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SCHEDULES

Section 7

SCHEDULE 1E+W+S+N.I.Annual investment allowance: periods straddling 1 January 2013 or 1 January 2015

Chargeable periods which straddle 1 January 2013E+W+S+N.I.

1(1)This paragraph applies in relation to a chargeable period which begins before 1 January 2013 and ends on or after that date [F1but not later than the specified date] (“the first straddling period”).E+W+S+N.I.

[F2(1A)The specified date” means—

(a)for the purposes of corporation tax, 31 March 2014, and

(b)for the purposes of income tax, 5 April 2014.]

(2)The maximum allowance under section 51A of CAA 2001 for the first straddling period is the sum of each maximum allowance that would be found if—

(a)so much (if any) of the first straddling period as falls before the relevant date,

(b)so much of the first straddling period as falls on or after the relevant date but before 1 January 2013, and

(c)so much of the first straddling period as falls on or after 1 January 2013,

were each treated as separate chargeable periods.

(3)But this is subject to paragraphs 2 and 3.

(4)In this Schedule “the relevant date” means—

(a)for the purposes of corporation tax, 1 April 2012;

(b)for the purposes of income tax, 6 April 2012.

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Amendments (Textual)

F1Words in Sch. 1 para. 1(1) inserted (17.7.2014) by Finance Act 2014 (c. 26), Sch. 2 para. 7(2)(a)

F2Sch. 1 para. 1(1A) inserted (17.7.2014) by Finance Act 2014 (c. 26), Sch. 2 para. 7(2)(b)

Straddling period beginning before the relevant dateE+W+S+N.I.

2(1)This paragraph applies where the first straddling period begins before the relevant date.E+W+S+N.I.

(2)So far as concerns expenditure incurred before the relevant date, the maximum allowance under section 51A of CAA 2001 for the first straddling period is what would have been the maximum allowance for that period if the amendment made by section 7(1) had not been made.

(3)So far as concerns expenditure incurred on or after the relevant date but before 1 January 2013, the maximum allowance under section 51A of CAA 2001 for the first straddling period is—

(4)In sub-paragraph (3)—

(a)A” means the amount that would have been the maximum allowance for the period beginning on the relevant date and ending at the end of the first straddling period if—

(i)that period had been a separate chargeable period, and

(ii)the amendment made by section 7(1) had not been made;

(b)B” means the amount (if any) by which—

(i)the AIA expenditure incurred in the period mentioned in paragraph 1(2)(a) in respect of which a claim for an annual investment allowance is made, exceeds

(ii)the maximum allowance under section 51A of CAA 2001 for that period if it were treated as a separate chargeable period.

(5)So far as concerns expenditure incurred on or after 1 January 2013, the maximum allowance under section 51A of CAA 2001 for the first straddling period is the sum of each maximum allowance that would be found if the period mentioned in paragraph 1(2)(b) and the period mentioned in paragraph 1(2)(c) were each treated as separate chargeable periods.

First straddling period beginning on or after the relevant dateE+W+S+N.I.

3(1)This paragraph applies where no part of the first straddling period falls within paragraph 1(2)(a).E+W+S+N.I.

(2)So far as concerns expenditure incurred before 1 January 2013, the maximum allowance under section 51A of CAA 2001 for the first straddling period is to be calculated as if the amendment made by section 7(1) had not been made.

Chargeable periods which straddle 1 January 2015E+W+S+N.I.

F34. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .E+W+S+N.I.

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Amendments (Textual)

F3Sch. 1 para. 4 omitted (17.7.2014) by virtue of Finance Act 2014 (c. 26), Sch. 2 para. 7(3)

Operation of annual investment allowance where restrictions applyE+W+S+N.I.

5(1)Paragraphs 1 [F4 to 3 ] also apply for the purpose of determining the maximum allowance under section 51K of CAA 2001 (operation of annual investment allowance where restrictions apply) in a case where one or more chargeable periods in which the relevant AIA qualifying expenditure is incurred are chargeable periods within paragraph 1(1) F5....E+W+S+N.I.

