Income and Corporation Taxes Act 1988

CHAPTER IVBUILDING SOCIETIES, BANKS, SAVINGS BANKS, INDUSTRIAL AND PROVIDENT SOCIETIES AND OTHERS

476Building societies: regulations for payment of tax

(1)The Board may by regulations make provision with respect to any year of assessment requiring building societies, on such sums as may be determined in accordance with the regulations (including sums paid or credited before the beginning of the year but not previously brought into account under this subsection), to account for and pay an amount representing income tax calculated in part at the basic rate and in part at the reduced rate determined for the year of assessment concerned under section 483(1)(a); and in this section and section 477 such sums are referred to as “aggregate rate sums”.

(2)Regulations under subsection (1) may contain such incidental and consequential provisions as appear to the Board to be appropriate, including provisions requiring the making of returns.

(3)For any year of assessment to which regulations under subsection (1) above apply, dividends or interest payable in respect of shares in, or deposits with or loans to, a building society shall be dealt with for the purposes of corporation tax as follows—

(a)in computing for any accounting period ending in the year of assessment the income of the society from the trade carried on by it, there shall be allowed as a deduction the actual amount paid or credited in the accounting period of any such dividends or interest, together with any amount accounted for and paid by the society in respect thereof as representing income tax;

(b)in computing the income of a company which is paid or credited in the year of assessment with any such dividends or interest which are aggregate rate sums, the company shall—

(i)be treated as having received an amount which, after deduction of income tax, is equal to the amount paid or credited, and

(ii)be entitled to a set-off or repayment of income tax accordingly;

(c)no part of any such dividends or interest paid or credited in the year of assessment shall be treated as a distribution of the society or as franked investment income of any company resident in the United Kingdom.

(4)Nothing in section 326 shall be taken as affecting subsection (3)(a) above and that paragraph shall apply to any terminal bonus paid by the society under a certified contractual savings scheme as if it were a dividend on a share in the society.

(5)Except in so far as regulations under subsection (1) above otherwise provide, for any year of assessment to which such regulations apply—

(a)notwithstanding anything in sections 348 to 350, income tax shall not be deducted from any dividends or interest payable in that year in respect of shares in or deposits with or loans to a building society;

(b)subject to subsections (3)(b), (6) and (7) of this section, no repayment of income tax and no assessment to income tax shall be made in respect of any such dividends or interest to or on the person receiving or entitled to the dividends or interest;

(c)any amounts paid or credited in respect of any such dividends or interest shall in computing the total income of an individual entitled thereto be treated as income for that year received by him after deduction of income tax from a corresponding gross amount;

(d)subject to section 7(1), the amounts so paid or credited (and no more) shall, in applying sections 348 and 349(1) to other payments, be treated as profits or gains which have been brought into charge to income tax.

(6)Subsection (5)(b) above shall not prevent an assessment in respect of income tax at a rate other than the basic rate.

(7)Subsection (5)(b) above shall not apply to sums which are payable to exempt pension funds and which are aggregate rate sums; but the amounts paid or credited in respect of such sums shall be treated as paid or credited after deduction of income tax from a corresponding gross amount.

In this subsection “exempt pension fund” means any fund or scheme in the case of which provision is made by section 592(2), 613(4), 614(1), (2) or (3), 620(6) or 643(2) for exempting the whole or part of its income from income tax.

(8)For the purpose of determining whether any or what amount of tax is, by virtue of subsection (5)(c) above, to be taken into account as having been deducted from a gross amount in the case of an individual whose total income is reduced by any deductions, so much only of that gross amount shall be taken into account as is part of his total income as so reduced.

(9)Notwithstanding anything in sections 348 to 350, for any year of assessment to which regulations under subsection (1) above apply income tax shall not be deducted upon payment to the society of any interest on advances, being interest payable in that year.

(10)Subsection (9) above shall not apply to any payment of relevant loan interest to which section 369 applies.

(11)In this section “dividend” has the meaning given by regulations under subsection (1) above, but any sum which is paid by a building society by way of dividend and which is not an aggregate rate sum shall be treated for the purposes of Schedule D as paid by way of interest.

477Investments becoming or ceasing to be relevant building society investments

(1)Where a building society investment which is a source of income of any person (“the lender”) is not a relevant building society investment but at any time becomes such an investment, section 67 shall apply as if the investment were a source of income which the lender ceased to possess immediately before that time.

(2)Where a building society investment which is a source of income of any person ceases at any time to be a relevant building society investment, section 66(3) shall apply as if the investment were a new source of income acquired by him immediately after that time.

(3)In this section “building society investment” does not include a quoted Eurobond (as defined in section 124(1)) but, subject to that, means any share in, deposit with or loan to a building society; and for the purposes of this section a building society investment is relevant if dividends or interest payable in respect of it are aggregate rate sums.

478Building societies: time for payment of tax

(1)This section shall apply, in place of the provisions of section 10, with respect to any accounting period ending before 6th April 1990 of a building society to which section 344 of the 1970 Act applied immediately before the coming into force of this Act.

(2)Where this section applies to a building society, then —

(a)corporation tax assessed on the society for any accounting period shall be paid within 30 days from the date of the issue of the notice of assessment, except that if the society’s basis period for the year 1965-66 did not extend into the year 1966, the tax shall not be payable before the like time after the last day of the accounting period as 1st January 1966 is after the last day of that basis period; but

(b)if corporation tax has not become payable by the society for an accounting period by the like time from the beginning of that period as there is between the beginning of the society’s basis period for the year 1965-66 and 1st January 1966, the society shall at that time from the beginning of the accounting period make a provisional payment of tax computed on the amount on which the society is chargeable to corporation tax for the accounting period last ended with such adjustments, if any, as may be required for periods of different length or as may be agreed between the society and the inspector.

