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CLAUSE 70 AND SCHEDULES
22 AND 23: RELIEF FOR EXPENDITURE ON REMEDIATION OF CONTAMINATED LAND
SUMMARY
1.
This Clause and Schedules will enable companies that acquire contaminated
land for the purposes of their trade or Schedule A business to claim
an enhanced deduction of 150% for their clean up costs. The provisions
increase the amount that a company can deduct for qualifying land
remediation expenditure from 100% to 150%. Where that enhanced deduction
results in a loss then the loss can be used in the normal way or it
can be surrendered in return for a cash payment. The scheme will
apply to qualifying remediation expenditure incurred on or after the
date of Royal Assent of the Finance Bill.
DETAILS OF THE
CLAUSE
2. Subsection
(1) gives effect to Schedule 22 for accounting periods ending
on or after 1st April 2001. The Schedule contains the
rules that set out the conditions for obtaining the enhanced relief
and the payable tax credit.
3. Subsection
(2) gives effect to Schedule 23. This contains consequential
amendments.
Schedule 22:
Remediation of contaminated land
Part I: Deduction
for capital expenditure.
4. Part I sets
out the conditions that need to be met in order for a company to claim
relief.
5. Paragraph 1
contains the rules defining whether capital expenditure is deductible
for the purposes of this clause. Paragraph 2 contains the conditions
that determine whether the clean up expenditure qualifies for relief.
Paragraph 3 has the rules for defining whether the land in question
is contaminated.. Paragraph 4 sets out what constitutes clean
up activity.
Paragraph 5 details what constitutes employee costs. Paragraph 6
outlines what constitutes expenditure on materials. Paragraph 7 has
the rules for determining whether the expenditure was incurred because
of remediation activity. Paragraph 8 contains the rules that prevent
relief being given to expenditure covered by grants or subsidies.
Paragraph 9 gives effect to paragraphs 10 and 11 and also defines
sub-contracted land remediation. Paragraph 10 defines the treatment
of expenditure where the contractor and the sub contractor are connected.
Paragraph 11 states how sub contractor payments will be treated in
other cases.
Details
6. Paragraph
1 contains the rules defining whether capital expenditure is deductible
for the purposes of this clause.
7. Sub-paragraph
(1) of Paragraph 1 sets out the conditions for determining
the relevant capital expenditure.
8. Sub-paragraph
(2) of Paragraph 1 lays down that the capital expenditure
in question should be deductible when working out the taxable profits
or losses of the trade and that it should be deducted in the accounting
period in which the expenditure was incurred.
9. Sub-paragraph
(3) of Paragraph 1 says that for the purposes of sub paragraph
(2) any capital expenditure incurred for the purposes of a trade by
a company about to carry on that trade is to be treated as having
been incurred on the first day of the trade.
10. Sub-paragraph
(4) of Paragraph 1 links with sub paragraph (3) and prevents
any expenditure being deductible if it has been allowed as a deduction
before or has been or may be eligible for capital allowances.
11. Sub-paragraph
(5) of Paragraph 1 stops a company being entitled to a
deduction if it has polluted the land or is connected to the polluter.
12. Sub-paragraphs
(6), (7) and (8) of Paragraph 1 allow a company to make
an election to have their capital expenditure dealt with under this
paragraph and specify that the election must specify the accounting
period for which it is made, must be made by a notice in writing to
the Inland Revenue and must be given before the end of two years from
the end of the accounting period to which it relates.
13. Paragraph
2 determine whether the clean up expenditure qualifies for relief.
14. Sub-paragraph
(1) of Paragraph 2 defines qualifying land expenditure
as expenditure which meets the condition set out in sub-paragraphs
(2) to (5).
15. Sub-paragraph
(2) of Paragraph 2 says that the expenditure has to be
on land that is wholly or partly contaminated.
16. Sub-paragraph
(3) of Paragraph 2 says that the expenditure must have
been on relevant land remediation as defined in Paragraph 4.