(2)There is to be taken into account for those purposes only chargeable periods of one year or less (whether or not they are chargeable periods within paragraph 1(1) F6...), and, if there is more than one such period, only that period which gives rise to the greatest maximum allowance.

(3)For the purposes of sub-paragraph (2) any chargeable period which—

(a)is longer than a year, and

(b)ends in the tax year 2012-13, 2013-14, [F7 or 2014-15 ] ,

is to be treated as being a chargeable period of one year ending at the same time as it actually ends.

(4)Section 11(11) of FA 2011 is repealed.

(5)That repeal has effect in relation to cases where one or more chargeable periods in which the relevant AIA qualifying expenditure is incurred are chargeable periods within paragraph 1(1).

(6)Nothing in this paragraph affects the operation of sections 51M and 51N of CAA 2001.

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F4Words in Sch. 1 para. 5(1) substituted (17.7.2014) by Finance Act 2014 (c. 26), Sch. 2 para. 7(4)(a)(i)

F5Words in Sch. 1 para. 5(1) omitted (17.7.2014) by virtue of Finance Act 2014 (c. 26), Sch. 2 para. 7(4)(a)(ii)

F6Words in Sch. 1 para. 5(2) omitted (17.7.2014) by virtue of Finance Act 2014 (c. 26), Sch. 2 para. 7(4)(b)

F7Words in Sch. 1 para. 5(3)(b) substituted (17.7.2014) by Finance Act 2014 (c. 26), Sch. 2 para. 7(4)(c)

Section 14

SCHEDULE 2E+W+S+N.I.Tax advantaged employee share schemes

PART 1E+W+S+N.I.Retirement of participants

IntroductionE+W+S+N.I.

1Part 7 of ITEPA 2003 (employment income: income and exemptions relating to securities) is amended as follows.E+W+S+N.I.

Share incentive plansE+W+S+N.I.

2In section 498 (no charge on shares ceasing to be subject to plan in certain circumstances) in subsection (2)(e) omit the words from “on” to “2)”.E+W+S+N.I.

3In Part 4 of Schedule 2 (types of shares that may be awarded) in paragraph 32 (provision for forfeiture) in sub-paragraph (2)(e) omit the words from “on” to “98)”.E+W+S+N.I.

4Part 11 of Schedule 2 (supplementary provisions) is amended as follows.E+W+S+N.I.

5Omit paragraph 98 (meaning of “specified retirement age”).E+W+S+N.I.

6In paragraph 100 (index of defined expressions) omit the entry for “the specified retirement age”.E+W+S+N.I.

SAYE option schemesE+W+S+N.I.

7Part 6 of Schedule 3 (requirements etc relating to share options) is amended as follows.E+W+S+N.I.

8In paragraph 27 (introduction) in sub-paragraph (1)—E+W+S+N.I.

(a)omit the entry for paragraph 31,

(b)after the entry for paragraph 32 insert “ and ”, and

(c)omit the entry for paragraph 33 and the “and” after it.

9In paragraph 30 (time for exercising options) in sub-paragraph (2)(a)—E+W+S+N.I.

(a)for “32 to” substitute “ 32, ”, and

(b)omit “reaching the specified age without retiring,”.

10Omit paragraph 31 (requirement to have a “specified age”).E+W+S+N.I.

11Omit paragraph 33 (exercise of options: reaching specified age without retiring).E+W+S+N.I.

12In paragraph 34 (exercise of options: scheme-related employment ends) in sub-paragraph (2)(b) omit the words from “on” to “employment”.E+W+S+N.I.

13In Part 9 of Schedule 3 (supplementary provisions) in paragraph 49 (index of defined expressions) omit the entry for “specified age”.E+W+S+N.I.

CSOP schemesE+W+S+N.I.

14In section 524 (no charge in respect of exercise of option) in subsection (2C) omit the definition of “retirement” and the “and” before it.E+W+S+N.I.

