable to
corporation tax for that accounting period after any group relief claimed under Part 5
(group relief).
Pre-commencement supplement
315 Supplement in respect of a pre-commencement accounting period
(1) If—
(a) a qualifying company incurs qualifying pre-commencement expenditure in
respect of a ring fence trade, and
(b) the expenditure is incurred before the commencement period,
the company may claim supplement under this section (“pre-commencement
supplement”) in respect of one or more pre-commencement periods.
(2) Any pre-commencement supplement allowed on a claim in respect of a pre-
commencement period is to be treated as expenditure—
(a) which is incurred by the company in the commencement period, and
(b) which is allowable as a deduction in calculating the profits of the ring fence
trade for that period.
(3) The amount of the supplement for any pre-commencement period in respect of which
a claim under this section is made is the relevant percentage for that period of the
reference amount for that period.
(4) If the pre-commencement period is a period of less than 12 months, the amount of the
supplement for the period (apart from this subsection) is to be reduced proportionally.
(5) Sections 316 to 319 have effect for the purpose of determining the reference amount
for a pre-commencement period.
316 The mixed pool of qualifying pre-commencement expenditure and supplement
previously allowed
(1) For the purpose of determining the amount of any pre-commencement supplement, a
qualifying company is to be taken to have had, at all times in the pre-commencement
periods of the company, a continuing mixed pool of—
(a) the relevant amount (if any) which the company carries forward under
Schedule 19B to ICTA,
(b) qualifying pre-commencement expenditure, and
(c) pre-commencement supplement.
(2) The pool is to be taken to have consisted of—

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(a) the relevant amount (if any) which the company carries forward under
Schedule 19B to ICTA,
(b) the company's qualifying pre-commencement expenditure, allocated to the pool
for each pre-commencement period in accordance with subsection (3), and
(c) the company's pre-commencement supplement, allocated to the pool for each
pre-commencement period in accordance with subsection (4).
(3) To allocate qualifying pre-commencement expenditure to the pool for any pre-
commencement period, take the following steps—
Step 1
Count as eligible expenditure for that period so much of the qualifying pre-
commencement expenditure mentioned in section 315(1) as was incurred in that
period.
Step 2
Find the total of all the eligible expenditure for that period (amount E).
Step 3
If section 317 applies, reduce amount E in accordance with that section.
Step 4
If section 318 applies, reduce (or, as the case may be, further reduce) amount E
in accordance with that section.
And so much of amount E as remains after making those reductions is to be taken to
have been added to the pool in that period
(4) If any pre-commencement supplement is allowed on a claim in respect of a pre-
commencement period, the amount of that supplement is to be taken to have been added
to the pool in that period.
(5) In this section references to the relevant amount (if any) which the company carries
forward under Schedule 19B to ICTA are to the amount (if any) in its mixed pool for
the purposes of Part 3 of Schedule 19B to ICTA immediately before 1 January 2006.
317 Reduction in respect of disposal receipts under CAA 2001
(1) This section applies in the case of the qualifying company if—
(a) it incurs qualifying pre-commencement expenditure in respect of a ring fence
trade in any pre-commencement period,
(b) it would, on the relevant assumption, be entitled to an allowance under any
provision of CAA 2001 in respect of that expenditure,
(c) an event occurs in relation to any asset representing the expenditure in any pre-
commencement period, and
(d) the event would, on the relevant assumption, require a disposal value (the
“deductible amount”) to be brought into account under any provision of CAA
2001 for any pre-commencement period.
(2) The relevant assumption is that the company was carrying on the ring fence trade—
(a) when the expenditure was incurred, and
(b) when the event giving rise to the disposal value occurred.

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(3) For the purpose of allocating qualifying pre-commencement expenditure to the pool for
each pre-commencement period—
(a) find the total amount of the disposal values in the case of all such events
(amount D), and
(b) taking later periods before earlier periods, reduce (but not below nil) amount E
for any pre-commencement period by setting against it so much of amount D as
does not fall to be set against amount E for a later pre-commencement period.
318 Reduction in respect of unrelieved group ring fence profits
(1) This section applies if there is an amount of unrelieved group ring fence profits for a
pre-commencement period.
(2) For the purpose of allocating qualifying pre-commencement expenditure to the pool for
that period—
(a) find so much (if any) of amount E for that period as remains after any reduction
falling to be made under section 317, and
(b) reduce that amount (but not below nil) by setting against it a sum equal to the
aggregate of the amounts of unrelieved group ring fence profits for the period.
319 The reference amount for a pre-commencement period
For the purposes of section 315, the reference amount for a pre-commencement period
is the amount in the pool at the end of the period—
(a) after the addition to the pool of any qualifying pre-commencement expenditure
allocated to the pool for that period in accordance with section 316(3), but
(b) before determining, and adding to the pool, the amount of any pre-
commencement supplement claimed in respect of the period.
320 Claims for pre-commencement supplement
(1) Any claim for pre-commencement supplement in respect of a pre-commencement
period must be made as a claim for the commencement period.
(2) Paragraph 74 of Schedule 18 to FA 1998 (company tax returns etc: time limit for claims
for group relief) applies in relation to a claim for pre-commencement supplement as it
applies in relation to a claim for group relief.
Post-commencement supplement
321 Supplement in respect of a post-commencement period
(1) A qualifying company which incurs a ring fence loss (see section 323) in any post-
commencement period may claim supplement under this section (“post-commencement
supplement”) in respect of—
(a) that period, or
(b) any subsequent accounting period in which it carries on its ring fence trade.
(2) Any post-commencement supplement allowed on a claim in respect of a post-
commencement period is to be treated for the purposes of the Corporation Tax Acts

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(other than the post-commencement supplement provisions or Part 4 of Schedule 19B
to ICTA) as if it were a loss—
(a) which is incurred in carrying on the ring fence trade in that period, and
(b) which falls in whole to be used under section 45 (carry forward of trade loss
against subsequent trade profits) to reduce trading income from the ring fence
trade in succeeding accounting periods.
(3) Paragraph 74 of Schedule 18 to FA 1998 (company tax returns etc: time limit for claims
for group relief) applies in relation to a claim for post-commencement supplement as
it applies in relation to a claim for group relief.
(4) In this Chapter “the post-commencement supplement provisions” means this section
and sections 322 to 329.
322 Amount of post-commencement supplement for a post-commencement period
(1) The amount of the post-commencement supplement for any post-commencement
period in respect of which a claim under section 321 is made is the relevant percentage
for that period of the reference amount for that period.
(2) If the post-commencement period is a period of less than 12 months, the amount of the
supplement for the period (apart from this subsection) is to be reduced proportionally.
(3) Sections 325 to 329 have effect for the purpose of determining the reference amount
for a post-commencement period.
323 Ring fence losses
(1) If—
(a) in any post-commencement period (“the period of the loss”) a qualifying
company carrying on a ring fence trade incurs a loss in the trade, and
(b) some or all of the loss falls to be used under section 45 (carry forward of trade
loss against subsequent trade profits) to reduce trading income from the trade
in succeeding accounting periods,
so much of the loss as falls to be so used is a “ring fence loss” of the company.
(2) In determining for the purposes of the post-commencement supplement provisions
how much of a loss incurred in a ring fence trade falls to be used as mentioned in
subsection (1)(b), the following assumptions are to be made.
(3) The first assumption is that every claim is made that could be made by the company
under section 37 (relief for trade losses against total profits) to deduct losses incurred
in the ring fence trade from ring fence profits of earlier post-commencement periods.
(4) The second assumption is that (where appropriate) section 42 (ring fence trades: further
extension of period for relief) applies in relation to every such claim under section 37.
(5) This section is subject to section 324 (special rule for straddling periods).
(6) This section has effect for the purposes of the post-commencement supplement
provisions.

