Finance Act 1994 (c. 9)

(The document as of February, 2008)

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(13) This paragraph shall have effect in relation to any return period ending after 30th June 1994.

Part III Insurance companies etc.

4 In section 431(2) of the Taxes Act 1988 (interpretative provisions relating to insurance companies) the following shall be inserted after the definition of "closing liabilities"--

" "foreign income dividends" shall be construed in accordance with Chapter VA of Part VI; " .

5 (1) Section 434 of the Taxes Act 1988 (franked investment income etc.) shall be amended as follows.

(2) In subsection (1) after "income of" there shall be inserted ", or foreign income dividends arising to,".

(3) In subsection (2) after "income of" there shall be inserted ", and foreign income dividends arising to,".

(4) The following subsections shall be inserted after subsection (3A)--

" (3B) The policy holders' share of foreign income dividends received in respect of investments held in connection with a company's life assurance business shall be left out of account in determining, under subsection (7) of section 13, the foreign income dividends forming part of the company's profits for the purposes of that section.

(3C) The policy holders' share of any income or chargeable gain arising in respect of investments held in connection with a company's life assurance business shall be left out of account in ascertaining any foreign source profit of the company for the purposes of Chapter VA of Part VI.

(3D) The policy holders' share of foreign income dividends received in respect of investments held in connection with a company's life assurance business shall be left out of account in ascertaining, for the purposes of sections 246F(1) and (3) and Schedule 13, the amount of the foreign income dividends received by the company. "

(5) In subsection (6A) the word "and" at the end of paragraph (a) shall be omitted and after that paragraph there shall be inserted--

" (aa) "the policy holders' share" of any foreign income dividends is so much of the income they represent as is not the shareholders' share within the meaning of that section,

(ab) "the policy holders' share" of any income (other than franked investment income) is so much of that income as is not the shareholders' share within the meaning of that section,

(ac) "the policy holders' share" of any chargeable gain is so much of that gain as is equal to the amount that, if the gain were income, would not be the shareholders' share within the meaning of that section, and " .

6 (1) Section 438 of the Taxes Act 1988 (pension business: exemption from tax) shall be amended as follows.

(2) The following subsection shall be inserted after subsection (3)--

" (3AA) Subject to subsection (6B) below, the exclusion by section 208 from the charge to corporation tax of foreign income dividends shall not prevent such dividends being taken into account as part of the profits in computing under section 436 income from pension business. "

(3) In subsection (6) the words from "being" to "that profit," shall be omitted.

(4) The following subsections shall be inserted after subsection (6A)--

" (6B) If for any accounting period there is, apart from this subsection, a profit arising to an insurance company from pension business and computed under section 436, and the company so elects as respects all or any part of the relevant foreign income dividends arising to it in that period, subsection (3AA) above shall not apply to the foreign income dividends to which the election relates.

(6C) In subsection (6B) above "relevant foreign income dividends" means the shareholders' share of foreign income dividends within subsection (1) above; and for this purpose "the shareholders' share" of any foreign income dividends is so much of the income they represent as is the shareholders' share within the meaning of section 89 of the [1989 c. 26] Finance Act 1989.

(6D) If in the same accounting period both relevant franked investment income and relevant foreign income dividends arise to the company--

(a) only one election may be made under subsections (6) and (6B) above;

(b) the election may be made as regards both relevant franked investment income and relevant foreign income dividends (subject to paragraph (c) below);

(c) the election may not be made as regards relevant foreign income dividends unless the election is made as regards all the company's relevant franked investment income arising in the period.

(6E) Where an election is made under one or both of subsections (6) and (6B) above, the elected amount must not exceed the amount of the profit which (apart from the election) arises to the company for the accounting period from pension business and is computed under section 436; and the elected amount is--

(a) the amount of franked investment income to which the election relates (where the election is made under subsection (6) alone);

(b) the amount of the foreign income dividends to which the election relates (where the election is made under subsection (6B) alone);

(c) the aggregate amount of the franked investment income and the foreign income dividends to which the election relates (where the election is made under subsections (6) and (6B)). "

(5) In subsection (7) for "subsection (6) above" there shall be substituted "this section".

7 In section 458 of the Taxes Act 1988 (capital redemption business) in subsection (2)(a) after "income of" there shall be inserted ", and foreign income dividends arising to,".