15In Part 8 of Schedule 4 (supplementary provisions) omit paragraph 35A (retirement age).E+W+S+N.I.

Transitional provisionE+W+S+N.I.

16The amendment made by paragraph 11 above has no effect in relation to options granted before the day on which this Act is passed; and the effect of the amendments made by paragraphs 8 to 10 and 13 above is limited accordingly.E+W+S+N.I.

17(1)A SIP, SAYE option scheme or CSOP scheme approved before the day on which this Act is passed has effect with any modifications needed to reflect the amendments made by this Part of this Schedule.E+W+S+N.I.

(2)In relation to any shares awarded under a SIP before that day which are subject to provision for forfeiture, that provision has effect with any modifications needed to reflect the amendment made by paragraph 3 above.

(3)Because of paragraphs 48 and 58 below, that amendment is not relevant to shares awarded under a SIP on or after that day.

PART 2E+W+S+N.I.“Good leavers” (other than retirees)

IntroductionE+W+S+N.I.

18Part 7 of ITEPA 2003 (employment income: income and exemptions relating to securities) is amended as follows.E+W+S+N.I.

Share incentive plansE+W+S+N.I.

19In section 498 (no charge on shares ceasing to be subject to plan in certain circumstances) after subsection (2) insert—E+W+S+N.I.

(3)A participant is not liable to income tax on shares (“the relevant shares”) in a company (“the relevant company”) being withdrawn from the plan if—

(a)the withdrawal of the relevant shares from the plan relates to—

(i)a transaction resulting from a compromise, arrangement or scheme falling within subsection (9),

(ii)an offer forming part of a general offer falling within subsection (10), or

(iii)the application of sections 979 to 982 or 983 to 985 of the Companies Act 2006 in the case of a takeover offer (as defined in section 974 of that Act) falling within subsection (13), and

(b)as a result of, as the case may be—

(i)the transaction,

(ii)the offer, or

(iii)the application of sections 979 to 982 or 983 to 985 of the Companies Act 2006,

the participant receives cash (and no other assets) in exchange for the relevant shares.

(4)For the purposes of subsection (3)(b) it does not matter if the participant receives other assets in exchange for shares other than the relevant shares.

(5)Subsection (3) does not apply to the relevant shares (or to a proportion of them) if in connection with, as the case may be—

(a)the compromise, arrangement or scheme,

(b)the general offer, or

(c)the takeover offer,

a course of action was open to the participant which, had it been followed, would have resulted in other assets being received in exchange for the relevant shares (or the proportion of them) instead of cash.

(6)Subsection (3) does not apply to the relevant shares (or to a proportion of them) if it is reasonable to suppose that the relevant shares (or the proportion of them) would not have been awarded to the participant—

(a)had, as the case may be—

(i)the compromise, arrangement or scheme,

(ii)the general offer, or

(iii)the takeover offer,

not been made, or

(b)had any arrangements for the making of—

(i)a compromise, arrangement or scheme which would fall within subsection (9),

(ii)a general offer which would fall within subsection (10), or

(iii)a takeover offer (as defined in section 974 of the Companies Act 2006) which would fall within subsection (13),

which were in place or under consideration at any time not been in place or under consideration.

(7)In subsection (6) the reference to shares being awarded to the participant is to be read, in the case of dividend shares, as a reference to the shares being acquired by the trustees on the participant's behalf.

(8)In subsection (6)(b) “arrangements” includes any plan, scheme, agreement or understanding, whether or not legally enforceable.

(9)A compromise, arrangement or scheme falls within this subsection if it is applicable to or affects—

(a)all the ordinary share capital of the relevant company or all the shares of the same class as the relevant shares, or

(b)all the shares, or all the shares of that same class, which are held by a class of shareholders identified otherwise than by reference to their employment or their participation in an approved SIP.

(10)A general offer falls within this subsection if—

(a)it is made to holders of shares of the same class as the relevant shares or to holders of shares in the relevant company, and

(b)it is made in the first instance on a condition such that if it is satisfied the person making the offer will have control of the relevant company.