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324 Special rule for straddling periods
(1) This section applies if the period of the loss is the deemed accounting period under
section 309(3) beginning on 1 January 2006 (“the deemed accounting period”).
(2) The amount of ring fence loss in the deemed accounting period is determined as follows
—
Step 1
Calculate so much of the ring fence loss in the straddling period as, for the
purposes of Part 4 of Schedule 19B to ICTA, is attributable to qualifying E&A
allowances for the straddling period. The amount given by this step is “the
qualifying Schedule 19B amount”.
Step 2
Calculate so much of the ring fence loss in the straddling period as is attributable
to allowances for the straddling period under Part 6 of CAA 2001 in respect of
relevant expenditure. For the purposes of this step “relevant expenditure” means
expenditure incurred by the company on or after 1 January 2006 which, but for
that fact, would be qualifying E&A expenditure for the purposes of Schedule 19B
to ICTA. For the purposes of this step a ring fence loss is attributable to those
allowances so far as the amount of the loss (less the qualifying Schedule 19B
amount) does not exceed the amount of those allowances for that period. The
amount given by this step is “the amount of the post-1 January 2006 E&A
allowances”.
Step 3
Deduct the qualifying Schedule 19B amount and the amount of the post-1 January
2006 E&A allowances from the amount of the ring fence loss in the straddling
period.
Step 4
Apportion the remaining amount of that loss (if any) to the deemed accounting
period in proportion to the number of days in the deemed accounting period that
fall in the straddling period. The amount given by this step is “the amount of the
apportioned loss”
Step 5
The amount of the ring fence loss in the deemed accounting period is the amount of
the apportioned loss plus the amount of the post-1 January 2006 E&A allowances.
(3) In this section “the straddling period”, in relation to a qualifying company, means an
accounting period of the company—
(a) beginning before 1 January 2006, and
(b) ending on or after that date,
disregarding section 309(3).
(4) In this section references to the ring fence loss in the straddling period are to that loss
determined on the assumption that the straddling period is the period of the loss for the
purposes of section 323.
(5) This section has effect for the purposes of the post-commencement supplement
provisions.

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325 The pool of ring fence losses and the pool of non-qualifying Schedule 19B losses
(1) For the purpose of determining the amount of any post-commencement supplement,
a qualifying company is to be taken at all times in its post-commencement periods to
have a continuing mixed pool (the “ring fence pool”) of—
(a) the carried forward qualifying Schedule 19B amount (if any),
(b) the company's ring fence losses, and
(c) post-commencement supplement.
(2) The ring fence pool continues even if the amount in it is nil.
(3) For the purpose of determining the amount of any post-commencement supplement, a
qualifying company is also to be taken in its post-commencement periods to have a non-
qualifying pool consisting of the carried forward non-qualifying Schedule 19B amount.
(4) But the non-qualifying pool ceases to exist when the amount in it is reduced to nil.
(5) In this section—
“the carried forward qualifying Schedule 19B amount”, in relation to a
qualifying company, means the amount in its qualifying pool for the purposes
of Part 4 of Schedule 19B to ICTA immediately before 1 January 2006, and
“the carried forward non-qualifying Schedule 19B amount”, in relation to
a qualifying company, means the amount in its non-qualifying pool for the
purposes of Part 4 of Schedule 19B to that Act immediately before 1 January
2006.
326 The ring fence pool
(1) The ring fence pool consists of—
(a) the carried forward qualifying Schedule 19B amount (if any),
(b) the company's ring fence losses, allocated to the pool in accordance with
subsection (2)(a), and
(c) the company's post-commencement supplement, allocated to the pool in
accordance with subsection (2)(b).
(2) The allocation of ring fence losses and post-commencement supplement to the pool is
made as follows—
(a) the amount of a ring fence loss is added to the pool in the period of the loss, and
(b) if any post-commencement supplement is allowed on a claim in respect of a
post-commencement period, the amount of that supplement is added to the pool
in that period.
(3) The amount in the ring fence pool is subject to reductions in accordance with the
following provisions of this Chapter.
(4) If a reduction in the amount in the ring fence pool falls to be made in any accounting
period, the reduction is to be made—
(a) after the addition to the pool of the amount of any ring fence losses allocated
to the pool in that period in accordance with subsection (2)(a), but
(b) before determining, and adding to the pool, the amount of any supplement
claimed in respect of the period,
and references to the amount in the pool are to be read accordingly.

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(5) In this section “the carried forward qualifying Schedule 19B amount”, in relation to a
qualifying company, means the amount in its qualifying pool for the purposes of Part 4
of Schedule 19B to ICTA immediately before 1 January 2006.
327 Reductions in respect of utilised ring fence losses
(1) If one or more ring fence losses are used under section 45 (carry forward of trade loss
against subsequent trade profits) to reduce any profits of a post-commencement period,
reductions are to be made in that period in accordance with this section.
(2) If the company has a non-qualifying pool, the amount in the non-qualifying pool is to
be reduced (but not below nil) by setting against it a sum equal to the total amount used
as mentioned in subsection (1).
(3) If—
(a) any of that sum remains after being so set against the amount in the non-
qualifying pool, or
(b) the company does not have a non-qualifying pool,
the amount in the ring fence pool is to be reduced (but not below nil) by setting against
it so much of that sum as so remains or (as the case may be) a sum equal to the total
amount used as mentioned in subsection (1).
(4) If the post-commencement period is the deemed accounting period under section 309(3)
beginning on 1 January 2006 (“the deemed accounting period”), the amount of the
profits of the deemed accounting period is determined as follows.
(5) The amount of the profits of the straddling period is apportioned to the deemed
accounting period in proportion to the number of days in the deemed accounting period
that fall in the straddling period.
(6) The apportioned amount is taken for the purposes of this section to be the amount of
the profits of the deemed accounting period.
(7) In this section “the straddling period”, in relation to a qualifying company, means an
accounting period of the company—
(a) beginning before 1 January 2006, and
(b) ending on or after that date,
disregarding section 309(3).
328 Reductions in respect of unrelieved group ring fence profits
(1) If there is an amount of unrelieved group ring fence profits for a post-commencement
period, reductions are to be made in that period in accordance with this section.
(2) If, after making any reductions that fall to be made in accordance with section 327,
the company does not have a non-qualifying pool, the remaining amount in the ring
fence pool is to be reduced (but not below nil) by setting against it a sum equal to the
aggregate of the amounts of unrelieved group ring fence profits for the period.
(3) If, after making any reductions that fall to be made in accordance with section 327,
the company has an amount in a non-qualifying pool, the amount in that pool is to be
reduced (but not below nil) by setting against it a sum equal to the aggregate of the
amounts of unrelieved group ring fence profits for the period.

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(4) If any of that sum remains after being so set against the amount in the non-qualifying
pool, the remaining amount in the ring fence pool is to be reduced (but not below nil)
by setting against it so much of that sum as so remains.
(5) For the purposes of this section references to the remaining amount in the ring fence
pool are references to so much (if any) of the amount in the ring fence pool as remains
after making any reductions that fall to be made in accordance with section 327.
329 The reference amount for a post-commencement period
For the purposes of section 322 the reference amount for a post-commencement period
is so much of the amount in the ring fence pool as remains after making any reductions
required by section 327 or 328.
CHAPTER 6
SUPPLEMENTARY CHARGE IN RESPECT OF RING FENCE TRADES
330 Supplementary charge in respect of ring fence trades
(1) If a company carries on a ring fence trade in an accounting period, a sum equal to 20%
of its adjusted ring fence profits for that period is to be charged on the company as if it
were an amount of corporation tax chargeable on the company.
(2) A company's “adjusted ring fence profits” for an accounting period are the amount
which, on the assumption mentioned in subsection (3), would be determined for that
period as the profits of the company's ring fence trade chargeable to corporation tax.
(3) The assumption is that financing costs are left out of account in calculating—
(a) the amount of the profits or loss of any ring fence trade of the company for an
accounting period, and
(b) if for any such period the whole or part of any loss relief is surrendered to the
company in accordance with section 305(1), the amount of that relief or part.
(4) See also section 331 (meaning of financing costs etc).
(5) This Chapter is subject to Chapter 7 (which contains provision about the reduction of
the supplementary charge for certain new oil fields).
331 Meaning of “financing costs” etc
(1) This section applies for the purposes of section 330.
(2) “Financing costs” means the costs of debt finance.
(3) In calculating the costs of debt finance for an accounting period the matters to be taken
into account include—
(a) any costs giving rise to debits in respect of debtor relationships of the company
under Part 5 of CTA 2009 (loan relationships), other than debits in respect of
exchange losses from such relationships,
(b) any exchange gain or loss from a debtor relationship of the company in relation
to debt finance,