(3)References in section (2) above to a society’s basis period for the year 1965-66 are references to the period by reference to which the society was assessed to income tax for that year under arrangements entered into under section 445 of the [1952 c. 10.] Income Tax Act 1952.

(4)Where, by virtue of subsection (2)(a) above, corporation tax assessed on a building society in respect of a 1989 accounting period would, apart from this subsection, be payable by a date which is earlier than the end of the period of two months from the end of that accounting period, the tax shall be payable within that period of two months.

(5)If, apart from this subsection, the date on which, under subsection (2)(b) above, a building society would be required to make a provisional payment of corporation tax for a 1989 accounting period would fall before the end of the period of two months from the end of that accounting period, that date shall be postponed until the end of that period of two months.

(6)With respect to a 1989 accounting period of a building society to which subsection (4) above applies, in section 825(8)(b) of this Act and paragraph 5(c) in the second column of the Table in section 86(4) of the Management Act (the reckonable date for interest on overdue tax), the reference to the time limit imposed by section (2)(a) above shall be construed as a reference to the limit imposed by subsection (4) above.

(7)In subsections (4) to (6) above a “1989 accounting period” means an accounting period ending in the year 1989-90.

479Interest paid on deposits with banks etc

(1)Any deposit-taker making a payment of interest in respect of a relevant deposit shall be liable to account for and pay an amount representing income tax on that payment, calculated by applying the composite rate (determined in accordance with section 483) to the grossed-up amount of the payment, that is to say, to the amount which after deduction of tax at the composite rate would be equal to the amount actually paid.

(2)Where in relation to any payment of interest a deposit-taker is liable to account for and pay an amount under subsection (1) above—

(a)subject to subsection (3) below, no assessment to income tax shall be made on, and no repayment of income tax shall be made to, the person receiving or entitled to the payment in respect of it;

(b)the payment shall, in computing the total income of the person entitled to it, be treated as income for that year received by him after deduction of income tax at the basic rate from a corresponding gross amount; and

(c)the payment (and no more) shall, in applying sections 348 and 349 to other payments, be treated as profits or gains which have been brought into charge to income tax.

(3)Subsection (2)(a) above shall not prevent an assessment in respect of income tax at a rate other than the basic rate.

(4)For the purpose of determining whether any or what amount of tax is, by virtue of subsection (2)(b) above, to be taken into account as having been deducted from a gross amount in the case of an individual whose total income is reduced by any deductions, so much only of that gross amount shall be taken into account as is part of his total income as so reduced.

(5)Any payment of interest in respect of which an amount is payable under subsection (1) above shall be a relevant payment for the purposes of Schedule 16 whether or not the deposit-taker making the payment is resident in the United Kingdom.

(6)Schedule 16 shall apply in relation to any payment which is a relevant payment by virtue of subsection (5) above—

(a)with the substitution for any reference to a company of a reference to a deposit-taker;

(b)as if any amount payable under subsection (1) above were payable as income tax;

(c)as if paragraph 5 applied only in relation to payments received by the deposit-taker and falling to be taken into account in computing his income chargeable to corporation tax; and

(d)as if in paragraph 7 the reference to section 7(2) included a reference to sections 11(3) and 349(1).

(7)In relation to any deposit-taker who is not a company, Schedule 16 shall have effect as if—

(a)paragraph 5 were omitted; and

(b)references to accounting periods were references to periods for which the deposit-taker makes up his accounts.

480Deposits becoming or ceasing to be composite rate deposits

(1)Where a deposit which is a source of income of any person (“the lender”) is not a composite rate deposit but at any time becomes such a deposit, section 67 shall apply as if the deposit were a source of income which the lender ceased to possess immediately before it became a composite rate deposit.

(2)Section 67 shall apply in relation to a deposit which became a composite rate deposit on 6th April 1985 with the omission from subsection (1)(b) of the words from “and shall” to “this provision”.

(3)Where a deposit which is a source of income of any person ceases to be a composite rate deposit, section 66(3) shall apply as if the deposit were a new source of income acquired by him immediately after it ceased to be a composite rate deposit.

(4)For the purposes of this section a deposit is at any time a composite rate deposit if, were the person holding it to make a payment of interest in respect of it at that time, he would be liable to account for and pay an amount on that payment under section 479(1).

481“Deposit-taker”, “deposit” and “relevant deposit”

(1)In this section “the relevant provisions” means sections 479 and 480, this section and section 482.

(2)In the relevant provisions “deposit-taker” means any of the following—

(a)the Bank of England;

(b)any institution authorised under the [1987 c. 22.] Banking Act 1987 or municipal bank within the meaning of that Act;

(c)the Post Office;

(d)any company to which property and rights belonging to a trustee savings bank were transferred by section 3 of the [1985 c. 58.] Trustee Savings Bank Act 1985;

(e)any bank formed under the [1819 c. 62.] Savings Bank (Scotland) Act 1819; and

(f)any person or class of person who receives deposits in the course of his business or activities and which is for the time being prescribed by order made by the Treasury for the purposes of this paragraph.