17. Sub-paragraph
(4) of Paragraph 2 states that the expenditure should have
been incurred on employee costs, materials, or is qualifying expenditure
on sub contracted land remediation.
18. Sub-paragraph
(5) of Paragraph 2 stipulates that the expenditure must
have been incurred because of contamination. Contamination being
defined in Paragraph 7.
19. Sub-paragraph
(6) of Paragraph 2 says that the expenditure must not have
been subsidised as defined in Paragraph 8.
20. Paragraph
3 defines whether the land is contaminated for the purposes of
this relief.
21. Sub-paragraph
(1) of Paragraph 3 defines land as contaminated if it has
substances in or under it that cause harm or the possibility of harm
or pollute or are likely to pollute, controlled waters.
22. Sub-paragraph
(2) of Paragraph 3 prevents nuclear sites from coming within
the relief.
23. Sub-paragraph
(3) of Paragraph 3 defines what constitutes a nuclear site
i.e. one that is or has been the subject of a nuclear site licence
within the meaning of the Nuclear Installations Act 1965.
24. Paragraph
4 sets out what constitutes relevant land remediation.
25. Sub-paragraph
(1) of Paragraph 4 defines relevant land remediation as
the activities described in sub-paragraphs (2) and(3).
26. Sub-paragraph
(1) of Paragraph 4 defines relevant land remediation as
it relates to land acquired by the company in terms of those activities
falling within sub-paragraph (2) and preparatory activity falling
within sub-paragraph (4) which satisfies the conditions in sub-paragraph
(5).
27. Sub-paragraph
(2) of Paragraph 4 defines relevant land remediation activity
as the doing of any works, carrying out of any operation or the taking
out of any steps in relation to the land, the controlled waters affected
by it or of adjacent land for the purposes described in sub-paragraph
(3).
28. Sub-paragraph
(3) of Paragraph 4 defines relevant land remediation activity
as anything done to land or water to prevent, minimise, remedy, or
mitigate the harm or pollution causing the contamination or to restore
the land or water to its original state.
29. Sub-paragraph
(4) of Paragraph 4 defines the preparatory activities in
sub paragraph (1)(b).
30. Sub-paragraph
(5) of Paragraph 4 defines preparatory activities in terms
of the main remediation work outlined in sub paragraph (2)
31. Sub-paragraph
(6) of Paragraph 4 defines how ‘controlled waters are affected
by contaminated land.
32. Paragraph
5 defines employee costs.
33. Sub-paragraph
(1) of Paragraph 5 states what employee costs are.
34. Sub-paragraph
(2) of Paragraph 5 defines the costs as those paid to the
directors and employees engaged in the work.
35. Sub-paragraph
(3) of Paragraph 5 defines what proportion of the costs
are relevant.
36. Sub-paragraph
(4) of Paragraph 5 prevents support services being included
as employee costs.
37. Paragraph
6 defines what constitutes expenditure on materials.
38. Paragraph
7 contains the rules for determining whether the expenditure was
incurred because of contamination.
39. Sub-paragraph
(1) of Paragraph 7 links with Paragraph 2(5) and has the
rules for determining whether or not the expenditure has been incurred
because of contamination. Paragraph 2(5) says that the expenditure
must have been incurred because of the contaminated state of the land.
40. Sub-paragraph
(2) of Paragraph 7 states that expenditure on land qualifies
if it has been increased because of the contamination. The extra
amount spent qualifies for relief.
41. Sub-paragraph
(3) of Paragraph 7 states that expenditure qualifies if
it has been incurred for the purposes described in paragraph 4(3).
42. Paragraph
8 prevents relief being given to expenditure covered by grants
or subsidies.
43. Sub-paragraph
(1) of Paragraph 8 defines what constitutes a subsidy.
This is any expenditure met by a grant or subsidy and any expenditure
met directly or indirectly by anyone other than the company itself.
44. Sub-paragraph
(2) of Paragraph 8 states that where a payment is not allocated
to a particular type of expenditure it will be allocated in a just
and reasonable way.
