Corporation Tax Bill
Part 6 — Relationships treated as loan relationships etc
Chapter 11 — Investment life insurance contracts
The relevant amount is set off against corporation tax assessable on the
company for the accounting period.
Except where section 565 (relevant amount where the relevant company uses
fair value accounting) applies, the relevant amount is—
NTC is the non-trading credit, and
AR is the appropriate rate for the accounting period.
The appropriate rate for an accounting period is—
if a single rate of tax under section 88(1) of FA 1989 (lower corporation
tax rate on certain insurance company profits) is applicable in relation
to the accounting period, that rate, and
if more than one such rate of tax is applicable in relation to the
accounting period, the average of those rates over the accounting
Section 563: interpretation
In section 563 "BLAGAB contract" means a contract forming part of basic life
assurance and general annuity business of an insurance company but not part
of business which is exempt from corporation tax under section 460 of ICTA
(friendly society business and former friendly society business).
For the purposes of section 563 a contract is subject to a relevant comparable
EEA tax charge if the contract forms part of the business of a company (other
than the relevant company) to which a relevant comparable EEA tax charge
has applied.
For the purposes of subsection (2) a relevant comparable EEA tax charge has
applied to a company if each of conditions A to D is met.
Condition A is that a charge to tax has applied to the company under the laws
of a territory outside the United Kingdom that is within the European
Economic Area.
Condition B is that the charge has applied to the company—
as a body deriving its status as a company from those laws,
as a company with its place of management there, or
as a company falling under those laws to be regarded for any other
reason as resident or domiciled there.
Condition C is that the charge applies at a rate of at least 20% in relation to the
amounts subject to tax in the company's hands, other than amounts arising or
accruing in respect of investments of a description for which a special relief or
exemption is generally available.
Condition D is that the charge is made otherwise than by reference to the
company's profits.
Relevant amount where the relevant company uses fair value accounting
This section applies if the relevant company brings credits and debits in respect
of the investment life insurance contract into account on the basis of fair value
If this section applies, the relevant amount for section 563 is—
PC is the profit from the contract (see subsections (3) and (4)), and
AR is the appropriate rate for the accounting period (as defined in section
563(6)).
For the purposes of this section, except where subsection (4) applies, the profit
from the contract is any amount by which—
the amount payable as a result of the related transaction, exceeds
the fair value of the contract at the beginning time (see subsection (6)).
If the related transaction is an assignment or surrender of only part of the rights
conferred by the contract, the profit from the contract is any amount by
the relevant fraction of the fair value of the contract at the beginning
In subsection (4) "the relevant fraction" means—
C is the amount payable as a result of the related transaction, and
FVC is the fair value of the contract immediately before the related
In this section "the beginning time" means—
if the contract was made before the beginning of the first accounting
period of the company beginning on or after 1st April 2008, at the
beginning of that period, and
otherwise when the contract was made.
Old accounting period contracts
This section and sections 567 to 569 apply if the relevant company was a party
to an investment life insurance contract immediately before the beginning of
the first accounting period of the company beginning on or after 1 April 2008.
In those sections—
"the deemed surrender" means the surrender of all the rights under that
contract that the relevant company was deemed for the purposes of
Chapter 2 of Part 13 of ICTA (life policies etc) to have made
immediately before 1 April 2008 under paragraph 6(1) of Schedule 13
to FA 2008 for an amount equal to the carrying value of the contract at
that time as recognised for accounting purposes,
"the first accounting period" means the first accounting period of the
company beginning on or after that date, and
"the old contract" means the contract mentioned in subsection (1).
Gains on deemed surrenders to be brought into account on related
Any gain which arose under Chapter 2 of Part 13 of ICTA (life policies etc) as
a result of the deemed surrender ("the deemed gain") is to be brought into
account by the relevant company as a non-trading credit for the accounting
period in which there is a related transaction (so far as not previously brought
into account under this section).
But if the relevant company is still a party to the old contract immediately after
the related transaction, only the relevant fraction of the deemed gain which
would otherwise be brought into account under subsection (1) is to be so
brought into account.
The relevant fraction" is—
P is the amount payable as a result of the related transaction, and
SAR is the amount which would have been payable on a surrender of all
the rights under the old contract immediately before the related
Restriction on credits on old contracts: fair value accounting cases
This section applies if—
at all times since the old contract was made the rights conferred by it
have been in the beneficial ownership of the relevant company,
the company brings into account credits and debits in respect of the old
contract on the basis of fair value accounting, and
the old contract cost exceeds the fair value of the contract immediately
before the beginning of the first accounting period.
In subsection (1)(c) "the old contract cost" means—
if section 541 of ICTA applied on the deemed surrender, the amount
specified in section 541(1)(b)(i) of that Act, less the amount or value of
any relevant capital payments (as defined in section 541(5)(a) of that
Act), and
Part 7 — Derivative contracts
Chapter 1 — Introduction
if section 543 of that Act applied on the deemed surrender, the amount
specified in section 543(1)(a)(i) of that Act, less the amount or value of
any relevant capital payments (as defined in section 543(3) of that Act).