(3)In the relevant provisions “deposit” means a sum of money paid on terms under which it will be repaid with or without interest and either on demand or at a time or in circumstances agreed by or on behalf of the person making the payment and the person to whom it is made.

(4)For the purposes of the relevant provisions a deposit is a relevant deposit if, but only if—

(a)the person who is beneficially entitled to any interest in respect of the deposit is an individual or, where two or more persons are so entitled, all of them are individuals; or

(b)in Scotland, the person who is so entitled is a partnership all the partners of which are individuals; or

(c)the person entitled to any such interest receives it as a personal representative in his capacity as such;

and the deposit is not prevented from being a relevant deposit by subsection (5) below.

(5)A deposit is not a relevant deposit if—

(a)a qualifying certificate of deposit has been issued in respect of it or it is a qualifying time deposit;

(b)it is a debt on a debenture (“debenture” having the meaning given in section 744 of the [1985 c. 6.] Companies Act 1985) issued by the deposit-taker;

(c)it is a loan made by a deposit-taker in the ordinary course of his business or activities;

(d)it is a debt on a security which is listed on a recognised stock exchange;

(e)it is a general client account deposit;

(f)it forms part of a premiums trust fund (within the meaning of section 457) of an underwriting member of Lloyd's;

(g)it is made by a Stock Exchange money broker (recognised by the Bank of England) in the course of his business as such a broker;

(h)in the case of a deposit-taker resident in the United Kingdom for the purposes of income tax or corporation tax, it is held at a branch of his situated outside the United Kingdom;

(j)in the case of a deposit-taker who is not so resident, it is held otherwise than at a branch of his situated in the United Kingdom; or

(k)the appropriate person has declared in writing to the deposit-taker liable to pay interest in respect of the deposit that—

(i)at the time when the declaration is made, the person who is beneficially entitled to the interest is not, or, as the case may be, all the persons who are so entitled are not, ordinarily resident in the United Kingdom;

(ii)in a case falling within subsection (4)(c) above the deceased was, immediately before his death, not ordinarily resident in the United Kingdom.

(6)The Treasury may by order make amendments in this section and sections 479(2) to (7), 480 and 482 providing for deposits of a kind specified in the order to be or, as the case may be, not to be relevant deposits in relation to all deposit-takers or such deposit-takers or classes of deposit-takers as may be so specified.

482Supplementary provisions

(1)For the purposes of sections 479, 480 and 481 and this section, any amount which is credited as interest in respect of a relevant deposit shall be treated as a payment of interest.

(2)A declaration under section 481(5)(k) shall—

(a)if made under sub-paragraph (i), contain an undertaking by the person making it that if the person, or any of the persons in respect of whom it is made, becomes ordinarily resident in the United Kingdom he will notify the deposit-taker accordingly; and

(b)in any case, be in such form as may be prescribed or authorised, and contain such information as may reasonably be required, by the Board.

(3)A deposit-taker shall, on being so required by notice given to him by an inspector, make all declarations which have been made to him under section 481(5) available for inspection by the inspector or by a named officer of the Board.

(4)Where a notice has been given to a deposit-taker under subsection (3) above, the declarations shall be made available within such time as may be specified in the notice, and the person to whom they are to be made available may take copies of or extracts from them.

(5)A deposit-taker shall treat every deposit made with him as a relevant deposit unless satisfied that it is not a relevant deposit, but where he has satisfied himself that a deposit is not a relevant deposit he shall be entitled to continue to so treat it until such time as he is in possession of information which can reasonably be taken to indicate that the deposit is or may be a relevant deposit.

(6)In section 481(5)—

• “appropriate person”, in relation to a deposit, means any person who is beneficially entitled to any interest in respect of the deposit or entitled to receive any such interest as a personal representative in his capacity as such or to whom any such interest is payable;

• “general client account deposit” means a deposit, held by the deposit-taker in a client account (other than one which is identified by the deposit-taker as one in which sums are held only for one or more particular clients of the person whose account it is) in respect of which that person is required by provision made under any enactment to make payments representing interest to some or all of the clients for whom, or on whose account, he received the sums deposited in the account;

• “qualifying certificate of deposit” means a certificate of deposit, as defined in section 56(5), which is issued by a deposit-taker and under which—

  (a)

  the amount payable by the deposit-taker, exclusive of interest, is not less than £50,000 (or, for a deposit denominated in foreign currency, not less than the equivalent of £50,000 at the time when the deposit is made); and

  (b)

  the obligation of the deposit-taker to pay that amount arises after a period of not less than seven days beginning with the date on which the deposit is made; and

• “qualifying time deposit” means a deposit which is made by way of loan for an amount which is not less than £50,000 (or, for a deposit denominated in foreign currency, not less than the equivalent of £50,000 at the time when the deposit is made) and on terms which—

  (a)

  prevent repayment of the deposit before the expiry of the period of seven days beginning with the date on which the deposit is made, but which require repayment at the end of a specified period;

  (b)

  do not make provision for the transfer of the right to repayment; and

  (c)

  prevent partial withdrawals of, or additions to, the deposit.

  In relation to deposits made before 20th May 1986 this subsection shall have effect with the substitution for “seven” of “28” (in both places).

(7)For the purposes of section 481(5)(h) and (j) a deposit is held at a branch of a deposit-taker if it is recorded in his books as a liability of that branch.

