Finance Act, 1988

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Amendment of Part XI (group relief) of Corporation Tax Act, 1976.

34.—Part XI of the Corporation Tax Act, 1976 , is hereby amended by the insertion after section 116 of the following section:

“116A—(1) (a) In this section—

‘trade’ means a trade carried on by a company which consists of or includes the manufacture of goods (including activities carried on in an accounting period which would, if the company had sufficient profits in that period and made a claim for relief in respect of the trade under Chapter VI of Part I of the Finance Act, 1980 , for that period, fall to be regarded for the purposes of that Chapter as the manufacture of goods);

‘income from the sale of goods’ in an accounting period in the course of a trade carried on by a company shall, subject to section 118 as applied for the purposes of relief under this section, be such income as would be ‘the income from the sale of those goods’ in that period in the course of the trade for the purposes of a claim under section 41 (2) of the Finance Act, 1980 , if—

(i) no group relief under this section were allowed against income from the trade in that period,

(ii) the company had sufficient profits, and

(iii) the company made a claim for relief under Chapter VI of Part I of the Finance Act, 1980 ;

‘a loss from the sale of goods’ in the course of a trade in an accounting period shall be such amount as would be the amount of the income from the sale of goods in that period if, notwithstanding section 41 (4) of the Finance Act, 1980 , ‘the company's income for the relevant accounting period from the sale in the course of the trade mentioned in that subsection of goods and merchandise’ for the purposes of subsection (3) of the said section were the amount of so much of the loss, computed as for the purposes of section 16 (2), from the trade in the period as appears to the inspector, or on appeal, to the Appeal Commissioners to be referable to a loss incurred in the sale of goods and merchandise:

Provided that a loss such as is mentioned in section 28 (4) (b) of the Finance Act, 1987 , shall not be a loss from the sale of goods;

‘charges on income paid for the purpose of the sale of goods’ in the course of a trade in an accounting period shall be such amount as would be the amount of the income from the sale of goods in that period if, notwithstanding section 41 (4) of the Finance Act, 1980 , ‘the company's income for the relevant accounting period from the sale in the course of the trade mentioned in that subsection of goods and merchandise’ for the purposes of subsection (3) of the said section were the amount of so much of the charges on income paid wholly and exclusively for the purposes of the trade in that period as appears to the inspector, or on appeal, to the Appeal Commissioners to be referable to charges on income paid for the purpose of the sale of goods and merchandise;

‘an excess of charges on income paid for the purpose of the sale of goods’ in the course of the trade in an accounting period shall be so much of an amount, being the amount by which the charges on income paid by a company for the purpose of the sale of goods in the course of the trade in that period exceed the income from the sale of goods in the course of the trade in that period, as does not exceed the excess referred to in section 116 (6) as computed for the company for that period;

‘the sale of goods and merchandise’ in the course of a trade carried on by a company shall mean the sale of such goods and merchandise as would respectively be treated as goods and merchandise for the purposes of a claim under Chapter VI of the Finance Act, 1980 , if the company had a sufficiency of profits and had made such a claim.

(b) For the purposes of this section—

(i) where an accounting period begins before the 1st day of January, 1989, and ends on or after that date it shall be divided into one part, beginning on the date on which the accounting period begins and ending on the 31st day of December, 1988, and another part, beginning on the 1st day of January, 1989, and ending on the day on which the accounting period ends, and both parts of the accounting period shall be treated as if they were separate accounting periods, and

(ii) where an accounting period begins before the 1st day of January, 2001, and ends on or after that date it shall be divided into one part beginning on the day on which the accounting period begins and ending on the 31st day of December, 2000, and another part, beginning on the 1st day of January, 2001, and ending on the day the accounting period ends, and both parts shall be treated as if they were separate accounting periods.

(2) (a) Notwithstanding subsections (1) and (6) of section 116 and section 117, if, in any accounting period falling within the period from the 1st day of January, 1989, to the 31st day of December, 2000, the surrendering company incurs a loss from the sale of goods or an excess of charges on income paid for the purpose of the sale of goods, that loss or excess may be set off for the purposes of corporation tax against income from a trade of the claimant company for its corresponding accounting period to the extent of that income or, if it is less, to the extent of the income from the sale of goods in the course of the trade, but no other relief shall be given in respect of that loss or excess to a company other than the surrendering company.

(b) Group relief allowed under paragraph (a) shall reduce the income from a trade of the claimant company for an accounting period—

(i) before relief granted under section 18 (terminal loss in trade) in respect of a loss incurred in a succeeding accounting period or periods, and

(ii) after relief granted under section 16 (relief for trading losses other than terminal loss) in respect of a loss incurred in a preceding accounting period or periods.

(3) (a) For the purposes of subsection (3) of section 41 of the Finance Act, 1980 , ‘the amount of the company's income for the relevant accounting period from the sale in the course of the trade mentioned in that subsection of goods and merchandise’ shall be determined in accordance with subsection (4) of the said section 41 as if no group relief had been allowed under this section.

(b) Notwithstanding the provisions of subsection (3) of the said section 41, ‘the income from the sale of those goods’ in an accounting period for the purposes of subsection (2) of the said section 41 shall be the sum determined by subsection (3) of the said section 41 for that period reduced by any group relief allowed under this section against income of the trade mentioned in subsection (2) of the said section 41 in that period.

(4) This section shall not apply to—

(a) (i) a loss from the sale of goods in the course of a trade, or

(ii) an excess of charges on income paid for the purpose of the sale of goods in the course of a trade, in an accounting period or part of an accounting period falling before the 6th day of April, 1990, if, in the latest preceding accounting period in which there was income from the trade in respect of which corporation tax was payable, the amount thereof was reduced under Part IV, or

(b) so much of a loss from the sale of goods in the course of a trade in an accounting period as does not exceed the amount of the capital allowances under section 42 (2) of the Finance Act, 1986 , deducted by the surrendering company in computing the loss which it has incurred in that period in carrying on trading operations specified in a certificate given to it and not revoked by the Minister for Finance under section 39B (2) of the Finance Act, 1980 .

(5) For the purposes of this section—

(a) in the case of a claim made by a company as a member of a consortium, only a fraction of a loss from the sale of goods or an excess of charges on income paid for the purpose of the sale of goods 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 118 (2), and

(b) section 118 shall have effect as if—

(i) for ‘total profits’ in paragraph (a) of subsection (2) there were substituted ‘income from a trade’, and

(ii) for ‘the said profits’ in paragraph (b) there were substituted ‘the income from the sale of goods in the course of a trade of the claimant company’.”.