Corporation Tax Act 2009

Chapter 4U.K.Trade profits: rules restricting deductions

53Capital expenditureU.K.

(1)In calculating the profits of a trade, no deduction is allowed for items of a capital nature.

(2)Subsection (1) is subject to provision to the contrary in the Corporation Tax Acts.

54Expenses not wholly and exclusively for trade and unconnected lossesU.K.

(1)In calculating the profits of a trade, no deduction is allowed for—

(a)expenses not incurred wholly and exclusively for the purposes of the trade, or

(b)losses not connected with or arising out of the trade.

(2)If an expense is incurred for more than one purpose, this section does not prohibit a deduction for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purposes of the trade.

55Bad debtsU.K.

(1)This section applies to non-money debts to which neither Part 7 (derivative contracts) nor Part 8 (intangible fixed assets) applies.

(2)In calculating the profits of a company's trade, no deduction is allowed in respect of a non-money debt owed to the company, except—

(a)by way of impairment loss, or

(b)so far as the debt is released wholly and exclusively for the purposes of the trade as part of a statutory insolvency arrangement.

(3)In this section “non-money debt” means a debt which is not a money debt for the purposes of Part 5 (loan relationships).

56Car F1... hireU.K.

(1)Subsection (2) applies if, in calculating the profits of a trade, a deduction is allowed for expenses incurred on the hiring of a car [F2which is not——

(a)a car that is first registered before 1 March 2001,

(b) a car that has low CO ₂ emissions,

(c)a car that is electrically propelled, or

(d)a qualifying hire car.]

(2)The amount of the deduction which would otherwise be allowable is reduced by [F315%].

(3)Subsection (4) applies if a deduction is reduced as a result of subsection (2), or a corresponding provision, and subsequently—

(a)there is a rebate (however described) of the hire charges, or

(b)a debt in respect of any of the hire charges is released otherwise than as part of a statutory insolvency arrangement.

(4)The amount that, as a result of the rebate or release—

(a)is brought into account as a receipt of the trade, or

(b)is treated as a post-cessation receipt under section 193 (debts released after cessation),

is reduced by [F415%].

(5)In this section “corresponding provision” means—

(a)section 1251(2) (car F5... hire: expenses of management), [F6including as applied by section 82(4) of FA 2012, or]

(b)section 48(2) of ITTOIA 2005 (car F7... hire: trade profits and property income), F8...

F8(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F9(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

57Car F10... hire: supplementaryU.K.

(1)In section 56 “car F11...” means a mechanically propelled road vehicle other than F12...—

[F13(za)a motor cycle (within the meaning of section 185(1) of the Road Traffic Act 1988),]

(a)[F14a vehicle] of a construction primarily suited for the conveyance of goods or burden of any description, or

(b)[F15a vehicle] of a type not commonly used as a private vehicle and unsuitable for such use.

[F16(1A)In section 56—

• “ a car that has low CO2 emissions ” has the same meaning as in section 104AA of CAA 2001 (special rate expenditure: main rate car);

• “ electrically propelled ” has the meaning given in section 268B of that Act. ]

(2)In section 56 “a qualifying hire car F17...” means a car F17... which—

(a)is hired under a hire-purchase agreement F18... under which there is no option to purchase,

(b)is hired under a hire-purchase agreement under which there is an option to purchase exercisable on the payment of a sum equal to not more than 1% of the retail price of the car F17... when new, or

F19(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F20(d) is leased under a long-funding lease (within the meaning of section 70G of CAA 2001). ]

[F21(3)For this purpose “hire-purchase agreement” has the meaning given by section 1129 of CTA 2010.]

(6)In this section F22... “new” means unused and not second-hand.

F2358Hiring cars (but not motor cycles) with low CO₂ emissions before 1 April 2013U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F2458AShort-term hiring in and long-term hiring outU.K.

(1)Section 56 does not apply to expenses incurred by a company (“the taxpayer”) on the hiring of a car if condition A or B is met.

(2)Condition A is that—

(a)the expenses are incurred in respect of the making available of the car to the taxpayer for a period (“the hire period”) of not more than 45 consecutive days, and

(b)if the car is made available to the taxpayer (whether by the same person or different persons) for one or more periods linked to the hire period, the hire period and the linked period or periods, taken together, consist of not more than 45 days.

(3) Condition B is that the expenses are incurred in respect of a period (“the sub-hire period”) throughout which the taxpayer makes the car available to another person (“ the customer ”) and—

(a)the sub-hire period consists of more than 45 consecutive days, or

(b)if the taxpayer makes the car available to the customer throughout one or more periods linked to the sub-hire period, the sub-hire period and the linked period or periods, taken together, consist of more than 45 days,

but see subsection (4).

(4)Condition B is not met if—

(a)the customer is an employee or officer of the taxpayer or of a person connected with the taxpayer, or

(b)during all or part of the sub-hire period (or any period linked to the sub-hire period), the customer makes any car available to an employee or officer of the taxpayer under arrangements with the taxpayer or with a person connected with the taxpayer.

(5)Neither condition A nor condition B is met if the car is hired under arrangements the purpose, or one of the main purposes, of which is—

(a)to disapply or reduce the effect of section 56, or

(b)other avoidance of tax.