(8)A certificate of deposit, as defined in section 56(5), which was issued before 13th March 1984 on terms which provide for interest to be payable on the deposit at any time after 5th April 1985 (whether or not interest is payable on it before that date) shall, if it is not a qualifying certificate of deposit, be treated for the purposes of section 481(5) as if it were a qualifying certificate of deposit.

(9)Any deposit which was made before 6th July 1984 but which is not a qualifying time deposit shall, where it is made on terms which—

(a)do not make provision for the transfer of the right to repayment;

(b)prevent partial withdrawals of, or additions to, the deposit; and

(c)require—

(i)the deposit-taker to repay the sum at the end of a specified period which ends after 5th April 1985; or

(ii)in a case where interest is payable only at the time of repayment of the deposit, the deposit-taker to repay the sum on demand or on notice;

be treated for the purposes of section 481(5) as if it were a qualifying time deposit.

(10)An order under section 481(2)(f) may prescribe a person or class of person in relation to all relevant deposits or only in relation to relevant deposits of a kind specified in the order.

(11)The Board may by regulations make provision—

(a)requiring any declaration under section 481(5)(k)(i) which does not give the address of the person making it, to be supported by a certificate given by the deposit-taker concerned—

(i)in such form as may be prescribed or authorised by the Board; and

(ii)containing such information as may reasonably be required by the Board; and

(b)generally for giving effect to sections 479 to 481 and this section.

(12)Regulations under subsection (11) above or an order under section 481(6) may contain such incidental and consequential provision as appears to the Board or the Treasury, as the case may be, to be appropriate.

483Determination of reduced rate for building societies and composite rate for banks etc

(1)In every year of assessment the Treasury shall by order determine a rate which shall, for the following year of assessment, be—

(a)the reduced rate for the purposes of section 476; and

(b)the composite rate for the purposes of section 479.

(2)The order made under subsection (1) above in each year of assessment shall—

(a)be made before 31st December in that year; and

(b)be based only on information relating to periods before the end of the year of assessment in which the order is made.

(3)Whenever they exercise their powers under this section the Treasury shall aim at securing that (assuming for the purposes of this subsection that the amounts payable by building societies under section 476 and by deposit-takers under section 479 are income tax) the total income tax becoming payable to, and not being repayable by, the Crown is (when regard is had to the operation of those sections) as nearly as may be the same in the aggregate as it would have been if those sections had not been enacted.

(4)If the order made under section 26 of the [1984 c. 43.] Finance Act 1984 in the year 1987-88 is made in pursuance of subsection (4) of that section, that order shall, notwithstanding that that subsection is not re-enacted by this Act, apply for the purposes of sections 476 and 479 for the year 1988-89.

(5)For the purposes of enabling the Treasury to comply with the requirements of subsection (3) above, the Board may by notice require any deposit-taker (within the meaning of section 481) or building society to furnish to the Board such information about its depositors as the Board may reasonably require for those purposes.

In this subsection “depositors”, in relation to a building society, includes shareholders.

484Savings banks: exemption from tax

(1)Any savings bank other than a savings bank which is the successor or further successor to an existing trustee savings bank shall on making a claim be entitled to exemption from income tax and corporation tax in respect of the income of its funds to the extent that such income is applied in the payment or credit of interest to any depositor; but, subject to section 325, any such interest shall be chargeable under Case III of Schedule D.

(2)Any gain or loss accruing to a savings bank which is the successor to an existing trustee savings bank on a disposal of an exempt investment held by that existing bank on 21st November 1979, may, if that existing bank has so elected, be computed by reference to the cost of the investment instead of by reference to its market value on the latter date and, in the case of a loss, without any restriction under section 270(4) of the 1970 Act.

(3)In subsection (2) above the reference to an election is a reference to an election under paragraph 2(3) of Schedule 11 to the [1980 c. 48.] Finance Act 1980 (under which the election must have been by notice in writing given to the Board within two years after 21st November 1979, and has effect in relation to all exempt investments held by the bank on that date).

(4)Where a savings bank which is the successor to an existing trustee savings bank holds investments which include both exempt investments held by the existing bank on 21st November 1979 and other investments of the same class, any investments of that class which are disposed of by the successor shall be treated for the purposes of subsection (2) above as consisting of the other investments rather than of the exempt investments held on that date.

(5)In this section references to exempt investments held by an existing trustee savings bank on 21st November 1979 are to investments on the disposal of which immediately before that date no chargeable gain or allowable loss would have accrued to the bank by virtue of section 67 of the 1979 Act (gilt-edged securities held for more than a year).

(6)In this section “successor” and “existing”, in relation to a trustee savings bank, have the meanings given by section 1 of the [1985 c. 58.] Trustee Savings Bank Act 1985, and “further successor” has the meaning given by paragraph 9 of Schedule 2 to that Act.

485Savings banks: supplemental

(1)Where the business of a trustee savings bank has been transferred to another trustee savings bank after 21st November 1979 and before the day which was the vesting day for the purposes of the [1985 c. 58.] Trustee Savings Bank Act 1985—

(a)any exempt investment which was held on that date by the first bank and was transferred with the business shall be treated for the purposes of section 484 in its application to any savings bank which is the successor to the second bank as if it had been held on that date by the second bank but without prejudice to any election made in respect of the investment by the first bank under sub-paragraph (3) of paragraph 2 of Schedule 11 to the [1980 c. 48.] Finance Act 1980; and

(b)the cost of the investment shall be taken for the purposes of that sub-paragraph as equal to the cost of the investment to the first bank.