(11)For the purposes of subsection (10) it does not matter if the general offer is made to different shareholders by different means.

(12)In subsection (10)(b) “control” has the meaning given by sections 450 and 451 of CTA 2010.

(13)A takeover offer falls within this subsection if—

(a)it relates to the relevant company, and

(b)where there is more than one class of share in the relevant company, the class or classes to which it relates is or include the class of the relevant shares.

20(1)In Part 5 of Schedule 2 (free shares) in paragraph 37 (holding period: power of participant to direct trustees to accept general offers etc) after sub-paragraph (6) insert—E+W+S+N.I.

(7)For the purposes of sub-paragraph (5) it does not matter if the general offer is made to different shareholders by different means.

(8)If in the case of a takeover offer (as defined in section 974 of the Companies Act 2006) there arises a right under section 983 of that Act to require the offeror to acquire the participant's free shares, or such of them as are of a particular class, the participant may direct the trustees to exercise that right.

(2)A SIP approved before the day on which this Act is passed has effect with any modifications needed to reflect the amendment made by this paragraph.

SAYE option schemesE+W+S+N.I.

21In section 519 (no charge in respect of exercise of option) after subsection (3) insert—E+W+S+N.I.

(3A)In relation to any shares acquired by the exercise of the share option, no liability to income tax arises in respect of its exercise if—

(a)the individual exercises the option before the third anniversary of the date on which the option was granted at a time when the SAYE option scheme is approved,

(b)the option is exercised by virtue of a provision included in the scheme—

(i)under paragraph 37(1) of Schedule 3 where the relevant date is the relevant date for the purposes of paragraph 37(2) or (4), or

(ii)under paragraph 37(6) of Schedule 3,

(c)as a result of, as the case may be—

(i)the general offer,

(ii)the compromise or arrangement, or

(iii)the takeover offer,

the individual receives cash (and no other assets) in exchange for the shares,

(d)when the decision to grant the option was taken—

(i)the general offer,

(ii)the compromise or arrangement, or

(iii)the takeover offer,

as the case may be, had not been made,

(e)when that decision was taken, no arrangements were in place or under consideration for—

(i)the making of a general offer which would fall within subsection (3D),

(ii)the making of any compromise or arrangement which would fall within subsection (3H), or

(iii)the making of a takeover offer (as defined in section 974 of the Companies Act 2006) which would fall within subsection (3I),

(f)if the scheme includes a provision under paragraph 38 of Schedule 3 (“the paragraph 38 provision”), in connection with—

(i)the general offer,

(ii)the compromise or arrangement, or

(iii)the takeover offer,

as the case may be, no course of action was open to the individual which, had it been followed, would have resulted in the individual making an agreement under the paragraph 38 provision which would have prevented the individual from acquiring the shares by the exercise of the option, and

(g)the avoidance of tax or national insurance contributions is not the main purpose (or one of the main purposes) of any arrangements under which the option was granted or is exercised.

(3B)In subsection (3A)(c)(iii), (d)(iii) and (f)(iii) “the takeover offer” means the takeover offer (as defined in section 974 of the Companies Act 2006) giving rise to the application of sections 979 to 982 or 983 to 985 of that Act.

(3C)In subsection (3A)(e) “arrangements” includes any plan, scheme, agreement or understanding, whether or not legally enforceable.

(3D)A general offer falls within this subsection if it is—

(a)a general offer to acquire the whole of the issued ordinary share capital of the relevant company which is made on a condition such that, if it is met, the person making the offer will have control of the relevant company, or

(b)a general offer to acquire all the shares in the relevant company which are of the same class as those acquired by the exercise of the option.

(3E)In subsection (3D)(a) the reference to the issued ordinary share capital of the relevant company does not include any capital already held by the person making the offer or a person connected with that person and in subsection (3D)(b) the reference to the shares in the relevant company does not include any shares already held by the person making the offer or a person connected with that person.

(3F)For the purposes of subsection (3D)(a) and (b) it does not matter if the general offer is made to different shareholders by different means.