(6)For the purposes of condition B the expenses incurred by the taxpayer on the hiring of the car must be apportioned between—

(a)the sub-hire period, and

(b)the remainder of the period during which the car is made available to the taxpayer,

according to the respective lengths of those periods.

(7)A period of consecutive days (“the main period”) is linked to—

(a)a period of consecutive days that ends not more than 14 days before the main period begins,

(b)a period of consecutive days that begins not more than 14 days after the main period ends, and

(c)a period of consecutive days linked to a period in paragraph (a) or (b).

(8)For the purposes of this section, where arrangements for the hiring of a car include arrangements for the provision of a replacement car in the event that the first car is not available, the first car and any replacement car are to be treated as if they were the same car.

(9) In this section (and section 58B) “ arrangements ” includes any arrangements, scheme or understanding of any kind, whether or not legally enforceable and whether involving a single transaction or two or more transactions. ]

[F2458BConnected persons: application of section 56U.K.

(1)This section applies where connected persons incur expenses on the hiring of the same car for the same period and—

(a)section 56 would (but for this section) apply to the expenses of two or more of those persons, or

(b) section 56 and section 48 of ITTOIA 2005 would (but for this section and section 50B of that Act) each apply to the expenses of at least one of those persons.

(2)This section only applies where one or more of the persons mentioned in subsection (1)(a) or (b) incurs the expenses under commercial arrangements (and such a person is referred to below as a “commercial lessee”).

(3)In relation to the expenses mentioned in subsection (1) to which section 56 would (but for this section) apply, section 56 only applies to the following—

(a)where there is one commercial lessee, any such expenses incurred by that lessee, and

(b)where there is more than one, any such expenses incurred by the first commercial lessee in the chain of arrangements for the hiring of the car for the period.

(4)In this section—

(a)references to expenses incurred by a commercial lessee include expenses incurred in that or any other capacity, and

(b) “ commercial arrangements ” means arrangements the terms of which are such as would reasonably have been expected if the parties to the arrangements had been dealing at arm's length. ]

59Patent royaltiesU.K.

In calculating the profits of a trade, no deduction is allowed for royalties or other sums paid for the use of patents.

60Expenditure on integral featuresU.K.

Section 33A(3) of CAA 2001 provides that no deduction is allowed in respect of certain expenditure on an integral feature of a building or structure (within the meaning of that section).

[F2560ARental rebatesU.K.

(1)Where plant or machinery (“the asset”) is leased and a rental rebate is payable by the lessor, the amount of the deduction allowable in respect of the rebate is limited to—

(a)the amount of the lessor's income from the lease, or

(b)in the case of a finance lease, that amount excluding the finance charge.

(2)“Rental rebate” means any sum payable to the lessee that is calculated by reference to the termination value of the asset.

(3)For this purpose—

(a)the termination value of an asset is the value of the asset at or about the time when the lease terminates,

(b)calculation by reference to the termination value includes calculation by reference to any one or more of—

(i)the proceeds of sale, if the asset is sold,

(ii)any insurance proceeds, compensation or similar sums in respect of the asset, and

(iii)an estimate of the market value of the asset, and

(c)calculation by reference to the termination value also includes—

(i)determination in a way which, or by reference to factors or criteria which, might reasonably be expected to produce a broadly similar result to calculation by reference to the termination value, or

(ii)any other form of calculation indirectly by reference to the termination value.

(4)For the purposes of this section—

(a)the income of the lessor from the lease is the total of all the amounts receivable in connection with the lease that have been brought into account in calculating the lessor's income for corporation tax purposes, excluding—

(i)disposal receipts brought into account under Part 2 of CAA 2001 (see section 60(1) of that Act), and

(ii)so much of any amount as represents charges for services or qualifying UK or foreign tax (within the meaning of section 70YE of that Act) to be paid by the lessor, and

(b)the finance charge, in relation to a finance lease, is—

(i)if the lease is one that, under generally accepted accounting practice, falls (or would fall) to be treated as a loan, so much of the rentals under the lease as fall (or would fall) to be treated as interest, or

(ii)in any other case, the amount that, in accordance with generally accepted accounting practice, falls (or would fall) to be treated as the gross return on investment.

(5)Where the asset is acquired by the lessor in a transaction—

(a)to which section 948 of CTA 2010 applies (modified application of CAA 2001 in case of transfer of trade without change of ownership), or

(b)in relation to which an election is made under section 266 of CAA 2001 (election where predecessor and successor are connected persons),

this section applies as if the successor had been the lessor at all material times and everything done to or by the predecessor had been done to or by the successor.

(6)Where the whole or part of a rental rebate is disallowed under this section as a deduction in computing profits—

(a)the amount disallowed, or

(b)if less, the amount by which the rental rebate exceeds the amount of capital expenditure incurred by the lessor,

may be treated for the purposes of corporation tax in respect of chargeable gains as an allowable loss accruing to the lessor on the termination of the lease.

That allowable loss is deductible only from chargeable gains accruing to the lessor on the disposal of the asset.

(7)This section does not apply to a long funding finance lease (see section 362 of CTA 2010).]