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Finance Act 2012

Revenue protection provisions – new sections 196I and 196J

108.New section 196I is a new provision to recover excess relief given to an ABC arrangement that is an acceptable SFA. It is extended by new section 196J from 21 March 2012 which describes further events which cause new section 196I to apply.

109.New sections 196I(1), (3), (9) and (10) stipulate the conditions when a balancing charge will arise to recover excess relief from the employer by treating the outstanding financial liability immediately before:

  • a change to the original position of the lender (the responsible authority or the pension scheme), for example, when the annual payments are suspended by the employer exercising a right set out in the ABC arrangement at the outset;

  • an occurrence or a non-occurrence of an event that does not accord with the original position;

  • the financial liability in respect of the advance being reduced to nil by an event other than the making of payments;

  • a commitment to a relevant person is given in a similar way to the commitment set out in new section 196C, E or G; or

  • an occurrence of an event as set out in new section 196J

as profit or income in the relevant period of accounts.

New section 196I applies to this type of ABC arrangement where the contribution is paid on or after 22 February 2012, but in the case of a “new section 196J” event, it only has effect if the event takes place on or after 21 March 2012.

110.New sections 196I(2), (3), (9) and (10) provide that the amount of the reduction in the relevant financial liability other than by the making of payments will be treated as profit or income chargeable on the employer in the period in which the event occurs.

111.New section 196I(4) sets out that the amount treated as profit or income under new sub-section 3 cannot exceed the total amount on which relief has been given to the employer in respect of the arrangement.

112.New section 196I(5) provides that where a balancing charge applies under sub-section 3, the arrangement ceases to be a SFA.

113.New section 196I(6) cancels the effect of the application of new section 196I if a person is to be placed in a tax position which is more advantageous than the tax position in which the person would have been had new section 196I never applied. This subsection will have effect from 21 March 2012.

114.New section 196I(7) stipulates that new section 196I will not apply in cases where the change in the lender’s original position, or the occurrence or non-occurrence of the event arises from an administrative error which is remedied promptly or changes in the pension scheme trustees or the persons in control of the management of the pension scheme.

115.New section 196I(8) stipulates that the occurrence or non-occurrence can be one that is authorised by a term of the ABC arrangement.

116.The terms used in new section 196I are defined in new section 196I(10).

117.New section 196J is an extension of new section 196I, which sets out further events that fall within new section 196J(1).

118.The relevant events are those where the employer, who has an ABC arrangement with the contribution paid on or after 22 February 2012, ceases to be chargeable to tax on or after 21 March 2012.

119.New sections 196J(2) and (3) set out the circumstances under which such cessation takes place. There are different circumstances depending on whether the employer’s business is a company, a limited liability or other type of partnership. These circumstances include cases where the employer company goes into administration or winds up, or the employer partnership dissolves or when an individual who is the employer dies.

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