(2)Where the business of a trustee savings bank was transferred to another trustee savings bank before 21st November 1979 the cost of any exempt investment held by the second bank on that date which—

(a)was transferred to it with the business; and

(b)was an exempt investment on the date of the transfer,

shall be taken for the purposes of section 484(2) in its application to any savings bank which is the successor to the second bank as equal to the cost of the investment to the first bank.

(3)In this section references to exempt investments held by a trustee savings bank on 21st November 1979 or the date of the transfer are to investments on the disposal of which immediately before that date no chargeable gain or allowable loss would have accrued to the bank by virtue of section 67 of the 1979 Act (gilt-edged securities held for more than a year) or, in the case of a transfer which took place before that section came into force, section 41 of the [1969 c. 32.] Finance Act 1969 (which was re-enacted by section 67 of the 1979 Act).

486Industrial and provident societies and co-operative associations

(1)Notwithstanding anything in the Tax Acts, share interest or loan interest paid by a registered industrial and provident society shall not be treated as a distribution; and, subject to subsection (7) below and section 487(3), any share or loan interest paid in an accounting period of the society—

(a)shall be deductible in computing, for the purposes of corporation tax, the income of the society for that period from the trade carried on by the society, or

(b)if the society is not carrying on a trade, shall be treated for those purposes as a charge on the income of the society.

(2)Notwithstanding anything in sections 348 to 350, any share interest or loan interest paid by a registered industrial and provident society, except any to which subsection (3) below applies, shall be paid without deduction of income tax.

(3)This subsection applies to any share interest or loan interest payable to a person whose usual place of abode is not within the United Kingdom, and in any such case section 349(2) shall apply to the payment as it applies to a payment of yearly interest, and income tax shall be deducted accordingly.

(4)Any share interest or loan interest paid by a registered industrial and provident society shall be chargeable under Case III of Schedule D.

(5)Where at any time, by virtue of this section, the income of a person from any source, not having previously been chargeable by direct assessment on that person, becomes so chargeable, section 66(3) shall apply as if the source of that income were a new source of income acquired by that person at that time.

(6)Every registered industrial and provident society shall, within three months after the end of any accounting period of the society, deliver to the inspector a return showing—

(a)the name and place of residence of every person to whom the society has by virtue of this section paid without deduction of income tax sums amounting to more than £15 in that period; and

(b)the amount so paid in that period to each of those persons.

(7)If for any accounting period a return under subsection (6) above is not duly made by a registered industrial and provident society, share and loan interest paid by the society in that period shall not be deductible in computing its income, or be treated as a charge on income.

(8)If in the course of, or as part of, a union or amalgamation of two or more registered industrial and provident societies, or a transfer of engagements from one registered industrial and provident society to another, there is a disposal of an asset by one society to another, both shall be treated for the purposes of corporation tax in respect of chargeable gains as if the asset were acquired from the society making the disposal for a consideration of such amount as would secure that neither a gain nor a loss would accrue to that society on the disposal.

(9)Subsections (1) and (8) above shall have effect as if references to a registered industrial and provident society included any co-operative association established and resident in the United Kingdom, and having as its object or primary object to assist its members in the carrying on of agricultural or horticultural businesses on land occupied by them in the United Kingdom or in the carrying on of businesses consisting in the catching or taking of fish or shellfish.

(10)It is hereby declared that, in computing, for the purposes of any provision of the Tax Acts relating to profits or gains chargeable under Case I of Schedule D (“the tax computation”), any profits or gains of—

(a)any registered industrial and provident society which does not sell to persons not members thereof; or

(b)any registered industrial and provident society the number of the shares in which is not limited by its rules or practice;

there are to be deducted as expenses any sums which—

(i)represent a discount, rebate, dividend or bonus granted by the company to members or other persons in respect of amounts paid or payable by or to them on account of their transactions with the company, being transactions which are taken into account in the tax computation; and

(ii)are calculated by reference to those amounts or to the magnitude of those transactions and not by reference to the amount of any share or interest in the capital of the company.

(11)No dividends or bonus deductible in computing income as mentioned in subsection (10) above shall be regarded as a distribution.

(12)In this section—

• “co-operative association” means a body of persons having a written constitution from which the Minister is satisfied, having regard to the provision made as to the manner in which the income of the body is to be applied for the benefit of its members and all other relevant provisions, that the body is in substance a co-operative association;

• “the Minister” means—

  • the Minister of Agriculture, Fisheries and Food, as regards England and Wales;

  • he Secretary of State, as regards Scotland; and

  • the Department of Agriculture for Northern Ireland, as regards Northern Ireland;

• “registered industrial and provident society” means a society registered or deemed to be registered under the [1965 c. 12.] Industrial and Provident Societies Act 1965 or under the [1969 c. 24 (N.I.).] Industrial and Provident Societies Act (Northern Ireland) 1969;

• “share interest” means any interest, dividend, bonus or other sum payable to a shareholder of the society by reference to the amount of his holding in the share capital of the society;

• “loan interest” means any interest payable by the society in respect of any mortgage, loan, loan stock or deposit;

and references to the payment of share interest or loan interest include references to the crediting of such interest.

487Credit unions

(1)Subject to subsection (2) below, in computing for the purposes of corporation tax the income of a credit union for any accounting period—

(a)neither the activity of the credit union in making loans to its members nor in placing on deposit or otherwise investing from time to time its surplus funds shall be regarded as the carrying on of a trade or part of a trade; and

(b)interest received by the credit union on loans made by it to its members shall not be chargeable to tax under Case III of Schedule D or otherwise.

