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Chapter 5
Corporation Tax
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Corporation tax: treatment of profits or gains and losses from dealing in residential development land.
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11.— (1) Part 22 of the Principal Act is amended—
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(a) in section 644B by inserting the following after subsection (4):
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“(5) (a) This section shall not apply to an accounting period ending after 31 December 2008.
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(b) Where an accounting period of a company begins before 31 December 2008 and ends after that day, it shall be divided into 2 parts, one beginning on the day on which the accounting period begins and ending on 31 December 2008 and the other beginning on 1 January 2009 and ending on the day on which the accounting period ends, and both parts shall be treated for the purposes of this section as if they were separate accounting periods of the company.”,
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and
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(b) by inserting the following after section 644B:
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“Relief from corporation tax for losses from dealing in residential development land.
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644C.— (1) (a) In this section—
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‘ corporation tax referable to dealing in residential develop ment land ’, in relation to an accounting period of a company, means the corporation tax referable to trading income from dealing in residential development land within the meaning of subsection (2) of section 644B as reduced under that section;
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‘ relevant corporation tax’ , in relation to an accounting period of a company, means the corporation tax which would be chargeable on the company for the accounting period apart from—
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(i) this section and sections 239, 241, 420B, 440 and 441, and
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(ii) where the company carries on a life business (within the meaning of section 706), any corporation tax which would be attributable to policyholders’ profits;
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‘ relevant trading income’ has the same meaning as it has in section 243A;
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‘residential development land ’ has the same meaning as it has in section 644A(1).
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(b) Where an accounting period of a company begins before 31 December 2008 and ends after that day, it shall be divided into 2 parts, one beginning on the day on which the accounting period begins and ending on 31 December 2008 and the other beginning on 1 January 2009 and ending on the day on which the accounting period ends, and both parts shall be treated for the purpose of this section as if they were separate accounting periods of the company.
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(2) Notwithstanding subsection (1) of section 396, where a company claims that a loss incurred in a trade, the operations or activities of which consist of or include dealing in residential development land, in an accounting period ending on or before 31 December 2008 be set off against trading income of an accounting period beginning after that date, the said subsection (1) shall apply as if the amount of the loss so far as it relates to dealing in residential development land were reduced by 20 per cent.
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(3) Notwithstanding subsection (2) of section 396, for the purposes of that subsection the amount of a loss incurred by a company in an accounting period in a trade, the operations or activities of which consist of or include dealing in residential development land, shall be deemed to be reduced—
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(a) where the accounting period falls wholly before 1 January 2009, by the lesser of—
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(i) the amount of the loss, and
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(ii) the amount of the loss which relates to dealing in residential development land,
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and
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(b) where the accounting period begins before 1 January 2009 and ends on or after that day, by the lesser of—
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(i) the amount of the loss, and
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(ii) the amount of the loss which relates to dealing in residential development land,
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incurred in the period beginning when the accounting period begins and ending on 31 December 2008.
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(4) The computation of the amount of the loss which relates to dealing in residential development land for the purposes of subsections (2), (3)(a)(ii), (3)(b)(ii), (13)(b), (14)(a)(ii), (14)(b)(ii), (20)(b)(i)(II) and (20)(b)(ii)(II) shall take into account receipts and purchases, changes in values of stock and other expenses referable to residential development land and a proportion (determined on a just and reasonable basis) of receipts and expenses partly referable to dealing in residential development land and partly to other land or activities of the trade.
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(5) Subsections (6) to (12) shall apply to the amount by which a loss in an accounting period is restricted under subsection (3) as if it were a loss (hereinafter in this section referred to as a ‘relevant loss’) incurred by the company in that accounting period in carrying on a separate trade of dealing in residential development land.
