What does section 1254 of the Corporation Tax Act 2009 do?

Section 1254 ensures that repayments received by investment companies under specific provisions of the Financial Services and Markets Act 2000 are subject to corporation tax on income. It acts as a backstop charge, catching repayments that are not already taxed as trading income or property business income under other provisions of the Act.

When does the charge under section 1254 not apply?

The charge under section 1254 does not apply where the repayment has already been brought into account for corporation tax purposes as a trading receipt under section 104 of the Corporation Tax Act 2009 or as a receipt of a property business under section 210. This prevents the same amount from being taxed twice.

What qualifies as a repayment provision under section 1254?

A repayment provision includes any provision made under section 136(7) or section 214(1)(e) of FISMA 2000, relating to the Financial Services Compensation Scheme and the Financial Ombudsman Service respectively. It also covers scheme rules under paragraph 14(1) of Schedule 17 to FISMA 2000 that provide for fee refunds in specified circumstances.

How should an investment company account for a FISMA 2000 fee refund?

If an investment company receives a fee refund from a FISMA 2000 regulatory body or scheme and the refund is not already taxed as trading or property business income, the company must include the repayment as taxable income in its corporation tax return for the accounting period in which the repayment is received.

Corporation Tax Act 2009 section 1254

Repayments under FISMA 2000

Section 1254 deals with the corporation tax treatment of repayments received by investment companies under the Financial Services and Markets Act 2000 (FISMA 2000).

Repayments made to a company with an investment business under FISMA 2000 provisions are subject to corporation tax on income.
This charge applies only where the repayment is not already taxed as trading income or property business income.
Qualifying repayments include those arising from specific FISMA 2000 provisions (sections 136(7) and 214(1)(e)) or from scheme rules allowing fee refunds in specified circumstances.
Scheme rules refer to the rules mentioned in paragraph 14(1) of Schedule 17 to FISMA 2000, which govern the operation of certain financial services compensation and ombudsman schemes.

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