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(c) any credit or debit falling to be brought into account in accordance with Part 7
of CTA 2009 (derivative contracts) in relation to debt finance,
(d) the financing cost implicit in a payment under a finance lease,
(e) if the company is the lessee under a long funding operating lease, the amount
deductible in respect of payments under the lease in calculating the profits of the
lessee for corporation tax purposes (after first making against any such amount
any reductions falling to be made as a result of section 379 (lessee under long
funding operating lease)), and,
(f) any other costs arising from what would be considered in accordance with
generally accepted accounting practice to be a financing transaction.
(4) If an amount representing the whole or part of a payment falling to be made by a
company—
(a) falls (or would fall) to be treated as a finance charge under a finance lease for
the purposes of accounts which relate to that company and one or more other
companies and are prepared in accordance with generally accepted accounting
practice, but
(b) is not so treated in the accounts of the company,
the amount is to be treated as a financing cost within subsection (3)(d).
(5) If—
(a) in calculating the adjusted ring fence profits of a company for an accounting
period, an amount falls to be left out of account as a result of subsection (3)
(d), but
(b) the whole or any part of that amount is repaid,
the repayment is also to be left out of account in calculating the adjusted ring fence
profits of the company for any accounting period.
(6) In this section “finance lease” means any arrangements which—
(a) provide for an asset to be leased or otherwise made available by a person to
another person (“the lessee”), and
(b) under generally accepted accounting practice—
(i) fall (or would fall) to be treated, in the accounts of the lessee or a person
connected with the lessee, as a finance lease or a loan, or
(ii) are comprised in arrangements which fall (or would fall) to be so
treated.
(7) For the purposes of applying subsection (6)(b), the lessee and any person connected
with the lessee are to be treated as being companies which are incorporated in a part
of the United Kingdom.
(8) Section 1176(1) (meaning of “connected” persons) does not apply for the purposes of
this section.
(9) In this section—
“accounts”, in relation to a company, includes accounts which—
(a) relate to two or more companies of which that company is one, and
(b) are drawn up in accordance with generally accepted accounting practice,
“debtor relationship” has the meaning given by section 302(6) of CTA 2009,
“exchange gains” and “exchange losses” are to be read in accordance with
section 475 of CTA 2009, and

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“long funding operating lease” means a long funding operating lease for the
purposes of Part 2 of CAA 2001 (see section 70YI(1) of that Act).
332 Assessment, recovery and postponement of supplementary charge
(1) The provisions of section 330(1) relating to the charging of a sum as if it were an
amount of corporation tax are to be taken as applying all enactments applying generally
to corporation tax.
(2) But this is subject to—
(a) the provisions of the Taxes Acts,
(b) any necessary modifications, and
(c) subsection (5).
(3) The enactments mentioned in subsection (1) include—
(a) those relating to returns of information and the supply of accounts, statements
and reports,
(b) those relating to the assessing, collecting and receiving of corporation tax,
(c) those conferring or regulating a right of appeal, and
(d) those concerning administration, penalties, interest on unpaid tax and priority
of tax in cases of insolvency under the law of any part of the United Kingdom.
(4) Accordingly TMA 1970 is to have effect as if any reference to corporation tax included
a sum chargeable under section 330(1) as if it were an amount of corporation tax (but
this does not limit subsections (1) to (3)).
(5) In the Corporation Tax (Treatment of Unrelieved Surplus Advance Corporation Tax)
Regulations 1999 (S.I. 1999/358) or any further regulations made under section 32 of
FA 1998 (unrelieved surplus advance corporation tax)—
(a) references to corporation tax do not include a sum chargeable on a company
under section 330(1) as if it were corporation tax, and
(b) references to profits charged to corporation tax do not include adjusted ring
fence profits, within the meaning of section 330.
(6) In this section “the Taxes Acts” has the same meaning as in TMA 1970 (see
section 118(1) of that Act).
CHAPTER 7
REDUCTION OF SUPPLEMENTARY CHARGE FOR CERTAIN NEW OIL FIELDS
Reduction of adjusted ring fence profits
333 Reduction of adjusted ring fence profits
(1) A company's adjusted ring fence profits for an accounting period are to be reduced by
the amount of the company's pool of field allowances for that accounting period (see
sections 334 to 336).
(2) But, if the profits are less than the amount of the pool, the profits are to be reduced to nil.

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Pool of field allowances
334 Company's pool of field allowances
A company's pool of field allowances for an accounting period (“the relevant accounting
period”) is—
where—
P is the amount of the company's pool of field allowances for the previous accounting
period that has been carried into the relevant accounting period (see sections 335 and
336), and
R is the aggregate of the amounts of field allowances for new oil fields which the
company holds (see sections 337 to 339) that are activated in respect of—
(a) the relevant accounting period (see sections 340 and 341), and
(b) reference periods that fall within the relevant accounting period (see sections 342
to 344).
335 Carrying part of pool of field allowances into following period
(1) This section applies if —
(a) a company has a pool of field allowances for an accounting period (“accounting
period 1”), and
(b) the company's adjusted ring fence profits for accounting period 1 are reduced
to nil in accordance with section 333(2).
(2) A part of the company's pool of field allowances for accounting period 1 is to be carried
into the following accounting period (“accounting period 2”).
(3) The part to be carried into accounting period 2 is—
where—
F is the amount of the company's pool of field allowances for accounting period 1, and
P is the amount of the adjusted ring fence profits for accounting period 1.
336 Carrying whole of pool of field allowances into following period
(1) This section applies if a company—

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(a) has a pool of field allowances for an accounting period, but
(b) has no adjusted ring fence profits for the accounting period.
(2) The whole of the company's pool of field allowances for the accounting period is to be
carried into the following accounting period.
Field allowance: when held and unactivated amount
337 Initial licensee to hold a field allowance
(1) A company that is an initial licensee in a new oil field is to hold a field allowance for
that field as from the beginning of the authorisation day.
(2) The amount of the field allowance which the licensee is to hold at that time is—
where—
T is the amount of the total field allowance for the field (see section 356), and
S is the share of the equity in the field which the initial licensee has at the beginning
of the authorisation day.
338 Holding a field allowance on acquisition of equity share
For provision about holding a field allowance by virtue of the acquisition of a share of
the equity in a new oil field, see section 347(2).
339 Unactivated amount of field allowance
(1) This section applies if a company holds a field allowance for a new oil field by virtue
of section 337 or 347(2).
(2) The unactivated amount of that allowance at a particular time (“the relevant time”) is—
where—
R is the amount of the field allowance which the company held before the relevant time
by virtue of section 337 or 347(2),
E is the total amount of the field allowance received before the relevant time by virtue
of section 347(1) (company already holding field allowance acquires equity share),

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A is the total amount of the field allowance activated in respect of —
(a) accounting periods ending before the relevant time, or
(b) reference periods ending before the relevant time, and
D is the total amount of reductions in the field allowance made before the relevant time
by virtue of section 346 (company disposes of equity share).
(3) A company ceases to hold a field allowance for a new oil field if the unactivated amount
of that allowance falls to nil.
No change in equity share: activation of allowance
340 Introduction to section 341
(1) Section 341 applies to a company in respect of a new oil field and an accounting period
if the following conditions are met.
(2) Condition A is that the company is a licensee in the field for the whole of the accounting
period.
(3) Condition B is that the company's share of the equity in the field is the same during the
whole of the accounting period.
(4) Condition C is that the company holds an unactivated amount of field allowance for the
field at the beginning of the accounting period.
(5) Condition D is that the company has relevant income from the new oil field in the
accounting period.
341 Activation of field allowance
(1) An amount of the company's field allowance for the new oil field is to be activated in
respect of the accounting period.
(2) The amount of the field allowance to be activated is the smallest of the following
amounts—
(a) the relevant activation limit,
(b) the company's relevant income from the field in the accounting period, and
(c) the unactivated amount of the field allowance which the company holds at the
beginning of the accounting period.
(3) The relevant activation limit is—
where—

174 Corporation Tax Act 2010 (c. 4) Part 8 – Oil activities Chapter 7 – Reduction of supplementary charge for certain new oil fields Document Generated: 2011-03-30
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T is the amount of the total field allowance for the field (see section 356),
E is the company's share of the equity in the field during the accounting period, and
N is the number of days in the accounting period.
Change in equity share: activation of allowance
342 Introduction to sections 343 and 344
(1) Sections 343 and 344 apply to a company in respect of a new oil field and an accounting
period if the following conditions are met.
(2) Condition A is that the company is a licensee in the field for the whole, or for part, of
the accounting period.
(3) Condition B is that the company's share of the equity in the field is different at different
times during the accounting period.
(4) Condition C is that the company holds an unactivated amount of field allowance for the
field at any time during the accounting period.
(5) Condition D is that the company has relevant income from the field in the accounting
period.
(6) In a case where a company has three or more different shares of the equity in a new oil
field during a particular day, sections 343 and 344 (in particular provisions relating to
the beginning or end of a day) have effect subject to the necessary modifications.
343 Reference periods
(1) For the purposes of section 344, the accounting period, or (if the company is not a
licensee for the whole of the accounting period) the part or parts of the accounting
period for which the company is a licensee, is to be divided into reference periods.
(2) A reference period is a period of consecutive days that meets the following conditions.
(3) Condition A is that, at the beginning of each day in the period, the company is a licensee
in the new oil field.
(4) Condition B is that, at the beginning of each day in the period, the company's share of
the equity in the field is the same.
(5) Condition C is that, at the beginning of the first day of the period, the company holds
an unactivated amount of field allowance for the field.
(6) Condition D is that each day in the period falls within the accounting period.
344 Activation of field allowance
(1) An amount of the company's field allowance for the new oil field is to be activated in
respect of each reference period.
(2) The amount of the field allowance to be activated is the smallest of the following
amounts—