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(6) Where in an accounting period a company incurs a relevant loss, the company may make a claim requiring that the loss be set off against profits of the company, being—
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(a) income specified in section 21A(4)(b),
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(b) relevant trading income,
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(c) income to which section 21A(3) does not apply by virtue of section 21B, and
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(d) profits attributable to chargeable gains,
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of that accounting period and, if the company was then carrying on the trade, the losses of which are restricted under subsection (3), and if the claim so requires, of preceding accounting periods ending within the time specified in subsection (7), and subject to that subsection and any relief for an earlier trading loss, to the extent that the profits of any of those accounting periods consists of or includes profits or income specified in paragraphs (a) to (d), those profits or that income shall then be reduced by the amount of the loss to which this section applies or by so much of that amount as cannot be relieved against profits of a later accounting period.
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(7) For the purposes of subsection (6), the time referred to in that subsection shall be a time immediately preceding the accounting period first mentioned in subsection (6) equal in length to the accounting period in which the loss is incurred, but the amount of the reduction which may be made under subsection (3) in the profits of an accounting period falling partly before that time shall not exceed a part of those profits proportionate to the part of the period falling within that time.
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(8) Where in any accounting period a company incurs a relevant loss and the amount of that loss exceeds an amount equal to the aggregate of the amounts which could, if a timely claim for such set off had been made by the company, have been set off in respect of that loss for the purposes of corporation tax against profits of the company of that accounting period and any preceding accounting period in accordance with subsection (6), then the company may claim relief under this subsection in respect of the excess.
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(9) Where for any accounting period a company claims relief under subsection (8) in respect of the excess, the relevant corporation tax of the company for that accounting period and, if the company was then carrying on the trade, the losses of which are reduced under subsection (3), and the claim so requires, for preceding accounting periods ending within the time specified in subsection (10) and subject to that subsection, shall be reduced by an amount equal to 20 per cent of the excess or so much of that amount as cannot be relieved against relevant corporation tax of a later accounting period.
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(10) For the purposes of subsection (9), the time referred to in that subsection shall be a time immediately preceding the accounting period first mentioned in subsection (9) equal in length to the accounting period in which the loss is incurred, but the amount of the reduction which may be made under subsection (9) in the relevant corporation tax for an accounting period falling partly before that time shall not exceed a part of that corporation tax proportionate to the part of the period falling within that time.
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(11) (a) Where a company makes a claim for relief for any accounting period under subsection (8) in respect of a relevant loss, an amount (which shall not exceed the amount of the excess in respect of which a claim under subsection (8) may be made), determined in accordance with paragraph (b), shall be treated for the purposes of the Tax Acts as an amount of loss relieved against profits of that accounting period.
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(b) Subject to paragraph (c), the amount determined in accordance with this paragraph in relation to an accounting period is an amount equal to:
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T × 100
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20
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where—
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T is the amount by which the relevant corporation tax payable is reduced by virtue of subsection (9).
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(c) (i) In this paragraph ‘ relevant amount ’ means an amount (not being an amount incurred by a company for the purposes of a trade carried on by it) of charges on income, expenses of management or other amount (not being an allowance to which effect is given under section 308(4)) which is deductible from, or may be treated as reducing, profits of more than one description.
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(ii) For the purposes of paragraph (b), where as respects an accounting period of a company a relevant amount is deductible from, or may be treated as reducing, profits of more than one description, the amount by which corporation tax is reduced by virtue of subsection (9) shall be deemed to be the amount by which it would have been reduced if no relevant amount were so deductible or so treated.
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(12) Subsections (3) to (11) shall apply in respect of any claim to relief under section 396(2) in respect of a loss in a trade, the operations or activities of which consist of or include dealing in residential development land and the claim is made on or after 7 April 2009.
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(13) Notwithstanding subsection (1) of section 397, where, on or before 31 December 2008, a company ceasing to carry on a trade, the operations or activities of which include dealing in residential development land, has incurred a loss in the trade, in any accounting period falling wholly or partly within the period of 12 months ending on the day the company ceased to carry on the trade, then, for the purposes of subsection (1) of that section, the amount of that loss shall be deemed to be reduced by the lesser of—
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(a) the amount of the loss, and
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(b) the amount of the loss which relates to dealing in residential development land.