8 (1) Section 802 of the Taxes Act 1988 (UK insurance companies trading overseas) shall be amended as follows.

(2) In subsection (2)(a) after "franked investment income" there shall be inserted ", foreign income dividends".

(3) The following subsection shall be inserted after subsection (3)--

" (4) In this section "foreign income dividends" shall be construed in accordance with Chapter VA of Part VI. "

9 (1) Section 89 of the [1989 c. 26.] Finance Act 1989 (policy holders' share of profits) shall be amended as follows.

(2) In subsection (2) after paragraph (b) there shall be inserted " , and

(c) the shareholders' share of any foreign income dividends arising to the company in the period in respect of investments held in connection with the business. "

(3) The following subsection shall be inserted after subsection (2)--

" (2A) For the purposes of subsection (2) above--

(a) "foreign income dividends" shall be construed in accordance with Chapter VA of Part VI;

(b) the shareholders' share of any foreign income dividends is so much of the income they represent as is the shareholders' share. "

Part IV Other provisions

Penalties

10 In the first column of the Table in section 98 of the [1970 c. 9.] Taxes Management Act 1970 (penalties for failure to furnish particulars etc.) the following entry shall be inserted after the entry relating to section 234 of the principal Act--

" section 246H; " .

Small companies' relief

11 (1) Section 13 of the Taxes Act 1988 (small companies' relief) shall be amended as follows.

(2) In subsection (7) (definition of profits for purposes of small companies' relief) after "companies within the group" there shall be inserted "and with the addition of foreign income dividends arising to the company".

(3) The following subsection shall be inserted after subsection (8)--

" (8A) In this section "foreign income dividends" shall be construed in accordance with Chapter VA of Part VI. "

Expenses of management

12 (1) Section 75 of the Taxes Act 1988 (expenses of management: investment companies) shall be amended as follows.

(2) In subsection (2) after "franked investment income," there shall be inserted "foreign income dividends,".

(3) The following subsection shall be inserted after subsection (5)--

" (6) In this section "foreign income dividends" shall be construed in accordance with Chapter VA of Part VI. "

Group income

13 In section 247 of the Taxes Act 1988 (dividends etc. paid by one member of a group to another) the following subsection shall be inserted after subsection (5)--

" (5A) Subsections (1) to (3) above shall not apply to foreign income dividends; and "foreign income dividends" shall be construed in accordance with Chapter VA of Part VI. "

Mutual business etc.

14 (1) Section 490 of the Taxes Act 1988 (companies carrying on a mutual business or not carrying on a business) shall be amended as follows.

(2) In subsection (1) after "(including group income)" there shall be inserted "or out of foreign income dividends".

(3) In subsection (4) after "franked investment income" there shall be inserted "or foreign income dividends".

(4) The following subsection shall be inserted after subsection (4)--

" (5) In this section "foreign income dividends" shall be construed in accordance with Chapter VA of Part VI. "

Discretionary trusts

15 In section 687 of the Taxes Act 1988 (payments under discretionary trusts) in subsection (3) the following paragraph shall be inserted after paragraph (aa)--

" (aaa) the amount of tax at a rate equal to the difference between the lower rate and the rate applicable to trusts on any sum treated, under section 246D(4), as income of the trustees; " ; and in paragraph (a) of that subsection after "(aa)" there shall be inserted ", (aaa)".

Personal representatives

16 In section 701 of the Taxes Act 1988 (interpretation of Part XVI) in subsection (8) (meaning of aggregate income) before "249(5)," there shall be inserted "246D(3),".

Purchase and sale of securities

17 (1) Section 731 of the Taxes Act 1988 (application and interpretation of provisions relating to purchase and sale of securities) shall be amended as follows.

(2) In subsection (9), in the definition of "interest" the words from "and in applying" to the end of paragraph (b) shall be omitted.

(3) The following subsections shall be inserted after subsection (9)--

" (9A) In applying references in the relevant provisions to interest in relation to a qualifying distribution other than a foreign income dividend--

(a) "gross interest" means the qualifying distribution together with the tax credit to which the recipient of the distribution is entitled in respect of it, and

(b) "net interest" means the qualifying distribution exclusive of any such tax credit.