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(a) the relevant activation limit,
(b) the company's relevant income from the field in the reference period, and
(c) the unactivated amount of the field allowance which the company holds at the
beginning of the reference period.
(3) The relevant activation limit is—
where—
T is the amount of the total field allowance for the field (see section 356),
E is the company's share of the equity in the field during the reference period, and
R is the number of days in the reference period.
(4) The company's relevant income from the field in the reference period is—
where—
I is the company's relevant income from the field in the whole of the accounting period,
R is the number of days in the reference period, and
L is the number of days in the accounting period for which the company is a licensee
in the new oil field.
Change in equity share: transfer of field allowance
345 Introduction to sections 346 and 347
(1) Sections 346 and 347 apply if the following conditions are met.
(2) Condition A is that a company that is a licensee in a new oil field (“the transferor”)
disposes of the whole or a part of its share of the equity in the new oil field (and in
section 347 each of those to which a share of the equity is disposed of is referred to
as “a transferee”).

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(3) Condition B is that, immediately before the disposal, the transferor holds an unactivated
amount of field allowance for the new oil field.
(4) Subsection (5) applies when—
(a) determining (for the purposes of this section) whether a transferor holds an
unactivated amount of field allowance immediately before the disposal (“the
relevant time”), and
(b) determining (for the purposes of section 346), the unactivated amount of field
allowance which a transferor holds at the relevant time;
but it applies only if an amount of field allowance for the new oil field (“the relevant
amount”) has, by virtue of section 344, been activated in respect of the reference period
that ends because of the disposal.
(5) When making the determination, the relevant amount of the field allowance must be
treated as having been activated at a time before the relevant time.
(6) In a case where a company has three or more different shares of the equity in a new oil
field during a particular day, sections 346 and 347 (in particular provisions relating to
the beginning or end of a day) have effect subject to the necessary modifications.
346 Reduction of field allowance if equity disposed of
(1) The unactivated amount of the field allowance for the new oil field which the transferor
holds immediately before the disposal is to be reduced by the following amount—
where—
F is the unactivated amount of the field allowance which the transferor holds
immediately before the disposal,
E1 is the transferor's share of the equity in the new oil field immediately before the
disposal, and
E2 is the transferor's share of the equity in the new oil field immediately after the
disposal.
(2) This section has effect at the end of the day on which the disposal takes place.
347 Acquisition of field allowance if equity acquired
(1) If a transferee holds a field allowance for the new oil field immediately before the
disposal, the unactivated amount of the field allowance is to be increased by the amount
calculated in accordance with subsection (4).

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(2) If a transferee does not hold a field allowance for the new oil field immediately before
the disposal, the transferee is to hold a field allowance for the new oil field.
(3) The amount of the field allowance which the transferee is to hold is calculated in
accordance with subsection (4).
(4) The amount referred to in subsections (1) and (3) is—
where—
R is the amount of the reduction determined in accordance with section 346,
E3 is the share of the equity in the new oil field that the transferee has acquired from
the transferor, and
E1 and E2 are the same as in section 346.
(5) This section has effect at the end of the day on which the disposal takes place.
Miscellaneous
348 Adjustments
(1) This section applies if there is any alteration in a company's adjusted ring fence profits
for an accounting period after this Chapter has had effect in relation to the profits.
(2) Any necessary adjustments to the operation of this Chapter (whether in relation to the
profits or otherwise) are to be made (including any necessary adjustments to the effect of
section 333 on the profits or to the calculation of the company's pool of field allowances
for a subsequent accounting period).
349 Orders
(1) The Commissioners for Her Majesty's Revenue and Customs may by order make
provision about the oil fields that are qualifying oil fields for the purposes of this
Chapter.
(2) The Commissioners for Her Majesty's Revenue and Customs may by order make
provision about the amount of the total field allowance for any description of new
oil field (whether or not provision has been made under subsection (1) about that
description of new oil field).
(3) An order under this section may, in particular, amend any or all of sections 352 to 356.

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(4) No order may be made under this section unless a draft of the statutory instrument
containing it has been laid before and approved by a resolution of the House of
Commons.
Interpretation
350 “New oil field”
In this Chapter “new oil field” means an oil field—
(a) which is a qualifying oil field, and
(b) whose development is authorised at any time on or after 22 April 2009.
351 “Authorisation of development of an oil field”
(1) In this Chapter a reference to authorisation of development of an oil field is a reference
to a national authority—
(a) granting a licensee consent for development for the field,
(b) serving on a licensee a programme of development for the field, or
(c) approving a programme of development for the field.
(2) In this section—
“consent for development”, in relation to an oil field, does not include
consent which is limited to the purpose of testing the characteristics of an oil-
bearing area,
“development”, in relation to an oil field, means winning oil from the field
otherwise than in the course of searching for oil or drilling wells, and
“national authority” means—
(a) the Secretary of State, or
(b) a Northern Ireland department.
352 “Qualifying oil field”
In this Chapter “qualifying oil field” means an oil field that is, on the authorisation
day—
(a) a small oil field,
(b) an ultra heavy oil field, or
(c) an ultra high pressure/high temperature oil field.
353 “Small oil field”
(1) In this Chapter “small oil field” means an oil field which has reserves of oil of 3,500,000
tonnes or less.
(2) For the purposes of this section and section 356(2)—
(a) the amount of reserves of oil which an oil field has is to be determined on the
authorisation day, and
(b) 1,100 cubic metres of gas at a temperature of 15 degrees celsius and pressure
of one atmosphere is to be counted as equivalent to one tonne.

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354 “Ultra heavy oil field”
(1) In this Chapter “ultra heavy oil field” means an oil field with oil at—
(a) an API gravity below 18 degrees, and
(b) a viscosity of more than 50 centipoise at reservoir temperature and pressure.
(2) For that purpose API gravity, in relation to oil, is the amount determined by the
following calculation—
where G is the specific gravity of the oil at 15.56 degrees celsius.
355 “Ultra high pressure/high temperature oil field”
In this Chapter “ultra high pressure/high temperature oil field” means an oil field with
oil at—
(a) a pressure of more than 1034 bar in the reservoir formation, and
(b) a temperature of more than 176.67 degrees celsius in the reservoir formation.
356 “Total field allowance for a new oil field”
(1) For the purposes of this Chapter, the total field allowance for a new oil field is—
(a) in the case of a small oil field, the amount determined in accordance with
subsection (2),
(b) in the case of an ultra heavy oil field, £800,000,000, and
(c) in the cases of an ultra high pressure/high temperature oil field, £800,000,000.
(2) The total field allowance for a small oil field is—
(a) if the oil field has reserves of oil of 2,750,000 tonnes or less, £75,000,000, and
(b) in any other case (where the oil field has reserves of more than 2,750,000 tonnes
but not more than 3,500,000 tonnes), the following amount—
where X is the amount of the reserves of oil (in tonnes) which the oil field has.

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357 Other definitions
In this Chapter—
“adjusted ring fence profits”, in relation to a company and an accounting
period, means the adjusted ring fence profits that would (if this Chapter were
ignored) be taken into account in calculating the supplementary charge on the
company under section 330(1) for the accounting period,
“authorisation day”, in relation to a new oil field, means the day when
development of the field is authorised,
“initial licensee”, in relation to a new oil field, means a company that is
licensee in the field on the authorisation day,
“licensee” has the same meaning as in Part 1 of OTA 1975, and
“relevant income”, in relation to a new oil field and an accounting period of
a company, means production income of the company from any oil extraction
activities carried on in the field that is taken into account in calculating the
company's adjusted ring fence profits for the accounting period.
PART 9
LEASING PLANT OR MACHINERY
CHAPTER 1
INTRODUCTION
358 Introduction to Part
(1) This Part makes provision about the taxation of leasing transactions involving
companies.
(2) Chapter 2 makes provision about the treatment for corporation tax purposes of
companies which are lessors or lessees under long funding leases of plant or machinery.
(3) The sales of lessors Chapters make provision about the taxation of a company which
is within the charge to corporation tax in respect of a business of leasing plant or
machinery (within the meaning of Chapter 3 or 4)—
(a) on the sale of, or certain other changes in interests in, the company, and
(b) in certain circumstances where the company's interest in the business changes.
(4) In this Part “the sales of lessors Chapters” means Chapters 3 to 6.
(5) In the sales of lessors Chapters—
(a) Chapter 3 deals with the case of a qualifying change of ownership in relation
to the company where it carries on the business otherwise than in partnership,
(b) Chapter 4 deals with—
(i) the case of a qualifying change in the company's interest in the business
where it carries on the business in partnership with other persons, and
(ii) the case of a qualifying change of ownership in relation to any such
company,
(c) Chapter 5 contains anti-avoidance provisions, and