45. Paragraph
9 gives effect to paragraphs 10 and 11 and also defines sub-contracted
land remediation.
46. Sub-paragraph
(1) of Paragraph 9 gives effect to paragraphs 10 and 11.
They define a company’s qualifying expenditure on sub contracted remediation.
47. Sub-paragraph
(2) of Paragraph 9 defines sub contracted land remediation.
48.
Paragraph 10 defines the treatment of expenditure where the
contractor and the sub contractor are connected.
49.
Sub-paragraph (1) of Paragraph 10 defines what constitutes
qualifying expenditure where the company and sub contractor are connected.
50.
Sub-paragraph (2) of Paragraph 10 defines the terms
‘relevant expenditure’ and ‘relevant period’ used in sub paragraph
(1).
51.
Sub-paragraph (3) of Paragraph 10 applies paragraph
5, the employee costs rules and paragraph 8, the subsidised expenditure
rules to sub contracting situations.
52.
Sub-paragraph (4) of Paragraph 10 states that any apportionment
of expenditure in a sub contracting situation shall be done on a just
and reasonable basis.
53. Paragraph
11 states how sub contractor payments will be treated in other
cases. Where the contractor and sub contractor are not connected
100% of the sub contractor payment is treated as qualifying expenditure.
Part II: Entitlement
to land remediation relief.
54. Part II sets
out the conditions under which a company is entitled to relief.
55. Paragraph
12 stipulates the conditions to be fulfilled in order to get relief
and how relief is to be obtained. It also deals with pre trading
expenditure and bars a company from receiving relief if it is the
polluter or connected to the polluter of the land.
Details
56. Sub-paragraph
(1) of Paragraph 12 sets out three conditions for entitlement
to relief – the land must have been acquire as the fixed asset of
a trade or Schedule A business, all or part of the land must have
been contaminated at the time of acquisition and the company must
have incurred qualifying remediation expenditure in respect of that
land.
57. Sub-paragraph
(2) of Paragraph 12 states that a company is entitled to
relief in an accounting period if the clean up expenditure is deductible
in that accounting period.
58. Sub-paragraph
(3) of Paragraph 12 sets out the condition for deductibility
in any particular accounting period.
59. Sub-paragraph
(4) of Paragraph 12 prevents a company getting relief if
is the polluter of the land or is connected to the polluter of the
land.
Part III: Manner
of giving effect to relief.
60. Part III contains
the rules for giving effect to the relief.
61. Paragraph
13 contains the rules for entitlement to the 150% deduction. Paragraph
14 sets out the rules for entitlement to the land remediation tax
credit. Paragraph 15 stipulates the amount of the tax credit. Paragraph
16 contains the rules for payment of the tax credit. Paragraph 17
has rules governing the interaction of losses carried forward and
the tax credit. Paragraph 18 stipulates that the tax credit is not
income for tax purposes. Paragraph 19 excludes remediation losses
from capital gains tax calculations.
Details
62. Paragraph
13 contains three rules for determining entitlement to the 150% deduction.
These are that a company must have been entitled to land remediation
relief for a particular accounting period, it must be carrying out
a trade or Schedule A business for that period and it has allowable
remediation expenditure for that period under either its trade or
Schedule A business.
63. Paragraph
14 sets out the rules for entitlement to the tax credit.
64. Sub-paragraph
(1) of Paragraph 14 says that a company can claim the tax
credit if it has a qualifying remediation loss.
65. Sub-paragraph
(2) of Paragraph 14 defines a qualifying remediation loss
as one to which the rules in Paragraph 8 apply and one which is either
a trading loss or a Schedule A loss for the period in question.
66. Sub-paragraph
(3) of Paragraph 14 states that the amount of the qualifying
remediation loss is equal to either 150% of the land remediation expenditure
or the unrelieved part of the Schedule A or trading loss.