(2)Paragraph (b) of subsection (1) above shall not apply to an accounting period of a credit union for which the credit union is obliged to make a return under section 486(6) and has not done so within three months after the end of that accounting period or such longer period as the inspector shall allow.

(3)No share interest, loan interest or annuity or other annual payment paid or payable by a credit union in any accounting period shall be deductible in computing for the purposes of corporation tax the income of the credit union for that period from any trade carried on by it or be treated for those purposes as a charge on income.

(4)A credit union shall not be regarded as an investment company for the purposes of section 75 above or section 306 of the 1970 Act (capital allowances).

(5)In this section—

• “credit union” means a society registered as a credit union under the [1965 c. 12.] Industrial and Provident Societies Act 1965 or the [S.I. 1985/1205 (N.I. 12.).] Credit Unions (Northern Ireland) Order 1985;

• “share interest” and “loan interest” have the same meaning as in section 486;

• “surplus funds”, in relation to a credit union, means funds not immediately required for its purposes;

and references to the payment of share interest or loan interest include references to the crediting of such interest.

488Co-operative housing associations

(1)Where a housing association makes a claim in that behalf for any year or part of a year of assessment during which the association was approved for the purposes of this section—

(a)rent to which the association was entitled from its members for the year or part shall be disregarded for tax purposes; and

(b)any yearly interest payable by the association for the year or part shall be treated for tax purposes as payable not by the association but severally by the members of the association who during the year or part were tenants of property of the association, in the proportion which the rents payable by those members for the year or part bear to the aggregate of the rents to which the association was entitled for the year or part from the properties to which the interest relates; and

(c)each member of the association shall be treated for the purposes of section 354 as if he were the owner of the association’s estate or interest in the property of which he is the tenant.

(2)Where the property, or any of the properties, to which any such interest as is mentioned in paragraph (b) of subsection (1) above relates is for any period not subject to a tenancy—

(a)that paragraph shall not apply in relation to so much of the interest as is attributable to the property not subject to a tenancy; and

(b)for the purposes of that paragraph as it applies in relation to a tenant of any other property to which the interest relates, the association shall be deemed to have received, in respect of the property not subject to a tenancy, rent at the rate payable therefor when it was last let by the association.

(3)In computing the income of the association no payments shall be deductible under section 25(3) to (7) in so far as attributable to a period as respects which a claim under subsection (1) above has effect.

(4)Where a claim under subsection (1) above has effect, any adjustment of the liability to tax of a member or of the association which is required in consequence of the claim may be made by an assessment or by repayment or otherwise, as the case may require.

(5)Where a housing association makes a claim in that behalf for an accounting period or part of an accounting period during which it was approved for the purposes of this section, the housing association shall be exempt from corporation tax on chargeable gains accruing to it in the accounting period or part on the disposal by way of sale of any property which has been or is being occupied by a tenant of the housing association.

(6)References in this section to the approval of an association shall be construed as references to approval—

(a)by the Secretary of State in the case of a housing association in Great Britain;

(b)by the Head of the Department of the Environment for Northern Ireland in the case of a housing association in Northern Ireland;

and an association shall not be approved unless the approving authority is satisfied—

(i)that the association is, or is deemed to be, duly registered under the [1965 c. 12.] Industrial and Provident Societies Act 1965 or the [1969 c. 24 (N.I.).] Industrial and Provident Societies Act (Northern Ireland) 1969, and is a housing association within the meaning of the [1985 c. 68.] Housing Associations Act 1985 or Article 114 of the [S.I. 1981/156 (N.I. 3).] Housing (Northern Ireland) Order 1981;

(ii)that the rules of the association restrict membership to persons who are tenants or prospective tenants of the association, and preclude the granting or assignment (or, in Scotland, the granting or assignation) of tenancies to persons other than members; and

(iii)that the association satisfies such other requirements as may be prescribed by the approving authority, and will comply with such conditions as may for the time being be so prescribed.

(7)An approval given for the purposes of this section shall have effect as from such date (whether before or after the giving of the approval) as may be specified by the approving authority and shall cease to have effect if revoked.

(8)The Secretary of State as respects Great Britain, or the Head of the Department of the Environment for Northern Ireland as respects Northern Ireland, may make regulations for the purpose of carrying out the provisions of this section; and, from the coming into operation of regulations under this subsection prescribing requirements or conditions for the purposes of subsection (6)(iii) above, “prescribed” in subsection (6)(iii) above shall mean prescribed by or under such regulations.

The power to make regulations under this subsection shall be exercisable by the Secretary of State by statutory instrument and by the Head of the Department of the Environment for Northern Ireland by statutory rule for the purposes of the [S.I. 1979/1573 (N.I.12.).] Statutory Rules (Northern Ireland) Order 1979.

(9)A claim under this section shall be made to the inspector, and shall be made not later than two years after the end of the year of assessment or accounting period to which, or to a part of which, it relates.

Section 42 of the Management Act shall not apply to a claim under this section.