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(d) Chapter 6 provides for the general interpretation of those Chapters.
(6) For the meaning of “qualifying change of ownership” in the sales of lessors Chapters,
see sections 392 to 398.
(7) For the meaning of “qualifying change in a company's interest in a business” in Chapter
4, see section 415.
CHAPTER 2
LONG FUNDING LEASES OF PLANT OR MACHINERY
Introduction
359 Overview of Chapter
(1) This Chapter makes provision about the calculation for corporation tax purposes of the
profits of companies which are—
(a) lessors of plant or machinery under long funding finance leases (see sections
360 to 362),
(b) lessors of plant or machinery under long funding operating leases (see sections
363 to 369),
(c) lessees of plant or machinery under long funding finance leases (see sections
377 and 378), or
(d) lessees of plant or machinery under long funding operating leases (see sections
379 and 380).
(2) Sections 370 to 376 make provision about cases where sections 360 to 369 are not to
apply.
(3) For the meaning of expressions used in this section and in this Chapter generally, see
section 381 and, in particular—
(a) subsection (1) of that section (which provides for the application of Chapter 6A
of Part 2 of CAA 2001 (interpretation of provisions about long funding leases)
to this Chapter), and
(b) subsections (2) and (3) of that section (which specify the provisions of that
Chapter in which some expressions used in this Chapter are defined).
Lessors under long funding finance leases
360 Lessor under long funding finance lease: rental earnings
(1) This section applies for any period of account of a company in which it is the lessor of
any plant or machinery under a long funding finance lease.
(2) The amount to be brought into account as the lessor's income from the lease for the
period is the amount of the rental earnings in respect of the lease for the period.
(3) The amount of those rental earnings is the amount which, in accordance with generally
accepted accounting practice, falls (or would fall) to be treated as the gross return on
investment for that period in respect of the lease.

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(4) If the lease is one which, in accordance with such practice, falls (or would fall) to be
treated as a loan for the period of account, so much of the rentals under the lease as
falls (or would fall) to be treated as interest is treated for the purposes of this section
as rental earnings.
361 Lessor under long funding finance lease: exceptional items
(1) This section applies if—
(a) a company is or has been the lessor under a long funding finance lease, and
(b) an exceptional profit or loss arises to the company in connection with the lease.
(2) A profit or loss is exceptional for the purposes of subsection (1) if—
(a) in accordance with generally accepted accounting practice it falls (or would
fall) to be recognised for accounting purposes in a period of account, but
(b) apart from this section, it would not be brought into account in calculating the
profits of the company for corporation tax purposes.
(3) Such a profit is treated for corporation tax purposes as income of the company
attributable to the lease.
(4) Such a loss is treated for corporation tax purposes as a revenue expense incurred by the
company in connection with the lease.
(5) It does not matter for the purposes of this section whether the profit or loss is of an
income or capital nature.
(6) The reference in subsection (2) to an amount falling to be recognised for accounting
purposes in a period of account is a reference to an amount falling to be recognised for
accounting purposes in—
(a) the company's profit and loss account, income statement or statement of
comprehensive income for that period,
(b) the company's statement of total recognised gains and losses, statement of
recognised income and expense, statement of changes in equity or statement of
income and retained earnings for that period, or
(c) any other statement of items taken into account in calculating the company's
profits or losses for that period.
362 Lessor under long funding finance lease making termination payment
(1) This section applies if—
(a) a company is or has been the lessor under a long funding finance lease,
(b) the lease terminates, and
(c) a sum calculated by reference to the termination value is paid to the lessee.
(2) No deduction in respect of the sum is allowed in calculating the profits of the company
for corporation tax purposes.
(3) This section does not prevent a deduction in respect of a sum so far as it is brought into
account in determining the company's rental earnings.
(4) For the meaning of “termination value”, see section 381(3)(m).

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Lessors under long funding operating leases
363 Lessor under long funding operating lease: periodic deduction
(1) This section applies if a company is the lessor of any plant or machinery under a long
funding operating lease for the whole or part of a period of account.
(2) A deduction is allowed in calculating the profits of the company for the period of
account for corporation tax purposes.
(3) The amount of the deduction is so much of the expected gross reduction in value over
the term of the lease as is attributable to the period of account.
(4) The expected gross reduction in value over the term of the lease is—
(a) the starting value of the plant or machinery, less
(b) the amount which at the commencement of the term of the lease is expected to
be its residual value (or, if section 365 applies, would have been expected to be
that value had that value been estimated at that time).
(5) The expected gross reduction in value over the term of the lease that is attributable to
the period of account is found by apportioning that reduction on a time basis according
to the proportion of the term of the lease that falls in the period of account.
(6) For the meaning of “starting value”, see—
(a) section 364 (“starting value”: general), and
(b) section 365 (“starting value” where plant or machinery originally
unqualifying).
(7) For the meaning of “residual value”, see section 381(4).
364 “Starting value”: general
(1) This section is about the meaning of “starting value” in section 363 in relation to a long
funding operating lease (“the section 363 lease”).
(2) But this section does not apply if the conditions in section 365(2) (“starting value”
where plant or machinery originally unqualifying) are met.
(3) If the only use of the plant or machinery by the lessor has been the leasing of it under
the section 363 lease as a qualifying activity, the starting value is the amount of the
expenditure incurred by the lessor on the provision of the plant or machinery (“cost”).
(4) If subsection (3) does not apply, the starting value depends on the last previous use of
the plant or machinery by the lessor.
(5) If that use was the leasing of it under another long funding operating lease as a
qualifying activity, the starting value is the market value of the plant or machinery at
the commencement of the term of the section 363 lease (“market value”).
(6) If that use was the leasing of it under a long funding finance lease as a qualifying activity,
the starting value is the value at which the plant or machinery is recognised in the books
or other finance records of the lessor at the commencement of the term of the section 363
lease.
(7) If that use was for the purposes of a qualifying activity other than leasing under a long
funding lease, the starting value is the lower of cost and market value.

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(8) For the meaning of “qualifying activity”, see section 381(4).
365 “Starting value” where plant or machinery originally unqualifying
(1) This section applies if the conditions in subsection (2) are met in relation to a long
funding operating lease to which section 363 applies.
(2) The conditions are that—
(a) the lessor owns the plant or machinery as a result of having incurred expenditure
on its provision for purposes other than those of a qualifying activity,
(b) the plant or machinery is brought into use by the lessor for the purposes of a
qualifying activity on or after 1 April 2006, and
(c) that qualifying activity is the leasing of the plant or machinery under the lease.
(3) For the purposes of section 363 the starting value is the lower of—
(a) first use market value, and
(b) first use amortised market value.
(4) “First use market value” means the market value of the plant or machinery at the time
when it is first brought into use for the purposes of the qualifying activity.
(5) “First use amortised value” means the value that the plant or machinery would have at
the time when it is first brought into use for the purposes of the qualifying activity on
the assumptions in subsection (6).
(6) The assumptions are that—
(a) the cost of acquiring the plant or machinery had been written off on a straight
line basis over its remaining useful economic life, and
(b) any further capital expenditure incurred had been written off on a straight line
basis over so much of its remaining economic life as remains at the time when
the expenditure is incurred.
(7) For the meaning of “qualifying activity”, “remaining useful economic life” and writing
off on a straight line basis, see section 381(4), (3)(i) and (5) respectively.
366 Long funding operating lease: lessor's additional expenditure
(1) This section applies if in any period of account—
(a) a company is the lessor of any plant or machinery under a long funding
operating lease,
(b) the company incurs capital expenditure in relation to the plant or machinery
(the “additional expenditure”), and
(c) the additional expenditure is not reflected in the market value of the plant or
machinery at the commencement time (see subsection (7)).
(2) An additional deduction is allowed in calculating the profits of the company for each
period of account—
(a) which ends after the incurring of the additional expenditure, and
(b) in which the company is the lessor of the plant or machinery under the lease.