(3G)For the purposes of subsection (3D)(a) a person is to be treated as obtaining control of a company if that person and others acting in concert together obtain control of it.

(3H)A compromise or arrangement falls within this subsection if it is applicable to or affects—

(a)all the ordinary share capital of the relevant company or all the shares of the same class as those acquired by the exercise of the option, or

(b)all the shares, or all the shares of that same class, which are held by a class of shareholders identified otherwise than by reference to their employment or directorships or their participation in an approved SAYE option scheme.

(3I)A takeover offer falls within this subsection if—

(a)it relates to the relevant company, and

(b)where there is more than one class of share in the relevant company, the class or classes to which it relates is or include the class of the shares acquired by the exercise of the option.

(3J)In subsections (3D), (3H) and (3I) “the relevant company” means the company whose shares are acquired by the exercise of the option.

22Part 6 of Schedule 3 (requirements etc relating to share options) is amended as follows.E+W+S+N.I.

23(1)Paragraph 34 (exercise of options: scheme-related employment ends) is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (2)—

(a)omit the “or” after paragraph (a), and

(b)after paragraph (b) insert—

(c)a relevant transfer within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 2006, or

(d)if P holds office or is employed in a company which is an associated company (as defined in paragraph 35(4)) of the scheme organiser, that company ceasing to be an associated company of the scheme organiser by reason of a change of control (as determined in accordance with sections 450 and 451 of CTA 2010),.

(3)In sub-paragraphs (4) and (5A)(b) for “or (b)” substitute “ to (d) ”.

(4)A SAYE option scheme approved before the day on which this Act is passed has effect with any modifications needed to reflect the amendments made by this paragraph.

24(1)Paragraph 37 (exercise of options: company events) is amended as follows.E+W+S+N.I.

(2)After sub-paragraph (3) insert—

(3A)In sub-paragraph (3)(a) the reference to the issued ordinary share capital of the company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (3)(b) the reference to the shares in the company does not include any shares already held by the person making the offer or a person connected with that person.

(3B)For the purposes of sub-paragraph (3)(a) and (b) it does not matter if the general offer is made to different shareholders by different means.

(3)A SAYE option scheme approved before the day on which this Act is passed which contains provision under paragraph 37(1) of Schedule 3 to ITEPA 2003 by reference to paragraph 37(2) has effect with any modifications needed to reflect the amendment made by sub-paragraph (2).

(4)In sub-paragraph (4) for the words from “proposed” to the end substitute applicable to or affecting—

(a)all the ordinary share capital of the company or all the shares of the same class as the shares to which the option relates, or

(b)all the shares, or all the shares of that same class, which are held by a class of shareholders identified otherwise than by reference to their employment or directorships or their participation in an approved SAYE option scheme.

(5)A SAYE option scheme approved before the day on which this Act is passed which contains provision under paragraph 37(1) of Schedule 3 to ITEPA 2003 by reference to paragraph 37(4) has effect with any modifications needed to reflect the amendment made by sub-paragraph (4).

(6)In sub-paragraph (6)—

(a)after “982” insert “ or 983 to 985 ”, and

(b)after “shareholder” insert “ etc ”.

(7)A SAYE option scheme approved before the day on which this Act is passed which contains provision under paragraph 37(6) of Schedule 3 to ITEPA 2003 has effect with any modifications needed to reflect the amendments made by sub-paragraph (6).

25(1)In Part 7 of Schedule 3 (exercise of share options) paragraph 38 (exchange of options on company reorganisation) is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (2)(c)—

(a)after “982” insert “ or 983 to 985 ”, and

(b)after “shareholder” insert “ etc ”.

(3)After sub-paragraph (2) insert—

(2A)In sub-paragraph (2)(a)(i) the reference to the issued ordinary share capital of the scheme company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (2)(a)(ii) the reference to the shares in the scheme company does not include any shares already held by the person making the offer or a person connected with that person.