(9B) In applying references in the relevant provisions to interest in relation to a foreign income dividend paid in circumstances where section 246D(1), (3) or (4) applies--

(a) "gross interest" means the amount of the income arrived at under section 246D(1) by reference to the dividend, and

(b) "net interest" means the dividend.

(9C) Where a foreign income dividend is paid in circumstances other than those where section 246D(1), (3) or (4) applies--

(a) in applying section 735(2) in relation to the dividend the words "the gross amount corresponding with" shall be disregarded, and

(b) in applying references in the relevant provisions (including section 735(2)) to interest in relation to the dividend "net interest" means the dividend.

(9D) In this section "foreign income dividend" shall be construed in accordance with Chapter VA of Part VI. "

Manufactured dividends

18 (1) Section 737 of the Taxes Act 1988 (manufactured dividends: treatment of tax deducted) shall be amended as follows.

(2) In subsection (3) (cases where section 737(1) does not apply) at the end of paragraph (b) there shall be inserted "or", and after that paragraph there shall be inserted the following paragraph--

" (c) the manufactured dividend is representative of a foreign income dividend. "

(3) In subsection (6) after the definition of "dividend manufacturing regulations" there shall be inserted the following definition--

" "foreign income dividend" shall be construed in accordance with Chapter VA of Part VI; " .

19 In Schedule 23A to the Taxes Act 1988, in paragraph 2 (manufactured dividends on United Kingdom equities) the following sub-paragraphs shall be inserted after sub-paragraph (5)--

" (6) In a case where--

(a) the dividend of which the manufactured dividend is representative is a foreign income dividend, and

(b) the dividend manufacturer is a company resident in the United Kingdom,

the manufactured dividend shall, in addition to being treated as mentioned in sub-paragraph (2) above, be treated for all purposes of the Tax Acts as if it were a foreign income dividend; but in such a case the dividend manufacturer shall not by virtue of sub-paragraph (2) above be liable to pay advance corporation tax in respect of the manufactured dividend.

(7) In a case where--

(a) the dividend of which the manufactured dividend is representative is a foreign income dividend, and

(b) the dividend manufacturer is not a company resident in the United Kingdom (so that, were the dividend of which the manufactured dividend is representative not a foreign income dividend, section 737 would apply in relation to the dividend manufacturer),

in relation to the recipient and all persons claiming title through or under him the manufactured dividend shall, in addition to being treated as mentioned in sub-paragraph (3)(a) above, be treated as if it were a foreign income dividend.

(8) In this paragraph "foreign income dividend" shall be construed in accordance with Chapter VA of Part VI. "

Interest on tax overpaid

20 (1) Section 826 of the Taxes Act 1988 shall be amended as follows.

(2) In subsection (1) the following paragraph shall be inserted after paragraph (a)--

" (aa) a repayment falls to be made under sections 246N and 246Q of advance corporation tax paid by a company in respect of distributions made by it in such an accounting period; or " .

(3) The following subsection shall be inserted after subsection (2)--

" (2A) In relation to advance corporation tax paid by a company in respect of distributions made by it in an accounting period, the material date for the purposes of this section is the date on which corporation tax for that accounting period became (or, as the case may be, would have become) due and payable in accordance with section 10. "

Section 146.

SCHEDULE 17 Minor corrections

1 Section 43(1) of the Taxes Act 1988 shall have effect, and be deemed always to have had effect, as if the words "or IV" were omitted.

2 (1) Subsection (1) of section 271 of that Act shall have effect, and be deemed always to have had effect, as if--

(a) the words "or contract", wherever they occur, were omitted;

(b) in paragraph (b), the words "or the contract was made after that date" were omitted; and

(2) Subsection (2) of that section shall have effect, and be deemed always to have had effect, as if paragraph (b) and the word "or" immediately preceding it were omitted.

3 Subsection (6) of section 356D of that Act shall have effect, and be deemed always to have had effect, as if for the words from "in relation" onwards there were substituted "so that, in determining what (if any) part of the amount on which qualifying interest is payable is the part exceeding the limit, interest on a later loan shall be eligible for relief only to the extent that the whole amohele omo ohola amount of the limit has not been used in relation to any earlier loan or loans."