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(3) The amount of the deduction is so much of the expected reduction in value of the
additional expenditure (“the expected reduction”) as is attributable to the period of
account.
(4) The expected reduction is the amount of the additional expenditure, less the remaining
residual value of the plant or machinery resulting from that expenditure.
(5) For how to determine that remaining residual value, see—
(a) section 367 (determination of remaining residual value resulting from lessor's
first additional expenditure), and
(b) section 368 (determination of remaining residual value resulting from lessor's
further additional expenditure).
(6) The amount of the expected reduction attributable to the period of account is found by
apportioning that reduction on a time basis according to the proportion of the term of
the lease that falls in the period of account.
(7) In this section “the commencement time” means—
(a) except where section 365 applies, the commencement of the term of the lease,
and
(b) if that section applies, the time when the plant or machinery is first brought into
use by the lessor for the purposes of the qualifying activity.
367 Determination of remaining residual value resulting from lessor's first additional
expenditure
(1) This section sets out how the remaining residual value of the plant or machinery
resulting from the additional expenditure (“RRV”) is determined for the purposes of
section 366(4) if section 366 has not applied in relation to any previous additional
expenditure incurred by the company in relation to the leased plant or machinery.
(2) RRV depends on whether—
(a) the amount (“ARV”) which is expected to be the residual value of the plant or
machinery at the time when the additional expenditure is incurred, exceeds
(b) the amount (“CRV”) which at the commencement of the term of the lease is
expected to be its residual value (or, if section 365 applies, would have been
expected to be that value had that value been estimated at that time).
(3) If ARV exceeds CRV, RRV is the part of the excess that is a result of the additional
expenditure.
(4) Otherwise, RRV is nil.
(5) For the meaning of “residual value”, see section 381(4).
368 Determination of remaining residual value resulting from lessor's further
additional expenditure
(1) This section sets out how the remaining residual value of the plant or machinery
resulting from the additional expenditure (“RRV”) is determined for the purposes of
section 366(4) if section 366 has applied in relation to previous additional expenditure
incurred by the company in relation to the leased plant or machinery.
(2) RRV depends on whether—

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(a) the amount (“FARV”) which is expected to be the residual value of the plant
or machinery at the time when the further additional expenditure is incurred,
exceeds
(b) the sum of the amounts in subsection (3).
(3) Those amounts are—
(a) the amount which at the commencement of the term of the lease is expected
to be the residual value of the plant or machinery (or, if section 365 applies,
would have been expected to be that value had that value been estimated at that
time), and
(b) any amounts that were subtracted under section 366(4) as the remaining
residual value of the plant or machinery resulting from the previous additional
expenditure.
(4) If FARV exceeds the sum of the amounts in subsection (3), RRV is the portion of the
excess that is a result of the further additional expenditure.
(5) Otherwise, RRV is nil.
(6) For the meaning of “residual value”, see section 381(4).
369 Lessor under long funding operating lease: termination of lease
(1) This section applies in calculating the profits of a company for corporation tax purposes
if it is the lessor immediately before the termination of a long funding operating lease.
(2) If the termination amount (see section 381(3)(l)) exceeds the sum of the amounts in
subsection (3), an amount equal to the excess is treated as income of the company
attributable to the lease arising in the period of account in which it terminates.
(3) The amounts referred to in subsection (2) are—
(a) the total amounts paid to the lessee that are calculated by reference to the
termination value (see section 381(3)(m)),
(b) the excess relevant value for section 363 (see subsection (6)), and
(c) the excess expenditure for section 366 (see subsection (7)).
(4) If the sum of the amounts in subsection (3) exceeds the termination amount, the excess
is treated as a revenue expense incurred by the company in connection with the lease
in the period of account in which it terminates.
(5) No deduction is allowed in respect of any sums within subsection (3)(a).
(6) “The excess relevant value for section 363” is the amount (if any) by which—
(a) the starting value of the plant or machinery for the purposes of section 363(4)
(lessor under long funding operating lease: periodic deduction), exceeds
(b) the total of the deductions allowable under section 363 for periods of account
for the whole or part of which the company was the lessor.
(7) “The excess expenditure for section 366” is the amount (if any) by which—
(a) the total of any amounts of capital expenditure incurred by the company which
constitute additional expenditure in the case of the lease for the purposes of
section 366 (long funding operating lease: lessor's additional expenditure),
exceeds

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(b) the total of any deductions allowable under section 366 for periods of account
for the whole or part of which the company was the lessor.
Cases where sections 360 to 369 do not apply
370 Plant or machinery held as trading stock
(1) Sections 360 to 369 do not apply in relation to a long funding lease in the case of a
company which is or has been the lessor of any plant or machinery under the lease if
the condition in subsection (2) is met.
(2) The condition is that any part of the expenditure incurred by the company on the
acquisition of the plant or machinery for leasing under the lease—
(a) is allowable as a deduction (apart from sections 360 to 369) in calculating its
profits or losses for corporation tax purposes, and
(b) is so allowable as a result of the plant or machinery forming part of its trading
stock.
(3) For the purposes of this section the cases in which expenditure incurred by a company
on the acquisition of any plant or machinery for leasing under a lease is allowable as
such a deduction include any case where—
(a) the company becomes entitled to the deduction at any time after the expenditure
is incurred, and
(b) the deduction arises as a result of the plant or machinery forming part of its
trading stock at that time.
371 Adjustments where sections 360 to 369 subsequently disapplied by section 370
(1) This section applies if—
(a) at any time any of sections 360 to 369 has applied for determining the amounts
to be taken into account in calculating the profits or losses of a company for
corporation tax purposes, and
(b) subsequently the condition in section 370(2) is met.
(2) If this section applies—
(a) the amounts mentioned in subsection (1)(a), and
(b) any other amounts which, as a result of section 370, are to be taken into account
in calculating the profits or losses of the company for corporation tax purposes,
are subject to such adjustments as are just and reasonable.
(3) All such assessments and adjustments of assessments are to be made as are necessary
to give effect to this section.
372 Lessor also lessee under non-long funding lease
(1) This section applies if—
(a) a company is the lessee of any plant or machinery under a lease (“lease A”),
(b) lease A is not a long funding lease,
(c) the company enters into a lease (“lease B”) of any of that plant or machinery
(as lessor), and
(d) lease B is a long funding lease.

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(2) Sections 360 to 369 do not apply in relation to lease B.
(3) This section must be treated as never having applied in relation to lease B if lease A—
(a) becomes a long funding lease as a result of section 70H of CAA 2001 (tax
return by lessee treating lease as long funding lease), and
(b) has not ceased to be such a lease.
373 Other avoidance
(1) Sections 360 to 369 do not apply in relation to a long funding lease in the case of a
company which is or has been the lessor of any plant or machinery under the lease if
conditions A, B and C are met.
(2) Condition A is that the lease forms part of any arrangement entered into by the company
which includes one or more other transactions.
(3) Condition B is that the main purpose, or one of the main purposes, of the arrangement
is to secure that, over the lease period, there would be a substantial difference between
the GAAP total and the tax total.
(4) “The GAAP total” means the sum of the amounts under the arrangement which are, in
accordance with generally accepted accounting practice—
(a) recognised in determining the company's profit or loss for any period, or
(b) taken into account in calculating the amounts which are so recognised.
(5) “The tax total” means the sum of the amounts under the arrangement which would
(apart from this section) be taken into account in calculating the profits or losses of the
company for corporation tax purposes.
(6) Condition C is that the difference referred to in subsection (3) would be attributable
(wholly or partly) to the application of any of sections 360 to 369 in relation to the
company by reference to the plant or machinery under the lease.
(7) This section is supplemented by sections 374 and 375.
374 Provision supplementing section 373
(1) It does not matter whether the arrangement referred to in condition A in section 373(2)
is entered into before, after or at the inception of the long funding lease.
(2) It does not matter whether the parties to any transaction which forms part of that
arrangement differ from the parties to any of the other transactions.
(3) The cases in which two or more transactions are to be taken as forming part of an
arrangement for the purposes of section 373 include any case in which it would be
reasonable to assume that one or more of them—
(a) would not have been entered into independently of the other or others, or
(b) if entered into independently of the other or others, would not have taken the
same form or been on the same terms.
(4) For the purposes of condition B in section 373(3) “the lease period” means the period
which—
(a) begins with the inception of the lease, and
(b) ends with the end of the term of the lease.