(2B)For the purposes of sub-paragraph (2)(a)(i) and (ii) it does not matter if the general offer is made to different shareholders by different means.

(4)A SAYE option scheme approved before the day on which this Act is passed which contains provision under paragraph 38 of Schedule 3 to ITEPA 2003 has effect with any modifications needed to reflect the amendments made by this paragraph.

CSOP schemesE+W+S+N.I.

26(1)Section 524 (no charge in respect of exercise of option) is amended as follows.E+W+S+N.I.

(2)In subsection (2B) for paragraph (a) substitute—

(a)has ceased to be in qualifying employment because of—

(i)injury, disability, redundancy or retirement,

(ii)a relevant transfer within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 2006, or

(iii)in the case of a group scheme where the qualifying employment is as a director or employee of a constituent company, that company ceasing to be controlled by the scheme organiser, and.

(3)After subsection (2B) insert—

(2BA)For the purposes of subsection (2B) an individual is in “qualifying employment” if the individual is a full-time director or qualifying employee (as defined in paragraph 8(2) of Schedule 4) of—

(a)the scheme organiser, or

(b)in the case of a group scheme, a constituent company.

(4)In subsection (2C) for “(2B)” substitute “ (2B)(a)(i) ”.

(5)After subsection (2C) insert—

(2D)Subsection (2B)(a)(iii) does not cover a case where the constituent company was controlled by the scheme organiser by virtue of paragraph 34 of Schedule 4 (jointly owned companies).

(2E)In relation to any shares acquired by the exercise of the share option, no liability to income tax arises in respect of its exercise if—

(a)the individual exercises the option before the third anniversary of the date on which the option was granted at a time when the CSOP scheme is approved,

(b)the option is exercised by virtue of a provision included in the scheme under paragraph 25A of Schedule 4,

(c)as a result of, as the case may be—

(i)the general offer,

(ii)the compromise or arrangement, or

(iii)the takeover offer,

the individual receives cash (and no other assets) in exchange for the shares,

(d)when the decision to grant the option was taken—

(i)the general offer,

(ii)the compromise or arrangement, or

(iii)the takeover offer,

as the case may be, had not been made,

(e)when that decision was taken, no arrangements were in place or under consideration for—

(i)the making of a general offer which would fall within subsection (2H),

(ii)the making of any compromise or arrangement which would fall within subsection (2L), or

(iii)the making of a takeover offer (as defined in section 974 of the Companies Act 2006) which would fall within subsection (2M),

(f)if the scheme includes a provision under paragraph 26 of Schedule 4 (“the paragraph 26 provision”), in connection with—

(i)the general offer,

(ii)the compromise or arrangement, or

(iii)the takeover offer,

as the case may be, no course of action was open to the individual which, had it been followed, would have resulted in the individual making an agreement under the paragraph 26 provision which would have prevented the individual from acquiring the shares by the exercise of the option, and

(g)the avoidance of tax or national insurance contributions is not the main purpose (or one of the main purposes) of any arrangements under which the option was granted or is exercised.

(2F)In subsection (2E)(c)(iii), (d)(iii) and (f)(iii) “the takeover offer” means the takeover offer (as defined in section 974 of the Companies Act 2006) giving rise to the application of sections 979 to 982 or 983 to 985 of that Act.

(2G)In subsection (2E)(e) “arrangements” includes any plan, scheme, agreement or understanding, whether or not legally enforceable.

(2H)A general offer falls within this subsection if it is—

(a)a general offer to acquire the whole of the issued ordinary share capital of the relevant company which is made on a condition such that, if it is met, the person making the offer will have control of the relevant company, or

(b)a general offer to acquire all the shares in the relevant company which are of the same class as those acquired by the exercise of the option.

(2I)In subsection (2H)(a) the reference to the issued ordinary share capital of the relevant company does not include any capital already held by the person making the offer or a person connected with that person and in subsection (2H)(b) the reference to the shares in the relevant company does not include any shares already held by the person making the offer or a person connected with that person.