(10)Subject to subsection (11) below, no claim under this section shall have effect unless it is proved that during the year or accounting period, or part thereof, to which the claim relates—

(a)no property belonging to the association making the claim was let otherwise than to a member of the association;

(b)no property let by the association, and no part of such property, was occupied, whether solely or as joint occupier, by a person not being a member of the association;

(c)the association making the claim satisfies the conditions specified in subsection (6)(i) and (ii) above and has complied with the conditions prescribed under subsection (6)(iii) for the time being in force; and

(d)any covenants required to be included in grants of tenancies by those conditions have been observed.

For the purposes of paragraph (b) above occupation by any other person in accordance with the will, or the provisions applicable on the intestacy, of a deceased member, shall be treated during the first six months after the death as if it were occupation by a member.

(11)Where the Board are satisfied that the requirements of subsection (10) above are substantially complied with they may direct that the claim shall have effect; but if subsequently information comes to the knowledge of the Board which satisfies them that the direction was not justified they may revoke the direction and thereupon the liability of all persons concerned to tax for all relevant years or accounting periods shall be adjusted by the making of assessments or otherwise.

(12)A claim under this section shall be in such form and contain such particulars as may be prescribed by the Board, and, without prejudice to the generality of this provision, the required particulars may include an authority granted by all members of the association for any relevant information contained in any return made by a member under the provisions of the Income Tax Acts to be used by the Board in such manner as the Board may think fit for determining whether the claim ought to be allowed.

489Self-build societies

(1)Where a self-build society makes a claim in that behalf for any year or part of a year of assessment during which the society was approved for the purposes of this section, rent to which the society was entitled from its members for the year or part shall be disregarded for tax purposes.

(2)Where a claim under subsection (1) above has effect, any adjustment of the society’s liability to tax which is required in consequence of the claim may be made by an assessment or by repayment or otherwise, as the case may require.

(3)Where a self-build society makes a claim in that behalf for an accounting period or part during which it was approved for the purposes of this section, the society shall be exempt from corporation tax on chargeable gains accruing to it in the accounting period or part thereof on the disposal of any land to a member of the society.

(4)References in this section to the approval of a self-build society are references to its approval by the Secretary of State, and the Secretary of State shall not approve a self-build society for the purposes of this section unless he is satisfied—

(a)that the society is, or is deemed to be, duly registered under the [1965 c. 12.] Industrial and Provident Societies Act 1965; and

(b)that the society satisfies such other requirements as may be prescribed by or under regulations under subsection (6) below and will comply with such conditions as may for the time being be so prescribed.

(5)An approval given for the purposes of this section shall have effect as from such date (whether before or after the giving of the approval) as may be specified by the Secretary of State and shall cease to have effect if revoked by him.

(6)The Secretary of State may by statutory instrument make regulations for the purpose of carrying out the provisions of this section; and a statutory instrument containing any such regulations shall be subject to annulment in pursuance of a resolution of the House of Commons.

(7)Section 42 of the Management Act shall not apply to a claim under this section, but such a claim shall be made to the inspector and shall be made not later than two years after the end of the year of assessment or accounting period to which, or to a part of which, it relates.

(8)Subject to subsection (9) below, no claim under this section shall have effect unless it is proved that during the year or accounting period, or part thereof, to which the claim relates—

(a)no land owned by the society was occupied, in whole or in part and whether solely or as joint occupier, by a person who was not, at the time of his occupation, a member of the society; and

(b)the society making the claim satisfies the condition specified in paragraph (a) of subsection (4) above and has complied with the conditions prescribed under paragraph (b) of that subsection and for the time being in force;

and for the purposes of paragraph (a) above, occupation by any other person in accordance with the will, or the provisions applicable on the intestacy, of a deceased member, shall be treated during the first six months after the death as if it were occupation by a member.

(9)Notwithstanding the provisions of subsection (8) above, where, on a claim under this section, the Board are satisfied that the requirements of paragraphs (a) and (b) of that subsection are substantially complied with, they may direct that the claim shall have effect; but if, subsequently, information comes to the knowledge of the Board which satisfies them that the direction was not justified, they may revoke the direction and thereupon the liability of the society to tax for all relevant years or accounting periods shall be adjusted by the making of assessments or otherwise.

(10)A claim under this section shall be in such form and contain such particulars as may be prescribed by the Board.

(11)In this section—

• “self-build society” has the same meaning as in the [1985 c. 68.] Housing Associations Act 1985 or, in Northern Ireland, Part VII of the [S.I. 1981/156 (N.I. 3).] Housing (Northern Ireland) Order 1981; and

• “rent” includes any sums to which a self-build society is entitled in respect of the occupation of any of its land under a licence or otherwise.

(12)In the application of this section to Northern Ireland—

(a)any reference in subsections (4) and (5) above to the Secretary of State shall be construed as a reference to the Department of the Environment for Northern Ireland;

(b)the reference in subsection (4)(a) to the [1965 c. 12.] Industrial and Provident Societies Act 1965 shall be construed as a reference to the [1969 c. 24 (N.I.).] Industrial and Provident Societies Act (Northern Ireland) 1969; and

(c)for subsection (6) there shall be substituted the following subsection—

“(6)The Department of the Environment for Northern Ireland may by statutory rule for the purposes of the [S.I. 1979/1573 (N.I. 12).] Statutory Rules (Northern Ireland) Order 1979 make regulations for the purpose of carrying out the provisions of this section; and a statutory rule containing any such regulations shall be subject to negative resolution within the meaning of section 41(6) of the [1954 c. 33 (N.I.).] Interpretation Act (Northern Ireland) 1954”.