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(5) The reference in section 373(4) to an amount being recognised in determining a
company's profit or loss for a period is to an amount being recognised for accounting
purposes in—
(a) the company's profit and loss account, income statement or statement of
comprehensive income for that period,
(b) the company's statement of total recognised gains and losses, statement of
recognised income and expense, statement of changes in equity or statement of
income and retained earnings for that period, or
(c) any other statement of items taken into account in calculating the company's
profits or losses for that period.
375 Adjustments where sections 360 to 369 subsequently disapplied by section 373
(1) This section applies if—
(a) at any time any of sections 360 to 369 has applied for determining the amounts
to be taken into account in calculating the profits or losses of the company for
corporation tax purposes, and
(b) subsequently conditions A, B and C in section 373 are met.
(2) If this section applies—
(a) the amounts mentioned in subsection (1)(a), and
(b) any other amounts which, as a result of section 373, are to be taken into account
in calculating the profits or losses of the company for corporation tax purposes,
are subject to such adjustments as are just and reasonable.
(3) All such assessments and adjustments of assessments are to be made as are necessary
to give effect to this section.
376 Films
(1) If a company is or has been a lessor under a long funding lease of a film, sections 360
to 369 do not apply in respect of the lease.
(2) “Film” has the same meaning as in Part 15 of CTA 2009 (see section 1181 of that Act).
Lessees under long funding finance leases
377 Lessee under long funding finance lease: limit on deductions
(1) This section applies if a company is the lessee of any plant or machinery under a long
funding finance lease for the whole or part of any period of account.
(2) In calculating the company's profits for the period of account for corporation tax
purposes, the amount deducted in respect of amounts payable under the lease must not
exceed the finance charges.
(3) In subsection (2) “the finance charges” means the amounts which, in accordance with
generally accepted accounting practice, fall (or would fall) to be shown in the company's
accounts as finance charges in respect of the lease.

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(4) If the lease is one which, in accordance with such practice, falls (or would fall), to
be treated as a loan, subsections (2) and (3) apply as if the lease were one which, in
accordance with such practice, fell to be treated as a finance lease.
378 Lessee under long funding finance lease: termination
(1) This section applies if—
(a) a company is or has been the lessee under a long funding finance lease, and
(b) in connection with the termination of the lease, a payment calculated by
reference to the termination value falls to be made to the company.
(2) The payment is not to be brought into account in determining the profits of the company
for any period of account for corporation tax purposes.
(3) Subsection (2) does not affect the amount of any disposal value that falls to be brought
into account by the company under CAA 2001.
(4) For the meaning of “termination value”, see section 381(3)(m).
Lessees under long funding operating leases
379 Lessee under long funding operating lease
(1) This section applies if a company is the lessee of any plant or machinery under a long
funding operating lease for the whole or part of any period of account.
(2) The deductions allowed in calculating the profits of the company for the period of
account for corporation tax purposes are reduced.
(3) The amount of the reduction is so much of the expected gross reduction in value over
the term of the lease as is attributable to the period of account.
(4) The expected gross reduction in value over the term of the lease is the starting value of
the plant or machinery, less its expected end value.
(5) For the meaning of “starting value”, see section 380.
(6) The expected end value of plant or machinery is the amount which—
(a) at the commencement of the term of the lease is expected to be its market value
at the end of the term, or
(b) if section 380(3) applies, would have been expected to be that value had that
value been estimated at the commencement of the term.
(7) The expected gross reduction in value over the term of the lease that is attributable to
the period of account is found by apportioning that reduction on a time basis according
to the proportion of the term of the lease that falls in the period of account.
380 “Starting value” in section 379
(1) This section is about the meaning of “starting value” in section 379 in relation to a long
funding operating lease (“the section 379 lease”).
(2) Except where subsection (3) applies, the starting value is the market value of the plant
or machinery at the commencement of the term of the section 379 lease.

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(3) This subsection applies if the lessee—
(a) has the use of the plant or machinery as a result of having incurred expenditure
on its provision for purposes other than those of a qualifying activity, but
(b) brings the plant or machinery into use for the purposes of a qualifying activity
on or after 1 April 2006.
(4) If subsection (3) applies, the starting value is the lower of—
(a) first use market value, and
(b) first use amortised market value.
(5) “First use market value” means the market value of the plant or machinery at the time
when it is first brought into use for the purposes of the qualifying activity.
(6) “First use amortised market value” means the value that the plant or machinery would
have at the time when it is first brought into use for the purposes of the qualifying
activity on the assumption in subsection (7).
(7) That assumption is that the market value of the plant or machinery at the commencement
of the term of the section 379 lease had been written off on a straight line basis over
its remaining useful economic life.
(8) For the meaning of “qualifying activity”, “remaining useful economic life” and writing
off on a straight line basis, see section 381(4), (3)(i) and (5) respectively.
Interpretation
381 Interpretation of Chapter
(1) Chapter 6A of Part 2 of CAA 2001 (interpretation of provisions about long funding
leases) applies in relation to this Chapter as it applies in relation to that Part.
(2) Accordingly—
“the finance lease test” means the finance lease test in section 70N of CAA
2001,
“long funding lease” has the meaning given by section 70G of that Act,
“long funding finance lease” means a long funding lease that meets the
finance lease test as a result of section 70N(1)(a) of that Act, and
“long funding operating lease” means a long funding lease that is not a long
funding finance lease.
(3) As to the meaning of the following other expressions used in this Chapter and defined
in Chapter 6A of Part 2 of CAA 2001, see—
(a) for “commencement”, in relation to the term of a lease, section 70YI(1) of that
Act,
(b) for “inception”, section 70YI(1) of that Act,
(c) for “lease”, section 70YI(1) of that Act,
(d) for “lessee”, section 70YI(1) of that Act,
(e) for “lessor”, section 70YI(1) of that Act,
(f) for “market value”, in relation to plant or machinery, section 70YI(2) of that
Act,
(g) for “plant or machinery”, in relation to a lease, section 70YI(3) of that Act,

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(h) for “plant or machinery lease”, section 70YI(1) of that Act,
(i) for “remaining useful economic life”, section 70YI(1) of that Act,
(j) for “the term”, in relation to a lease, section 70YI(1) of that Act,
(k) for “termination”, section 70YI(1) of that Act,
(l) for “termination amount”, section 70YG of that Act, and
(m) for “termination value”, section 70YH of that Act.
(4) In this Chapter—
“qualifying activity” has the same meaning as in Part 2 of CAA 2001, and
“residual value”, in relation to any plant or machinery leased under a long
funding operating lease, means—
(a) the estimated market value of the plant or machinery on a disposal at the
end of the term of the lease, less
(b) the estimated costs of that disposal.
(5) Any reference in this Chapter to a sum being written off on a straight line basis over a
period of time (the “writing-off period”) is a reference to—
(a) the sum being apportioned between each of the periods of account in which any
part of the writing-off period falls,
(b) that apportionment being made on a time basis, according to the proportion of
the writing-off period that falls in each of the periods of account, and
(c) the sum being written off accordingly.
CHAPTER 3
SALES OF LESSORS : LEASING BUSINESS CARRIED ON BY A COMPANY ALONE
Introduction
382 Introduction to Chapter
(1) This Chapter applies if there is a qualifying change of ownership in relation to a
company carrying on a business of leasing plant or machinery otherwise than in
partnership with other persons.
(2) For the meaning of “business of leasing plant or machinery”, see sections 387 to 391.
(3) For the meaning of “qualifying change of ownership”, see sections 392 to 398.
(4) As to cases where there is a qualifying change of ownership in relation to a company
carrying on a business of leasing plant or machinery in partnership with other persons,
see Chapter 4.
Income and matching expense in different accounting periods
383 Income and matching expense in different accounting periods
(1) This section applies if on any day (“the relevant day”)—
(a) a company carries on a business of leasing plant or machinery otherwise than
in partnership,

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(b) the company is within the charge to corporation tax in respect of the business,
and
(c) there is a qualifying change of ownership in relation to the company.
(2) On the relevant day—
(a) the company is treated as receiving an amount of income, and
(b) the accounting period of the company ends.
(3) The income—
(a) is treated as a receipt of the business, and
(b) is brought into account in calculating for corporation tax purposes the profits
of the business for that accounting period.
(4) On the day following the relevant day—
(a) the company is treated as incurring an expense, and
(b) a new accounting period of the company begins.
(5) The expense—
(a) is treated as an expense of the business, and
(b) is allowed as a deduction in calculating for corporation tax purposes the profits
of the business for that new accounting period.
(6) This section is supplemented by sections 384 to 386.
384 Amount of income and expense
(1) The amount of the income under section 383 is calculated in accordance with sections
399 to 407.
(2) The amount of the expense under section 383 is the same as the amount of the income.
385 No carry back of the expense
(1) This section applies if the business carried on by the company is a trade carried
on wholly or partly in the United Kingdom the profits of which are chargeable to
corporation tax under Chapter 2 of Part 3 of CTA 2009 (trading income).
(2) No relief is to be given as a result of section 37(3)(b) (relief for trade losses against
total profits of earlier accounting periods) in respect of so much of any loss as derives
from the expense.
(3) For the purpose of determining how much of a loss derives from the expense, the loss
is to be calculated on the basis that the expense is the final amount to be deducted.
386 Relief for expense otherwise giving rise to carried forward loss
(1) This section applies if—
(a) there is a qualifying change of ownership in relation to a company on any day
(“the relevant day”),
(b) on the following day the company is treated under section 383 as incurring an
expense of a business and an accounting period of the company (“period 1”)
begins,
(c) the company makes a loss in period 1 or a later accounting period,