(2J)For the purposes of subsection (2H)(a) and (b) it does not matter if the general offer is made to different shareholders by different means.

(2K)For the purposes of subsection (2H)(a) a person is to be treated as obtaining control of a company if that person and others acting in concert together obtain control of it.

(2L)A compromise or arrangement falls within this subsection if it is applicable to or affects—

(a)all the ordinary share capital of the relevant company or all the shares of the same class as those acquired by the exercise of the option, or

(b)all the shares, or all the shares of that same class, which are held by a class of shareholders identified otherwise than by reference to their employment or directorships or their participation in an approved CSOP scheme.

(2M)A takeover offer falls within this subsection if—

(a)it relates to the relevant company, and

(b)where there is more than one class of share in the relevant company, the class or classes to which it relates is or include the class of the shares acquired by the exercise of the option.

(2N)In subsections (2H), (2L) and (2M) “the relevant company” means the company whose shares are acquired by the exercise of the option.

27Part 5 of Schedule 4 (requirements etc relating to share options) is amended as follows.E+W+S+N.I.

28In paragraph 21 (introduction) in sub-paragraph (2)—E+W+S+N.I.

(a)after the entry for paragraph 24 omit “or”, and

(b)after the entry for paragraph 25 insert , or

paragraph 25A (exercise of options: company events).

29After paragraph 25 insert—E+W+S+N.I.

Exercise of options: company eventsE+W+S+N.I.

25A(1)The scheme may provide that share options relating to shares in a company may be exercised within 6 months after the relevant date for the purposes of sub-paragraph (2) or (6).

(2)The relevant date for the purposes of this sub-paragraph is the date when—

(a)a person has obtained control of the company as a result of making an offer falling within sub-paragraph (3), and

(b)any condition subject to which the offer is made has been satisfied.

(3)An offer falls within this sub-paragraph if it is—

(a)a general offer to acquire the whole of the issued ordinary share capital of the company which is made on a condition such that, if it is met, the person making the offer will have control of the company, or

(b)a general offer to acquire all the shares in the company which are of the same class as the shares to which the option relates.

(4)In sub-paragraph (3)(a) the reference to the issued ordinary share capital of the company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (3)(b) the reference to the shares in the company does not include any shares already held by the person making the offer or a person connected with that person.

(5)For the purposes of sub-paragraph (3)(a) and (b) it does not matter if the general offer is made to different shareholders by different means.

(6)The relevant date for the purposes of this sub-paragraph is the date when the court sanctions under section 899 of the Companies Act 2006 (court sanction for compromise or arrangement) a compromise or arrangement applicable to or affecting—

(a)all the ordinary share capital of the company or all the shares of the same class as the shares to which the option relates, or

(b)all the shares, or all the shares of that same class, which are held by a class of shareholders identified otherwise than by reference to their employment or directorships or their participation in an approved CSOP scheme.

(7)The scheme may provide that share options relating to shares in a company may be exercised at any time when any person is bound or entitled to acquire shares in the company under sections 979 to 982 or 983 to 985 of the Companies Act 2006 (takeover offers: right of offeror to buy out minority shareholder etc).

(8)For the purposes of this paragraph a person is to be treated as obtaining control of a company if that person and others acting in concert together obtain control of it.

30(1)In Part 6 of Schedule 4 (exercise of share options) paragraph 26 (exchange of options on company reorganisation) is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (2)(c)—

(a)after “982” insert “ or 983 to 985 ”, and

(b)after “shareholder” insert “ etc ”.

(3)After sub-paragraph (2) insert—

(2A)In sub-paragraph (2)(a)(i) the reference to the issued ordinary share capital of the scheme company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (2)(a)(ii) the reference to the shares in the scheme company does not include any shares already held by the person making the offer or a person connected with that person.

(2B)For the purposes of sub-paragraph (2)(a)(i) and (ii) it does not matter if the general offer is made to different shareholders by different means.

(4)A CSOP scheme approved before the day on which this Act is passed which contains provision under paragraph 26 of Schedule 4 to ITEPA 2003 has effect with any modifications needed to reflect the amendments made by this paragraph.