4 Section 431(5) of that Act shall have effect, and be deemed always to have had effect, as if for "Subsection (4)(c)" there were substituted "Subsection (4)(f)".

5 Section 561(2)(c) of that Act shall have effect, and be deemed always to have had effect, as if for "subsection (4)" there were substituted "subsection (6)".

6 Section 576(5) of that Act (in its application as amended by the [1992 c. 12.] Taxation of Chargeable Gains Act 1992) shall have effect, and be deemed always to have had effect, as if after "128(2)" there were inserted "of the 1992 Act".

7 Section 768(6) of that Act (in its application as amended by the [1990 c. 1.] Capital Allowances Act 1990) shall have effect, and be deemed always to have had effect, as if for "section 161(5)" there were substituted "section 161(6)".

8 Sections 842(4) and 843(2) of that Act (in their application as amended by the [1992 c. 12.] Taxation of Chargeable Gains Act 1992) shall have effect, and be deemed always to have had effect, as if, in each case, for "the 1990 Act" there were substituted "the 1992 Act".

9 Paragraph 8(b) of Schedule 11 to that Act (in its application as amended by the [1990 c. 1.] Capital Allowances Act 1990) shall have effect, and be deemed always to have had effect, as if the words "Chapter II of Part I of the 1968 Act or" were omitted.

Section 169.

SCHEDULE 18 Interest rate and currency contracts: insurance and mutual trading companies

Life assurance business: I minus E

1 (1) Subject to sub-paragraph (2) below, sub-paragraph (3) below applies where--

(a) a qualifying contract was at any time in an accounting period of an insurance company held by the company for the purposes of any life assurance business carried on by it, and

(b) the I minus E basis is applied for the period in respect of that business.

(2) Where the qualifying contract was held partly for the purposes of the life assurance business and partly for other purposes--

(a) the profit or loss on the contract for the period shall be apportioned on a just and reasonable basis, and

(b) any reference in sub-paragraph (3) below to that profit or loss shall be construed as a reference to so much of it as is referable to the life assurance business.

(3) Notwithstanding anything in section 159 of this Act--

(a) no part of the profit or loss on the contract for the period shall be treated for the purposes of the Tax Acts as a profit or loss of a trade or part of a trade, and

(b) accordingly, the whole of that profit or loss shall be treated for the purposes of this paragraph as a non-trading profit or loss;

and any reference in the following provisions of this paragraph to a non-trading profit or loss is a reference to a profit or loss which is treated as a non-trading one by virtue of paragraph (b) above.

(4) Section 432A of the Taxes Act 1988 (insurance companies: apportionment of income and gains) shall have effect as if--

(a) any reference to income arising from assets of an insurance company's long term business fund or overseas life assurance fund included a reference to any non-trading profit or loss of an insurance company; and

(b) any reference to income arising from or attributable to assets linked solely to a particular category of business included a reference to any non-trading profit or loss which derives from a qualifying contract which is so linked.

(5) Section 438 of the Taxes Act 1988 (pension business: exemption from tax) shall have effect as if the reference in subsection (1) to income from investments and deposits of so much of an insurance company's life assurance fund and separate annuity fund, if any, as is referable to pension business included a reference to so much of any non-trading profit of such a company as is so referable.

(6) So much of any non-trading loss of an insurance company as is referable to pension business or overseas life assurance business shall not be allowable as a deduction in computing for the purposes of this Chapter the profits or losses of the company; and subsection (5)(a) of section 173 of this Act applies for the purposes of this sub-paragraph as it applies for the purposes of that section.

(7) Where, as regards an insurance company and an accounting period, one or more non-trading profits or losses of the company for the period are referable to basic life assurance and general annuity business, subsections (5), (6) and (9) of section 129 and sections 130 and 131 of the [1993 c. 34.] Finance Act 1993 (non-trading exchange gains and losses) shall apply for the purposes of this paragraph as if--

(a) any reference to any amount or amounts a company is treated as receiving in the period by virtue of section 129 were a reference to the amount or amounts of any non-trading profit or profits which are referable to that class of business,

(b) any reference to the amount or amounts of any loss or losses a company is treated as incurring in the period by virtue of that section were a reference to the amount or amounts of any non-trading loss or losses which are so referable, and

" (3) The relievable amount shall be set off for the purposes of corporation tax against income of the accounting period which is referable to basic life assurance and general annuity business; and that income shall be treated as reduced accordingly. "

Life assurance business: Case I of Schedule D

2 (1) Subject to sub-paragraph (2) below, sub-paragraphs (3) and (4) below apply where--

(a) a qualifying contract was at any time in an accounting period of an insurance company held by the company for the purposes of any life assurance business carried on by it, and

(b) the profits of the company in respect of that business are, for the purposes of the Tax Acts, computed in accordance with the provisions of the Taxes Act 1988 applicable to Case I of Schedule D.

