Annex 1: Minor changes in the law made by the Act: Change 102: Guaranteed returns on futures and options: associated companies: section 561
This change relates to the omission of references to associated companies in paragraph 5(3) and (4) of Schedule 5AA to ICTA.
Schedule 5AA to ICTA (guaranteed returns on transactions in futures and options) originally applied for both income tax and corporation tax purposes. Paragraph 5 of Schedule 5AA explains the meaning of references in the Schedule to the return from one or more disposals. Under paragraph 5(1)(a) these are references to the return on investment represented by the total net profits and gains arising from the disposal or disposals.
Paragraph 5(2) of Schedule 5AA provides that where profits and gains are realised on more than one disposal by associated persons those profits or gains are treated as realised by the same person. Paragraph 5(3) then explains when persons are associated for the purposes of paragraph 5(2). The definition includes persons who are or have been associated companies (see paragraph 5(3)(b) and (3)(c)), and “associated company” is defined in paragraph 5(4) by reference to section 416 of ICTA.
FA 2002 amended Schedule 5AA to ICTA so that it does not apply for corporation tax purposes with effect for accounting periods beginning after 30 September 2002. It repealed most references in the Schedule to companies. Although Schedule 5AA continues to apply to companies liable to income tax, companies are only so liable if they are acting in a fiduciary or representative capacity or are non-resident. The extension of the definition of associated person to include associated companies was not originally intended to refer to companies liable to income tax (although it could do so) and appears to have been overlooked when Schedule 5AA was amended in 2002. The provisions about when persons are associated for this purpose in section 561(3) to (6) does not include association by companies.
This change is in taxpayers' favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small.