No amount is to be brought into account as a credit in relation to the old
contract by the relevant company as a result of section 562 except so far as the
total of—
the amount of the credit, and
the amount of any other credits which have previously arisen in
relation to the old contract as a result of that section,
is greater than the excess mentioned in subsection (1)(c).
Restriction on debits on old contracts: non-fair value accounting cases
This section applies where—
the relevant company brings into account credits and debits in respect
of the old contract otherwise than on the basis of fair value accounting,
the carrying value of the old contract, as recognised for accounting
purposes immediately before the beginning of the first accounting
period, exceeds its fair value at that time.
No amount is to be brought into account as a debit in relation to the old
the amount of the debit, and
the amount of any other debits which have previously arisen in relation
to the contract as a result of that section,
is greater than the excess mentioned in subsection (1)(b).
Derivative contracts
Overview of Part
This Part is about how profits and losses arising to a company from its
derivative contracts are brought into account for corporation tax purposes.
For the meaning of "derivative contract", see section 576 and the remainder of
For how such profits and losses are calculated and brought into account, see—
section 572 (profits and losses to be calculated using credits and debits
given by this Part),
section 573 (trading credits and debits to be brought into account under
Part 3),
section 574 (non-trading credits and debits to be brought into account
under Part 5), and
Chapter 7 (chargeable gains arising in relation to derivative contracts).
For the priority of this Part for corporation tax purposes, see Chapter 12.
This Part also contains the following Chapters (which mainly relate to the
amounts to be brought into account in respect of derivative contracts)—
Chapter 3 (credits and debits to be brought into account: general),
Chapter 4 (further provision about credits and debits to be brought into
account),
Chapter 5 (continuity of treatment on transfers within groups),
Chapter 6 (special kinds of company),
Chapter 8 (further provision about chargeable gains and derivative
contracts),
Chapter 9 (European cross-border transfers of business),
Chapter 10 (European cross-border mergers),
Chapter 11 (tax avoidance), and
Chapter 13 (general and supplementary provisions).
See also section 980 of ITA 2007 (payments under derivative contracts excepted
from duty to deduct income tax).
How profits and losses from derivative contracts are dealt with
General rule: profits chargeable as income
The general rule for corporation tax purposes is that all profits arising to a
company from its derivative contracts are chargeable to corporation tax as
income in accordance with this Part.
But see Chapter 7, which makes provision for cases in which profits arising to
a company from its derivative contracts are chargeable to corporation tax as
chargeable gains.
Profits and losses to be calculated using credits and debits given by this Part
Profits and losses arising to a company from its derivative contracts are to be
calculated using the credits and debits given by this Part.
For exceptions to this section, see sections 652 to 658 (issuers of securities with
embedded derivatives: deemed options and contracts for differences).
Trading credits and debits to be brought into account under Part 3
This section applies so far as in an accounting period a company is a party to a
derivative contract for the purposes of a trade it carries on.
The credits in respect of the contract for the period are treated as receipts of the
trade which are to be brought into account in calculating the profits of the trade
for that period.
The debits in respect of the contract for the period are treated as expenses of the
trade which are deductible in calculating those profits.
Chapter 2 — Contracts to which this Part applies
So far as subsection (3) provides for any amount to be deductible, it applies
despite anything in—
section 53 (capital expenditure),
section 54 (expenses not wholly and exclusively for trade and
unconnected losses), or
section 59 (patent royalties).
For cases in which this section does not apply, see—
section 616 (disapplication of fair value accounting for certain
embedded derivatives), and
Non-trading credits and debits to be brought into account under Part 5
This section applies if, for an accounting period, there are credits or debits in
respect of the derivative contracts of a company which are not brought into
account in accordance with section 573.
Those credits or debits—
are to be treated as non-trading credits or non-trading debits (within
the meaning of Part 5 (loan relationships)) for the period, and
are accordingly to be brought into account in determining whether the
company has non-trading profits or a non-trading deficit from its loan
relationships for the period.
Contracts to which this Part applies
Overview of Chapter
This Chapter makes provision about the contracts to which this Part applies.
In particular, it—
contains a definition of "derivative contract" (see section 576),
contains other definitions (such as "relevant contract", "option",
"future" and "contract for differences") which are used in determining
whether a contract is a derivative contract (see sections 577 to 583),
makes provision about cases in which companies are treated as parties
to relevant contracts (see sections 584 to 586),
provides for certain contracts and transactions to be treated as
derivative contracts (see sections 587 and 588), and
provides for certain contracts to be treated as not being derivative
contracts because of their underlying subject matter (see sections 589 to
Revised 6 February 2009