(2) Where the qualifying contract was held partly for the purposes of the life assurance business and partly for other purposes--

(a) amounts A and B for the period shall be apportioned on a just and reasonable basis, and

(b) any reference in sub-paragraph (3) or (4) below to either of those amounts shall be construed as a reference to so much of it as is referable to the life assurance business.

(3) Notwithstanding anything in sections 159 and 160 of this Act, amount A for the period shall not--

(a) under or by virtue of this Chapter be chargeable to corporation tax as profits of the company, or

(b) be taken into account as a receipt in computing for the purposes of this Chapter the profits or losses of the company.

(4) Notwithstanding anything in those sections, amount B for the period shall not--

(a) be allowable as a deduction in computing for the purposes of this Chapter the profits or losses of the company, or

(b) under or by virtue of this Chapter be allowable as a deduction in computing any other income or profits or gains or losses of the company for the purposes of the Tax Acts.

(5) Subsection (5)(a) of section 173 of this Act applies for the purposes of this paragraph as it applies for the purposes of that section.

Non-life mutual business

3 (1) Subject to sub-paragraph (2) below, sub-paragraph (3) below applies where a qualifying contract was at any time in an accounting period of a mutual trading company held by the company for the purposes of any non-life mutual business carried on by it.

(2) Where the qualifying contract was held partly for the purposes of the non-life mutual business and partly for other purposes--

(a) the profit or loss on the contract for the period shall be apportioned on a just and reasonable basis, and

(b) any reference in sub-paragraph (3) below to that profit or loss shall be construed as a reference to so much of it as is referable to the non-life mutual business.

(3) Notwithstanding anything in section 159 of this Act--

(a) no part of the profit or loss on the contract for the period shall be treated for the purposes of the Tax Acts as a profit or loss of a trade or part of a trade, and

(b) accordingly, the whole of that profit or loss shall be treated for the purposes of section 160 of this Act as a non-trading profit or loss.

Interpretation

4 In this Schedule--

"the I minus E basis" means the basis commonly so called (under which a company carrying on life assurance business is charged to tax on that business otherwise than under Case I of Schedule D);
"life assurance business" includes annuity business;
"non-life mutual business" means any mutual trading, or any mutual insurance or other mutual business, which (in either case) is not life assurance business.

Section 196.

SCHEDULE 19 Management: other amendments

Part I Amendments of Management Act

Notice of liability to income tax and capital gains tax

1 (1) For section 7 of the Management Act there shall be substituted the following section--

" 7 Notice of liability to income tax and capital gains tax

(1) Every person who--

(a) is chargeable to income tax or capital gains tax for any year of assessment, and

(b) has not received a notice under section 8 of this Act requiring a return for that year of his total income and chargeable gains,

shall, subject to subsection (3) below, within six months from the end of that year, give notice to an officer of the Board that he is so chargeable.

(2) In the case of a person who is chargeable as mentioned in subsection (1) above as a trustee of a settlement, that subsection shall have effect as if the reference to a notice under section 8 of this Act were a reference to a notice under section 8A of this Act.

(3) A person shall not be required to give notice under subsection (1) above in respect of a year of assessment if for that year his total income consists of income from sources falling within subsections (4) to (7) below and he has no chargeable gains.

(4) A source of income falls within this subsection in relation to a year of assessment if--

(a) all payments of, or on account of, income from it during that year, and

(b) all income from it for that year which does not consist of payments,

have or has been taken into account in the making of deductions or repayments of tax under section 203 of the principal Act.

(5) A source of income falls within this subsection in relation to any person and any year of assessment if all income from it for that year has been or will be taken into account--

(a) in determining that person's liability to tax, or

(b) in the making of deductions or repayments of tax under section 203 of the principal Act.