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(14) Notwithstanding subsection (1) of section 397, where, on or after 1 January 2009, a company ceasing to carry on a trade, the operations or activities of which include dealing in residential development land, has incurred a loss in the trade, in any accounting period falling wholly or partly within the period of 12 months ending on the day the company ceased to carry on the trade, and falling wholly or partly before 1 January 2009, then, for the purposes of subsection (1) of that section, the amount of that loss shall be deemed to be reduced—
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(a) where the accounting period falls wholly before 1 January 2009, by the lesser of—
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(i) the amount of the loss, and
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(ii) the amount of the loss which relates to dealing in residential development land,
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and
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(b) where the accounting period begins before 1 January 2009 and ends on or after that day, by the lesser of—
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(i) the amount of the loss, and
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(ii) the amount of the loss which relates to dealing in residential development land,
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incurred in the period beginning when the accounting period begins and ending on 31 December 2008.
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(15) Where a company ceasing to carry on a trade, the operations or activities of which include dealing in residential development land, makes a claim under section 397 in respect of a loss incurred in that trade and the loss is reduced under subsection (13) or (14) for an accounting period, then, subject to subsection (17) and to any relief for earlier losses, the company may claim relief under this subsection for that accounting period in respect of the amount by which the loss has been reduced.
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(16) Where for any accounting period a company claims relief under subsection (15) in respect of a loss to which that subsection applies, the corporation tax paid by the company in respect of the income of the trade which is corporation tax referable to dealing in residential development land of the company for accounting periods falling wholly or partly within the 3 years preceding the period of 12 months mentioned in subsection (13) or (14) (or within any shorter period throughout which the company has carried on the trade) shall be reduced by an amount equal to 20 per cent of the loss, or by so much of that amount as cannot be relieved under this subsection against corporation tax of a later accounting period.
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(17) (a) Relief shall not be given under subsection (16) in respect of any loss in so far as the loss has been or can be otherwise taken into account so as to reduce or relieve any charge to tax.
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(b) Where a loss is incurred in an accounting period falling partly outside the period of 12 months mentioned in subsection (13) or (14), relief shall be given under subsection (16) in respect of a part only of that loss proportionate to the part of the period falling within that period of 12 months, and the amount of the reduction which may be made under that subsection in the corporation tax for an accounting period falling partly outside the 3 years mentioned in subsection (16) shall not exceed a part of that corporation tax proportionate to the part of the period falling within those 3 years.
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(18) Where relief is claimed under section 397 in respect of an accounting period and the amount of loss, in respect of which relief is claimed, is reduced by virtue of subsection (2), then, for the purposes of granting relief under that section—
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(a) the income from the trade for the accounting period shall be deemed to be reduced by an amount determined by the formula—
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U × 100
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20
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where—
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U is the amount of the corporation tax referable to dealing in residential development land payable by the company for the accounting period before relief given under subsection (16),
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and
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(b) the corporation tax paid by the company shall be deemed to be reduced by any corporation tax referable to dealing in residential development land paid by the company and not repaid to it for that accounting period.
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(19) Subsections (13) to (18) shall apply in any case where a claim for relief under section 397 is made on or after 7 April 2009 in respect of a loss in a trade, the operations or activities of which include dealing in residential development land.
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(20) (a) Notwithstanding subsections (1) and (6) of section 420 and section 421, where in an accounting period ending before 31 December 2009 the surrendering company has incurred a loss in a trade, the operations or activities of which consist of or include dealing in residential development land, then an amount of the loss, determined in accordance with paragraph (b), may not be set off for the purposes of corporation tax against the total profits of the claimant company for its corresponding accounting period.
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(b) The amount determined in accordance with this paragraph in relation to an accounting period is an amount equal to—
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(i) where the accounting period ends on or before 31 December 2008, the lesser of—
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(I) the amount of the loss, and
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(II) the amount of the loss which relates to dealing in residential development land,
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and
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(ii) where the accounting period begins before 1 January 2009 and ends after that date, the lesser of—
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(I) the amount of the loss, and
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(II) the amount of the loss which relates to dealing in residential development land,
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incurred in the period beginning when the accounting period begins and ending on 31 December 2008.
