Finance Bill 2002
Amendment 120
Page: 360 Line: 42
Mr Andrew Smith (Labour, Oxford East)
Schedule 26, page 360, line 42, leave out sub-paragraph (3) and insert-
'(3) Where-
(a) a company ceases to be party to a derivative contract in an accounting period (the "cessation period"),
(b) profits or losses arise to the company from the derivative contract or a related transaction in the cessation period, and
(c) the credits or debits brought into account for the purposes of this Schedule for the cessation period do not include credits or debits which represent the whole of those profits or losses,credits or debits in respect of so much of those profits or losses as are not represented by credits or debits brought into account for the cessation period shall continue to be brought into account under this Schedule over one or more subsequent accounting periods ("post-cessation periods") as in the case of a derivative contract to which the company is party in those periods and sub-paragraphs (3A) and (3B) shall apply.
(3A) In any case falling within sub-paragraph (3), any question-
(a) whether, in a post-cessation period, the company is, or is to any extent, party to the contract for the purposes of a trade carried on by it, or
(b) whether, in a post-cessation period, the contract is to any extent referable to a particular business or a particular class, category or description of business carried on by the company,shall be determined by reference to the circumstances immediately before the company ceased to be party to the contract instead of the circumstances in the post-cessation period.
(3B) In any case falling within sub-paragraph (3), any question-
(a) whether the contract has to any extent a particular purpose in a post-cessation period, or
(b) whether there is a connection between the company and any other person for a post-cessation period,shall be determined by reference to the circumstances in the cessation period instead of the circumstances in the post-cessation period.'.
EXPLANATORY NOTE
SUMMARY
1. The purpose of the amendment is to ensure that the derivative contract rules work properly where profits and losses are recognised in accounts after the contract has been disposed of.
DETAILS OF THE AMENDMENT
2 The amendment adds three new sub-paragraphs to paragraph 53 Schedule 25 to the Bill in place of the existing sub-paragraph (3) which does not achieve its object.
3. The new paragraph 53(3) sets out the case which is where a company ceases to be a party to a derivative contract (because for example it has sold the asset concerned), but under the authorised accounting method that it uses it is permitted to bring any profit or loss arising from the sale into account in periods after the sale. It then gives the basic rule that "post-cessation" period profits and losses are to be recognised for tax, in the same way as profits and losses arising while the company is a party to the contract.
4. New sub-paragraph 53(3A) ensures that references in Schedule 26 to a company being a party to a contract for a particular purpose are applicable in cases where profits from post-cessation periods need to be determined by reference to whether there was such a purpose; and the question of the existence of the purpose is determined by reference to the facts at the time of disposal.
5. New sub-paragraph 53(3B) ensures that the question of whether a contract has a particular purpose in, or whether persons are connected for, a post-cessation period are determined by reference to whether there was such a purpose or connection by reference to the facts at the time of disposal.
BACKGROUND
6. The measures included in the Finance Bill as Schedule 26 represent the outcome of a major consultative process between the Government and representatives of, and advisers to, business. Two Consultative documents and a Technical Note have been produced, and two rounds of draft clauses have been published, most recently on 19 December 2001.