Finance Act 1997

Section 83.

SCHEDULE 13U.K. Loan relationships: amendment of transitional provisions

IntroductoryU.K.

1U.K.Schedule 15 to the M1Finance Act 1996 (transitional provisions and savings for loan relationships) shall be amended as follows.

Transitional rules for transitional accounting periodsU.K.

F12U.K.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Opening valuations as at 1st April 1996U.K.

F23U.K.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Adjustments in the case of pre-commencement trading relationshipsU.K.

4U.K.In paragraph 5 (pre-commencement trading relationships), after sub-paragraph (4) there shall be inserted the following sub-paragraphs—

“(4A)In sub-paragraph (4) above the reference, in relation to a creditor relationship, to the amount deductible as representing the cost of a company’s becoming a party to the relationship shall not, except where sub-paragraph (4B) or (4C) below applies, include a reference to so much of that amount as would represent the cost of acquiring any right to accrued interest under the loan relationship.

(4B)This sub-paragraph applies where—

(a)the company became a party to the relationship before the beginning of its first relevant accounting period,

(b)interest accruing under the relationship before the company became a party to it was paid to the company after it became a party to it but before the beginning of the company’s first relevant accounting period, and

(c)the interest under the relationship which, in the case of that company, has been brought into account for the purposes of corporation tax has included interest accruing under the relationship before the company became a party to it but paid afterwards.

(4C)This sub-paragraph applies where—

(a)the company became a party to the loan relationship in a transitional accounting period, and

(b)in the case of that company, interest under the relationship which—

(i)accrued before the company became a party to the relationship, but

(ii)became due and payable afterwards,

is brought into account for the purposes of this Chapter in accordance with an authorised mark to market basis of accounting.”

Chargeable assets held after commencementU.K.

5U.K.In paragraph 8 (transitional provision for chargeable assets held after commencement), after sub-paragraph (5) there shall be inserted the following sub-paragraph—

“(5A)In any case where the relevant event has not occurred before 14th November 1996, the deemed chargeable gain or deemed allowable loss falling to be brought into account in accordance with sub-paragraph (3) above shall be computed without any account being taken of the provisions of section 119(6) and (7) of the 1992 Act (transfer of securities with or without accrued interest).”

Adjustments in the case of chargeable assetsU.K.

6U.K.In paragraph 11 (adjustments in the case of chargeable assets), for sub-paragraphs (2) to (4) there shall be substituted the following sub-paragraphs—

“(2)Those amounts are—

(a)the notional closing value of the relationship as at 31st March 1996; and

(b)the amount which would be taken on a computation made—

(i)in accordance with an authorised accruals basis of accounting, and

(ii)on the assumption that such a basis of accounting had always been used as respects that relationship,

to represent the accrued value of the loan relationship in question on 1st April 1996.

(3)Where there is a difference between the amounts mentioned in sub-paragraph (2) above, that difference shall be brought into account—

(a)where the amount mentioned in paragraph (a) of that sub-paragraph is the smaller, as a credit given for the purposes of this Chapter for the accounting period in which the company ceases to be a party to the relationship; and

(b)in any other case, as a debit so given.”

Commencement of ScheduleU.K.

7(1)Subject to sub-paragraph (2) below, this Schedule has effect for the purpose of determining the credits and debits to be brought into account in any accounting period ending on or after 14th November 1996.U.K.

(2)Paragraphs 4 and 6 above do not apply in the case of a loan relationship to which the company in question has ceased to be a party before 14th November 1996 unless—

(a)that company ceased to be a party to the relationship as a result of being directly or indirectly replaced as a party to that relationship by another company, and

(b)the transaction, or series of transactions, by virtue of which the replacement took place fell within any of paragraphs (a) to (d) of paragraph 12(1) of Schedule 9 to the M2Finance Act 1996 (continuity of treatment in the case of groups and certain transfers of insurance business).

(3)A credit or debit a fraction of which falls to be brought into account under paragraph 6(4) of Schedule 15 to the Finance Act 1996 (election as to adjustments) in an accounting period ending on or after 14th November 1996 shall be determined, for the purposes mentioned in sub-paragraph (1) above, without applying sub-paragraph (2) above in relation to the relevant assumption.