67. Sub-paragraph
(4) of Paragraph 14 defines the ‘unrelieved’ part of the
loss as an amount which cannot be set off sideways against other profits
of the same accounting period, cannot be set against profits of an
earlier period or cannot be surrendered as group relief.
68. Sub-paragraph
(5) of Paragraph 14 prevents either Schedule A or trading
losses brought forward, or trading losses carried back, from being
included as part of the tax credit.
69. Sub-paragraphs
(6) to (8) of Paragraph 14 define what is meant by an “unrelieved”
loss in the case of a life assurance company. Such a loss is only
unrelieved if the company has an excess of management expenses to
carry forward to the next period. If it does, the unrelieved loss
is the smaller of the loss and the amount carried forward.
70. Sub-paragraph
(9) of Paragraph 14 requires amounts brought forward from
an earlier accounting period to be ignored in determining whether
there is a carry forward amount of management expenses for the current
period.
71. Sub-paragraph
(10) of Paragraph 14 requires the losses and profits of
the separate Schedule A business that a life assurance company may
carry on to be aggregated to see if there is a net overall loss.
72. Paragraph
15 stipulates the amount of the tax credit.
73. Sub-paragraph
(1) of Paragraph 15 sets the amount of the land remediation
tax credit at 16% of the amount of the qualifying remediation loss
for the period.
74. Sub-paragraph
(2) of Paragraph 15 provides the power for the Treasury
to vary this percentage as they think fit.
75. Sub-paragraph
(3) of Paragraph 15 gives the Treasury powers to make supplementary,
consequential or transitional provisions should these be necessary.
76. Paragraph
16 contains the rules for payment of the tax credit.
77. Sub-paragraph
(1) of Paragraph 16 gives companies the right to be paid
a tax credit if they have fulfilled the appropriate conditions and
have made a claim.
78. Sub-paragraph
(2) of Paragraph 16 says that the amount to be paid should
be the amount of the tax credit, plus any interest due and that the
amount paid discharges the company’s corporation tax liability and
the Inland Revenue’s payment obligation.
79. Sub-paragraph
(3) of Paragraph 16 gives the Inland Revenue the right
to withhold a tax credit payment until all enquiries into a tax return
are completed. The Revenue can, however, make a provisional payment
at their discretion.
80. Sub-paragraph
(4) of Paragraph 16 means the Inland Revenue does not have
to make a tax credit payment before the company has paid any PAYE
or Class I National Insurance payments due in that period.
81. Sub-paragraph
(5) of Paragraph 16 defines the national insurance, PAYE
and payment period terms used in sub paragraph (4).
82. Paragraph
17 contains the rules governing the interaction of losses carried
forward and the tax credit.
83. Sub-paragraph
(1) of Paragraph 17 says that the amount of any Schedule
A losses carried forward are to be reduced by any losses surrendered
for a tax credit payment.
84. Sub-paragraph
(2) of Paragraph 17 does the same for trading losses.
85. Sub-paragraphs
(3) and (4) of Paragraph 17 set out the consequences where
a life assurance company has claimed a credit in respect of a Schedule
A loss in respect of its basic life assurance and general annuity
business. In such a case, its amount of management expenses available
to carry forward under section 75(3) of the Taxes Act is restricted.
86. Sub-paragraph
(5) of Paragraph 17 defines the loss surrendered for the
purposes of this paragraph in terms of the amount claimed.
87. Paragraph
18 stipulates that the tax credit is not income for tax purposes.
88. Paragraph
19 excludes remediation losses from capital gains tax calculations.
Where a company has a qualifying remediation loss and is paid a tax
credit then the related qualifying land remediation expenditure is
excluded for the purposes of capital gains tax.
Part IV: Special
provision for life assurance business.
89. Part IV
makes special provision for companies carrying on life assurance business.
This is because the way they are taxed differs from the way most other
companies are taxed, and because there are a number of different ways
in which the separate parts of their business can be taxed.
90. Paragraph
14 also has some special rules for companies carrying on life
assurance business.