490Companies carrying on a mutual business or not carrying on a business

(1)Subject to subsection (2) below, where a company carries on any business of mutual trading or mutual insurance or other mutual business the provisions of the Tax Acts relating to distributions shall apply to distributions made by the company notwithstanding that they are made to persons participating in the mutual activities of that business and derive from those activities, but shall so apply only to the extent to which the distributions are made out of profits of the company which are brought into charge to corporation tax or out of franked investment income (including group income).

(2)In the case of a company carrying on any mutual life assurance business, the provisions of the Tax Acts relating to distributions shall not apply to distributions made to persons participating in the mutual activities of that business and derived from those activities; but if the business includes annuity business, the annuities payable in the course of that business shall not be treated as charges on the income of the company to any greater extent than if the business were not mutual but were being carried on by the company with a view to the realisation of profits for the company.

(3)Subject to subsections (1) and (2) above, the fact that a distribution made by a company carrying on any such business is derived from the mutual activities of that business and the recipient is a person participating in those activities shall not affect the character which the payment or other receipt has for purposes of corporation tax or income tax in the hands of the recipient.

(4)Where a company does not carry on, and never has carried on, a trade or a business of holding investments, and is not established for purposes which include the carrying on of a trade or of such a business, the provisions of the Tax Acts relating to distributions shall apply to distributions made by the company only to the extent to which the distributions are made out of profits of the company which are brought into charge to corporation tax or out of franked investment income.

491Distribution of assets of body corporate carrying on mutual business

(1)Where any person receives any money or money’s worth—

(a)forming part of the assets of a body corporate, other than assets representing capital; or

(b)forming part of the consideration for the transfer of the assets of a body corporate, other than assets representing capital, as part of a scheme of amalgamation or reconstruction which involves the winding up of the body corporate; or

(c)consisting of the consideration for a transfer or surrender of a right to receive anything falling under paragraph (a) or (b) above, being a receipt not giving rise to any charge to tax on the recipient apart from this section,

and the body corporate has at any time carried on a trade which consists of or includes the conducting of any mutual business (whether confined to members of the body corporate or not), and is being or has been wound up or dissolved, the provisions of this section shall apply to the receipt.

(2)If a transfer or surrender of a right under subsection (1)(c) above is not at arm’s length, the person making the transfer or surrender shall, for the purposes of this section, be deemed then to have received consideration equal to the value of the right.

(3)If in respect of a payment of any amount made to the body corporate for the purposes of its mutual business any deduction has been allowed for the purposes of tax in computing the profits or gains or losses of a trade, then—

(a)if at the time of the receipt the recipient is the person, or one of the persons, carrying on that trade, the amount or value of the receipt shall be treated for the purposes of tax as a trading receipt of that trade; and

(b)if at the time of the receipt the recipient is not the person, or one of the persons, carrying on that trade, but was the person, or one of the persons, carrying on that trade when any payment was made to the body corporate for the purposes of its mutual business in respect of which a deduction was allowed for the purposes of tax in computing the profits or gains or losses of the trade, the recipient shall, subject to subsection (6) below, be charged under Case VI of Schedule D for the chargeable period in which the receipt falls on an amount equal to the amount or value of the receipt.

(4)Subsection (3)(a) above applies notwithstanding that, as a result of a change in the persons carrying on the trade, the profits or gains are under section 113 or 337(1) determined as if it had been permanently discontinued and a new trade set up and commenced.

(5)Where an individual is chargeable to tax by virtue of subsection (3)(b) above and the profits or gains of the trade there mentioned fell to be treated as earned income for the purposes of the Income Tax Acts, the sums in respect of which he is so chargeable shall also be treated for those purposes as earned income.

(6)If the trade mentioned in subsection (3)(b) above was permanently discontinued before the time of the receipt, then in computing the charge to tax under subsection (3)(b) above there shall be deducted from the amount or value of the receipt—

(a)any loss, expense or debit (not being a loss, expense or debit arising directly or indirectly from the discontinuance itself) which, if the trade had not been discontinued, would have been deducted in computing for tax purposes the profits or gains or losses of the person by whom it was carried on before the discontinuance, or would have been deducted from or set off against those profits as so computed, and

(b)any capital allowance to which the person who carried on the trade was entitled immediately before the discontinuance and to which effect has not been given by way of relief before discontinuance.

(7)Relief shall not be given under subsection (6) above or under section 105(1) in respect of any loss, expense, debit or allowance if and so far as it has been so given by reference to another charge to tax under this section or under section 103.

(8)For the purposes of subsection (1) above assets representing capital consist of—

(a)assets representing any loan or other capital subscribed, including income derived from any investment of any part of that capital, but not including profits from the employment of that capital for the purposes of the mutual business of the body corporate;

(b)assets representing any profits or gains charged to tax as being profits or gains of any part of the trade carried on by the body corporate which does not consist of the conducting of any mutual business;

(c)(so far as not comprised in paragraphs (a) and (b) above) assets representing taxed income from any investments.

(9)In this section “mutual business” includes any business of mutual insurance or mutual trading.

(10)Subsections (3) to (7) above shall apply with any necessary modifications—

(a)to a profession or vocation; and

(b)to the occupation of woodlands the profits or gains of which are assessable under Schedule D;

as they apply to a trade.

(11)It is hereby declared that the description of trades in subsection (1) above does not include any trade all the profits or gains of which are chargeable to tax and, in particular, does not include such a trade carried on by any registered industrial and provident society.