Finance Bill 2002
Amendment 129
Page: 292
Line: 1
Mr Andrew Smith (Labour, Oxford East)
129 Schedule 25, page 292, leave out lines 1 to 11 and insert-
??(6) Where-
(a) a company ceases to be a party to a loan relationship in an accounting period (the ?cessation period?),
(b) profits, gains or losses arise to the company from the loan relationship or a related transaction in that accounting period, and
(c) the credits or debits brought into account for the purposes of this Chapter for that accounting period do not include credits or debits which represent the whole of those profits, gains or losses,
credits or debits in respect of so much of those profits, gains 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 Chapter over one or more subsequent accounting periods (?post-cessation periods?) as in the case of a loan relationship to which the company is a party in those periods and subsections (7) and (8) below shall apply.
(7) In any case falling within subsection (6) above, any question-
(a) whether, in a post-cessation period, the company is to any extent a party to the loan relationship-
(i) for the purposes of a trade carried on by it, or
(ii) for any other particular purpose or purposes, or
(b) whether, in a post-cessation period, the loan relationship 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 a party to the loan relationship instead of the circumstances in the post-cessation period.
(8) In any case falling within subsection (6) above, any question-
(a) whether the loan relationship 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 loan relationships rules work properly where profits and losses are recognised in accounts after a loan relationship has been disposed of.
DETAILS OF THE AMENDMENT
2 The amendment adds three new sub-sections to section 103 FA 1996 in place of the existing subsection (6) (inserted by paragraph 16 Schedule 25 to the Bill) which does not achieve its object.
3. The new section 103(6) sets out the case. This is where a company ceases to be a party to a loan relationship (because for example it has sold the asset concerned), but under the authorised accounting method that it uses it brings any profit or loss arising from the disposal into account in periods after the disposal. 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 loan relationship.
4. New section 103(7) and (8) ensure that other references in Chapter 2 Part 4 FA 1996 to a company being a party to a loan relationship for a particular purpose, or to persons being connected, 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.
BACKGROUND
5. The measures included in the Finance Bill as Schedule 25 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.