91. Paragraph
20 denies relief for capital expenditure under paragraph 1
or for the enhanced relief under paragraphs 12 and 13 where
a computation is made of life assurance business or any category of
it using the rules of Case I of Schedule D (the rules for trades).
This is because where such a computation is made, the normal rules
of Case I are substantially overridden and figures are taken from
the company’s regulatory return that it makes to the Financial Services
Authority.
92. Paragraph
21 introduces paragraphs 22 to 28. They set out a separate
scheme of relief and credits where remediation expenditure is incurred
on land which is or is to become an asset used for the management
of a life assurance company’s business. This might be as a headquarters
building, a branch office or a building where some function such as
IT is performed. It does not apply where the land is to be held as
an investment - relief may be available under the rules in Parts I
to III for this where the land is referable to the company’s basic
life assurance and general annuity business.
93. Paragraph
22 sets out the basic rules for relief. It is similar to paragraph
1 - the land must in the United Kingdom and be contaminated. The
expenditure must be in respect of an asset which is or is intended
to be a management asset. The qualifying expenditure is limited to
that which is referable to the company’s basic life assurance and
general annuity business. If the expenditure relates to more than
one class of business, sand apportionment will be done in the same
way as management expenses generally are apportioned, by reference
to the facts and circumstances.
94. Paragraph
23 sets out how the relief is given. The amount of the qualifying
expenditure is given as expenses of management within section 76 of
the Taxes Act 1988, unless a claim is made under paragraph 23(2),
when relief is given for 150% of the expenditure.
95. Paragraph
24 allows a company carrying on life assurance business to claim
a tax credit and surrender a loss arising in the period for which
it is entitled to relief for its expenditure under paragraph 23.
For this purposes a “qualifying loss” means the amount of any management
expenses which it can carry forward to the next accounting period
(because its management expenses exceed the income and gains against
which they can be set). But the loss is reduced by the amount which
represents expenses and loan relationship deficits brought forward
from earlier periods. The “qualifying loss" is the lesser of
the management expenses to be carried forward, as reduced by prior
years amounts, and 150% of the qualifying expenditure.
96. Paragraph
25 gives the amount of the credit. It is 16% of the qualifying
loss. The amount may be varied by Treasury Order.
97. Paragraph
26 imports paragraphs 16 (payment of credit) and paragraph
18 (payment not to be treated as income) into the rules for life
assurance company credits.
98. Paragraph
27 restricts the amount of management expenses that may be carried
forward if a credit is claimed. The carry forward is reduced by the
amount surrendered for credit.
99. Paragraph
28 ensures that any in computing any chargeable gains on the land
in respect of which a credit is claimed, the expenditure on the land
is not deductible.
Part V: Supplementary
provisions
100. Part V contains
miscellaneous rules.
101. Paragraph
22 contains the anti avoidance rules that apply to this relief. Paragraph
23 has the funding rules for the tax credit. Paragraph 24 contains
definitions of the terms used in this relief. Paragraph 25 contains
transitional provisions.
Details
102. Paragraph
29 contains the anti avoidance rules.
103. Sub-paragraph
(1) of Paragraph 29 says that if a transaction is done
for a ‘disqualifying purpose’, then that transaction will be disregarded
for the purposes of the relief.
104. Sub-paragraph
(2) of Paragraph 29 defines the term ‘disqualifying purpose’.
105. Sub-paragraph
(3) of Paragraph 29 defines the term ‘arrangement’ as used
in paragraph 29.
106. Paragraph
30 has the funding rules for the tax credit.
107. Paragraph
31 contains definitions of the terms used in this relief.
108. Paragraph
32 contains the start date for this provision which is the date
of Royal Assent. It also says that the pre trading do not apply for
this purpose..
Schedule 23:
Land Remediation: Consequential amendments.
109. Schedule
23 contains the consequential amendments dealing with Schedule A,
insurance companies, interest, claims, recovery of excess tax credit
and claims relating to remediation of contaminated land. They aim,
as far as possible, to incorporate the contaminated land relief into
the existing corporation tax self assessment system.