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(21) (a) Where in any accounting period the surrendering company has incurred a loss in a trade, the operations and activities of which consist of or include dealing in residential development land, and an amount of the loss (hereinafter in this section referred to as the ‘ restricted loss ’) may not be set off for the purposes of corporation tax against the total profits of the claimant company for its corresponding accounting period by virtue of subsection (20), then the corporation tax (if any) of the claimant company which is referable to dealing in residential development land for its corresponding accounting period may be reduced by 20 per cent of the restricted loss for that period.
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(b) Where for any accounting period a company claims relief under this subsection, the surrendering company shall be treated as having surrendered, and the claimant company shall be treated as having claimed relief for, trading losses of an amount determined by the formula—
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V × 100
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20
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where—
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V is the amount by which the relevant corporation tax payable for the accounting period is reduced by virtue of paragraph (a).
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(22) (a) Where in any accounting period the surrendering company has incurred a loss in a trade, the operations and activities of which consist of or include dealing in residential development land, the restricted loss as reduced by any amount treated as relieved by subsection (21)(b), may be set off for the purposes of corporation tax against—
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(i) income specified in section 21A(4)(b),
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(ii) relevant trading income,
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(iii) income to which section 21A(3) does not apply by virtue of section 21B, and
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(iv) profits attributable to chargeable gains,
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of the claimant company for its corresponding accounting period as reduced by any amounts allowed as deductions against that income under section 243A or set off against that income under section 396A.
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(b) Paragraph (a) shall not apply—
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(i) to so much of a loss as is excluded from section 396(2) by section 396(4) or 663, or
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(ii) so as to reduce the profits of a claimant company which carries on life business (within the meaning of section 706) by an amount greater than the amount of such profits (before a set off under this subsection) computed in accordance with Case I of Schedule D and section 710(1).
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(23) Group relief allowed under subsection (22) shall reduce the income from a trade of the claimant company for an accounting period—
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(a) before relief granted under section 397 in respect of a loss incurred in a succeeding accounting period or periods, and
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(b) after the relief granted under section 396 in respect of a loss incurred in a preceding accounting period or periods.
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(24) For the purposes of subsections (21) and (22), in the case of a claim made by a company as a member of a consortium only a fraction of a restricted loss may be set off, and that fraction shall be equal to that member's share in the consortium, subject to any further reduction under section 422(2).
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(25) Where in any accounting period the surrendering company has incurred a loss in a trade the operations or activities of which consists of or includes dealing in residential development land, and the restricted loss is greater than an amount equal to the aggregate of the amounts which could, if timely claims had been made for such set off, have been set off in respect of that loss for the purposes of corporation tax against—
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(a) the profits of the company in accordance with subsection (6), or
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(b) profits of any other company in accordance with subsections (21) and (22),
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the claimant company may claim relief under subsection (26) for its corresponding accounting period in respect of the amount (hereinafter in this section referred to as the ‘ relievable loss ’) by which the unrelieved loss is greater than that aggregate.
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(26) (a) Where for any accounting period a company claims relief under subsection (25) in respect of a relievable loss, the relevant corporation tax of the company for the accounting period shall be reduced by an amount equal to 20 per cent of that loss.
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(b) Where for any accounting period a company claims relief under this section in respect of any relievable loss, the surrendering company shall be treated as having surrendered, and the claimant company shall be treated as having claimed relief for, trading losses of an amount determined by the formula—
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W × 100
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20
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where—
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W is the amount by which the relevant corporation tax payable for the accounting period is reduced by virtue of paragraph (a).
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(27) Chapter 5 of Part 12 shall apply as if subsections (20) to (26) were contained in that Chapter.
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(28) Subsections (20) to (27) shall apply in any case where a claim for group relief is made on or after 7 April 2009 in respect of a loss in a trade, the operations or activities of which consist of or include dealing in residential development land.”.
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(2) This section applies as on and from 1 January 2009.
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