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(d) apart from this section some or all of that loss (“the carried forward loss”)
would be carried forward to the next accounting period of the company after
the accounting period in which the loss is made (“the subsequent period”),
(e) some or all of the carried forward loss (“the derived loss”) derives from—
(i) the expense under section 383, or
(ii) an expense treated as arising under subsection (2) and allowed as a
deduction for the accounting period in which the loss is made, and
(f) the subsequent period starts within the period of 5 years beginning immediately
after the relevant day and does not start as a result of section 383 or 425.
(2) Instead of being so carried forward, the derived loss is to be treated for corporation tax
purposes as giving rise to an expense of an amount equal to—
where—
DL is the derived loss,
D is the number of days in the accounting period in which the loss is made, and
R is the percentage rate applicable to section 826 of ICTA under section 178 of FA 1989.
(3) The amount of the expense under this section is allowed as a deduction in calculating
for corporation tax purposes the profits of the business for the subsequent period.
(4) For the purpose of determining how much of the carried forward loss derives from the
expense under section 383 or an expense within subsection (1)(e)(ii), the loss is to be
calculated on the basis that that expense is the final amount to be deducted.
“Business of leasing plant or machinery”
387 “Business of leasing plant or machinery”
(1) This section determines for the purposes of this Chapter whether, on any day (“the
relevant day”), a company (“the relevant company”) carries on a business of leasing
plant or machinery.
(2) A business carried on by the relevant company is a business of leasing plant or
machinery on the relevant day if condition A or B is met.
(3) Condition A is that at least half of the relevant plant or machinery value relates to
qualifying leased plant or machinery.
(4) Subsection (3) is supplemented by section 388.

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(5) Condition B is that at least half of the relevant company's income in the period of 12
months ending with the relevant day derives from qualifying leased plant or machinery.
(6) Subsection (5) is supplemented by section 391.
(7) For the purposes of this Chapter, plant or machinery is “qualifying leased plant or
machinery”, in relation to a company, if—
(a) expenditure is incurred (or treated as incurred) by the company on the provision
of the plant or machinery wholly or partly for the purposes of the business,
(b) the company would be (or would at any time have been) entitled, on the
assumptions in subsection (8), to an allowance under Part 2 of CAA 2001 in
respect of that expenditure, and
(c) at any time in the period of 12 months ending with the relevant day the
plant or machinery has been subject to a plant or machinery lease which is
not an excluded lease of background plant or machinery for a building (see
section 437(3)).
(8) The assumptions are—
(a) that sections 34A and 70A of CAA 2001 (lessees, and not lessors, under long
funding leases to be entitled to capital allowances) are ignored, and
(b) that any claim that could be made for an allowance under Part 2 of that Act
is made.
388 “Relevant plant or machinery value” for condition A in section 387
(1) This section applies for the purposes of condition A in section 387.
(2) The relevant plant or machinery value is the sum of the amounts in subsection (3),
but subject to section 390 (relevant plant or machinery value where relevant company
lessee under long funding lease etc).
(3) The amounts are—
(a) the amounts (if any) that would be shown in respect of plant or machinery in
the appropriate balance sheet of the relevant company drawn up as at the start
of the relevant day, and
(b) the amounts (if any) that would be shown in the appropriate balance sheet of
the relevant company drawn up as at the end of the relevant day in respect of
relevant transferred plant or machinery.
(4) For the purposes of subsection (3)(b) plant or machinery is “relevant transferred plant
or machinery” if an amount in respect of it would be shown in the appropriate balance
sheet of an associated company drawn up as at the start of the relevant day.
(5) This section is supplemented by section 389.
389 Provision supplementing section 388
(1) For the purposes of section 388 and this section the amounts shown in the appropriate
balance sheet of any company in respect of any plant or machinery are—
(a) the amounts shown in that balance sheet as the net book value (or carrying
amount) in respect of the plant or machinery, and
(b) the amounts shown in that balance sheet as the net investment in respect of
finance leases of the plant or machinery.

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(2) If—
(a) any of the plant or machinery is a fixture in any land (see section 437(5)), and
(b) the amount which falls (or would fall) to be shown in an appropriate balance
sheet as the net book value (or carrying amount) of the land includes (or would
include) an amount in respect of the fixture,
the amount of the net book value (or carrying amount) in respect of the fixture is
determined on a just and reasonable basis.
(3) If—
(a) any of the plant or machinery is subject to a finance lease (see section 437(4)),
and
(b) any land or other asset which is not plant or machinery is subject to that lease,
the amount of the net investment in respect of the finance lease of that plant or
machinery is determined on a just and reasonable basis.
(4) In section 388 and this section any reference to any amount shown in the appropriate
balance sheet of a company is to the amount which, on the assumptions in subsection (5),
falls (or would fall) to be shown in a balance sheet of the company.
(5) The assumptions are—
(a) that the balance sheet is drawn up in accordance with generally accepted
accounting practice, and
(b) that, if the company acquired any plant or machinery in circumstances in which
this paragraph applies, the plant or machinery had been acquired for an amount
equal to its market value as at the relevant day.
(6) Paragraph (b) of subsection (5) applies if—
(a) the relevant day falls on or after 22 March 2006,
(b) the plant or machinery was acquired directly or indirectly from a person who
was connected with the company when the acquisition took place, and
(c) either the acquisition took place on or after 5 December 2005 or the person
from whom the plant or machinery was so acquired was also connected with
the company on that date.
390 Relevant plant or machinery value where relevant company lessee under long
funding lease etc
(1) Any amount included in the amounts mentioned in section 388(2) in respect of plant
or machinery to which this section applies is to be deducted from the sum mentioned
in that section.
(2) But the market value as at the relevant day of any plant or machinery to which this
section applies is to be added to that sum or, if that sum is nil, is the relevant plant or
machinery value.
(3) This section applies to plant or machinery if—
(a) condition A or B is met at the start of the relevant day, or
(b) the plant or machinery is acquired by the relevant company from an associated
company on the relevant day and condition A or B is met at the end of that day.
(4) Condition A is that the relevant company is the lessee of the plant or machinery under
a long funding finance lease or a long funding operating lease.

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(5) Condition B is that the relevant company is treated as the owner of the plant or
machinery under section 67 of CAA 2001 (hire purchase and similar contracts).
391 Relevant company's income for condition B in section 387
(1) This section applies for the purposes of condition B in section 387.
(2) The reference to the relevant company's income is to its income as calculated for
corporation tax purposes.
(3) Any apportionment necessary to determine the amount of the relevant company's
income attributable to the period of 12 months ending with the relevant day is to be
made on a time basis.
(4) But—
(a) that basis does not apply if it would work in an unjust or unreasonable way in
relation to any person, and
(b) in that case the apportionment is to be made instead on a just and reasonable
basis.
(5) The proportion of the income that derives from qualifying leased plant or machinery is
to be determined on a just and reasonable basis.
“Qualifying change of ownership”
392 “Qualifying change of ownership”
(1) This section defines when there is a qualifying change of ownership in relation to a
company (“A”) for the purposes of the sales of lessors Chapters.
(2) There is a qualifying change of ownership in relation to A on any day if there is a
relevant change in the relationship on that day between—
(a) A, and
(b) a principal company of A.
(3) For an exception to subsection (2) see section 395 (no qualifying change of ownership
in certain intra-group reorganisations).
(4) There is a relevant change in the relationship between A and a principal company
of A on any day in any of the circumstances in section 393 or 394 (qualifying 75%
subsidiaries and consortium relationships).
(5) For an exception to subsection (4) see section 396 (no qualifying change of ownership
where principal company's interest in consortium company unchanged).
393 Qualifying 75% subsidiaries
(1) A company (“B”) is a principal company of A if—
(a) A is a qualifying 75% subsidiary of B, and
(b) B is not a qualifying 75% subsidiary of another company.
(2) There is a relevant change in the relationship between A and B (as a principal company)
on any day if A ceases to be a qualifying 75% subsidiary of B on that day.