(6) A source of income falls within this subsection in relation to any person and any year of assessment if all income from it for that year is--

(a) income from which income tax has been deducted;

(b) income from or on which income tax is treated as having been deducted or paid; or

and that person is not for that year liable to tax at a rate other than the basic rate or the lower rate.

(7) A source of income falls within this subsection in relation to any person and any year of assessment if all income from it for that year is income from which he could not become liable to tax under a self-assessment made under section 9 of this Act in respect of that year.

(8) If any person, for any year of assessment, fails to comply with subsection (1) above, he shall be liable to a penalty not exceeding the amount of the tax--

(a) in which he is assessed under section 9 or 29 of this Act in respect of that year, and

(b) which is not paid on or before the 31st January next following that year. "

(2) This paragraph has effect as respects the year 1995-96 and subsequent years of assessment.

European Economic Interest Groupings

2 In subsection (2) of section 12A of the Management Act (European Economic Interest Groupings), for the words "making assessments to income tax, corporation tax and capital gains tax on members of a grouping" there shall be substituted the words "securing that members of a grouping are assessed to income tax and capital gains tax or (as the case may be) corporation tax".

Records for purposes of returns

3 After section 12A of the Management Act there shall be inserted the following section--

" Records

12B Records to be kept for purposes of returns

(1) Any person who may be required by a notice under section 8, 8A, 11 or 12AA of this Act (or under any of those sections as extended by section 12 of this Act) to make and deliver a return for a year of assessment or other period shall--

(a) keep all such records as may be requisite for the purpose of enabling him to make and deliver a correct and complete return for the year or period; and

(b) preserve those records until the end of whichever of the following is the later, namely--

(i) the day mentioned in subsection (2) below; and

(ii) where a return delivered by him is enquired into by an officer of the Board, the day on which, by virtue of section 28A(5) or 28B(5) of this Act, the officer's enquiries are treated as completed.

(2) The day referred to in subsection (1) above is--

(a) in the case of a person carrying on a trade, profession or business alone or in partnership or a company, the fifth anniversary of the 31st January next following the year of assessment or (as the case may be) the sixth anniversary of the end of the period;

(b) in any other case, the first anniversary of the 31st January next following the year of assessment or, where a return is delivered by the person concerned after that date, the quarter day next following the first anniversary of the day on which the return is delivered;

and the quarter days for the purposes of this subsection are 31st January, 30th April, 31st July and 31st October.

(3) In the case of a person carrying on a trade, profession or business alone or in partnership--

(a) the records required to be kept and preserved under subsection (1) above shall include records of the following, namely--

(i) all amounts received and expended in the course of the trade, profession or business and the matters in respect of which the receipts and expenditure take place, and

(ii) in the case of a trade involving dealing in goods, all sales and purchases of goods made in the course of the trade; and

(b) the duty under that subsection shall include a duty to preserve until the day mentioned in subsection (2) above all supporting documents relating to such items as are mentioned in paragraph (a)(i) or (ii) above.

(4) The duty under subsection (1) above to preserve records may be discharged by the preservation of the information contained in them; and where information is so preserved a copy of any document forming part of the records shall be admissible in evidence in any proceedings before the Commissioners to the same extent as the records themselves.

(5) Any person who fails to comply with subsection (1) above in relation to a year of assessment or accounting period shall be liable to a penalty not exceeding £3,000.

(6) For the purposes of this section--

(a) a person engaged in the letting of property shall be treated as carrying on a trade; and

(b) "supporting documents" includes accounts, books, deeds, contracts, vouchers and receipts. "

Recovery of overpayment of tax etc.

4 (1) After subsection (1A) of section 30 of the Management Act (recovery of overpayment of tax etc.) there shall be inserted the following subsection--

" (1B) Subsections (2) to (8) of section 29 of this Act shall apply in relation to an assessment under subsection (1) above as they apply in relation to an assessment under subsection (1) of that section; and subsection (4) of that section as so applied shall have effect as if the reference to the loss of tax were a reference to the repayment of the amount of tax which ought not to have been repaid. "

(2) For subsection (5) of that section there shall be substituted the following subsection--

" (5) An assessment under this section shall not be out of time under section 34 of this Act if it is made before the end of whichever of the following ends the later, namely--

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