110. Paragraph
1 inserts a new paragraph 5 into Section 21A of the Income and
Corporation Taxes Act 1988 in order to link contaminated land relief
with the computational provisions of Schedule A..
111 Paragraph
2 adds a new subsection to section 76 of the Taxes Act (management
expenses for companies carrying on life assurance business) to signpost
the relief given under Part IV of Schedule 22 to such companies.
112. Paragraph
3 links the new relief to existing interest provisions.
113. Sub-paragraph
(1) of Paragraph 3 provides for amendments to be made to
Section 826 of the Income and Corporation Taxes Act 1988. This section
deals with interest on tax overpaid.
114. Sub-paragraph
(2) of Paragraph 3 includes the new land remediation tax
credit within the existing provisions for interest on tax overpaid.
115. Sub-paragraph
(3) of Paragraph 3 inserts a new subsection (3B) into S826.
This gives the material date from which interest is payable. It is
the later of the filing date for the company’s tax return for the
accounting period of the claim and the date on which the return or
amended return containing the claim is delivered to the Revenue.
116. Sub-paragraphs
(4) and (5) of Paragraph 3 make provision for the recovery
of interest paid on a land remediation tax credit if the amount is
reduced and all or part of the tax credit becomes recoverable. This
is built into the existing recovery provisions in S826.
117.
Paragraph (4) requires claims for the new tax credit to be
included in the new company tax return.
118. Paragraph
(5) links the new tax credit into the existing regime for the
recovery of excessive repayments.
119. Paragraph
(6) inserts a new Part IXA into Schedule 18 FA 1998 comprising
paragraphs 83G to 83L.
120. Paragraph
83G applies Part IXA to claims by companies to the land remediation
tax credit and the life assurance company tax credit.
121. Paragraph
83H requires claims for the land remediation tax credit or the
life assurance tax credit to be made in the company’s tax return or
amended return for the period of the claim.
122. Paragraph
83I requires the claim to specify the amount of the land remediation
tax credit or life assurance tax credit being claimed and for that
amount to be quantified at the time the claim is made.
123. Paragraph
83J provides that a claim can only be amended or withdrawn by
the claimant company by amending its company tax return.
124. Paragraph
83K contains the time limit for making, amending or withdrawing
a claim to land remediation tax credit or life assurance tax credit.
This is the first anniversary of the filing date for the company tax
return for the accounting period of the claim. The Inland Revenue
may allow the time limit to be extended.
125. Paragraph
83L provides for penalties to be charged in certain circumstances
in relation to claims for land remediation tax credit or life assurance
tax credit.
126. Paragraph
83L(1) provides that the company is liable to a penalty if a claim
to either tax credit is made fraudulently or negligently, or if the
company discovers that the claim is incorrect and does not remedy
it without unreasonable delay.
127. Paragraph
83L(2) provides that the penalty should not exceed the difference
between the amount of the tax credit to which the company is entitled
for the accounting period to which the claim relates and the tax credit
claimed by the company for that period.
BACKGROUND
NOTE
128. In the 2000
PBR the Government announced its intention to introduce an accelerated
payable tax credit for the costs of cleaning up contaminated land.
129.
A further announcement was made in the 2001 Budget of a 150% accelerated
payable tax credit for the same purpose.
130.
Any company, or life assurance company, that acquires contaminated
land for the purposes of a trade or Schedule A business will be able
to claim an enhanced deduction of 150% for their clean up costs, this
includes situations where the clean up is done by a sub-contractor.
Any loss can be relieved in the normal way and as group relief or
can be surrendered for a payment equal to 16% of that loss. The scheme
will apply from Royal Assent.
131.
The present position is that those who invest or deal in land do not
normally get tax relief for the cost of cleaning up contaminated land
until they sell the land. The new relief will give an accelerated
payable tax credit for clean up costs that are additional to normal
site preparation costs. It does not include normal site preparation
costs.
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