Clause 54 - Trading profits etc. from securities: taxation of amounts taken to reserves
Finance Bill (except clauses 4, 5, 20, 28, 57 to 77, 86, 111 and 282 to 289, and schedules 1, 3, 11, 12, 21 and 37 to 39)
3:15 pm
Mr John Healey (Economic Secretary, HM Treasury; Wentworth, Labour)
May I say at the outset, just to reassure hon. Members, that before it was brought to the Committee the clause was consulted on extensively, particularly through the Inland Revenue website. Generally, it has been accepted.
It applies to companies and others who deal in shares either as their main business—such as stock exchange market makers—or as part of a larger financial business, say banking or insurance. Under UK GAAP the profit from such share dealing appears in the company's profit and loss account. That means that it is included in the computation of profits from the company's business. Under IAS 39 and the proposed UK standard based on it, that treatment is likely to continue. However, it might be possible for some companies to put such profits in what is called the statement of changes in equity. Under current tax law, those profits might escape taxation or be deferred. The clause ensures that it does not matter whether the profits—or losses—are shown in the profit and loss or another account. The profits will still be taxed, and any losses allowed, when they are shown in the accounts.
The hon. Member for Grantham and Stamford raised three points. The first concerned available-for-sale assets. Under both IAS and revised UK GAAP, such assets will be subject to fair value. That means that unrealised changes in value will be shown in the accounts, and will be taxed or relieved as they arise.
In general there is no reason to stop that happening. Fluctuations in profit can be ironed out by the ability of a company to carry back and carry forward losses. The question whether something should be done when companies move to fair value accounting can really be answered only when we see, come 1 January 2005, whether the transitional adjustment is significant.