Enterprise management incentivesE+W+S+N.I.

31(1)In Part 6 of Schedule 5 (company reorganisations) in paragraph 39 (introduction) after sub-paragraph (3) insert—E+W+S+N.I.

(4)In sub-paragraph (2)(a)(i) the reference to the issued share capital of the company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (2)(a)(ii) the reference to the shares in the company does not include any shares already held by the person making the offer or a person connected with that person.

(5)For the purposes of sub-paragraph (2)(a)(i) and (ii) it does not matter if the general offer is made to different shareholders by different means.

(2)The amendment made by this paragraph comes into force on such day as the Treasury may by order appoint.

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Commencement Information

I1Sch. 2 para. 31(1) in force at 31.10.2013 in so far as not already in force by S.I. 2013/2796, art. 2

PART 3E+W+S+N.I.Material interest rules

IntroductionE+W+S+N.I.

32Part 7 of ITEPA 2003 (employment income: income and exemptions relating to securities) is amended as follows.E+W+S+N.I.

Share incentive plansE+W+S+N.I.

33Part 3 of Schedule 2 (eligibility of individuals) is amended as follows.E+W+S+N.I.

34In paragraph 13 (introduction)—E+W+S+N.I.

(a)after the entry for paragraph 18 insert “ and ”, and

(b)omit the entry for paragraph 19 and the “and” before it.

35In paragraph 14 (time of eligibility to participate) in sub-paragraph (7)—E+W+S+N.I.

(a)after paragraph (b) insert “ and ”, and

(b)omit paragraph (c) and the “and” before it.

36Omit paragraphs 19 to 24 (the “no material interest” requirement).E+W+S+N.I.

37In Part 11 of Schedule 2 (supplementary provisions) in paragraph 100 (index of defined expressions), in the entry for “close company”, omit “(and see paragraph 20(4))”.E+W+S+N.I.

38(1)The amendments made by paragraphs 33 to 37 above have effect for the purpose of determining whether an individual is eligible to participate in an award of shares on the day on which this Act is passed or any later day.E+W+S+N.I.

(2)A SIP approved before the day on which this Act is passed has effect accordingly with the omission of any provision falling within a provision of Schedule 2 to ITEPA 2003 omitted by those paragraphs.

SAYE option schemesE+W+S+N.I.

39Part 3 of Schedule 3 (eligibility of individuals) is amended as follows.E+W+S+N.I.

40In paragraph 9 (introduction) omit the entry for paragraph 11 and the “and” before it.E+W+S+N.I.

41Omit paragraphs 11 to 16 (the “no material interest” requirement).E+W+S+N.I.

42In Part 9 of Schedule 3 (supplementary provisions) in paragraph 49 (index of defined expressions), in the entry for “close company”, omit “(and see paragraph 11(4))”.E+W+S+N.I.

43(1)The amendments made by paragraphs 39 to 42 above have effect for the purpose of determining whether an individual is eligible to participate in a scheme on the day on which this Act is passed or any later day.E+W+S+N.I.

(2)A SAYE option scheme approved before the day on which this Act is passed has effect accordingly with the omission of any provision falling within a provision of Schedule 3 to ITEPA 2003 omitted by those paragraphs.

CSOP schemesE+W+S+N.I.

44(1)In Part 3 of Schedule 4 (eligibility of individuals) in paragraphs 10(2) and (3), 11(3) and (4) and 13(2) (which relate to the “no material interest” requirement) for “25%” substitute “ 30% ”.E+W+S+N.I.

(2)The amendments made by this paragraph have effect for the purpose of determining whether a person is eligible to participate in a scheme on the day on which this Act is passed or any later day (by altering what constitutes a material interest on that day and within the 12 months preceding that day).

(3)A CSOP scheme approved before the day on which this Act is passed has effect with any modifications needed to reflect the amendments made by this paragraph.

PART 4E+W+S+N.I.Restricted shares

IntroductionE+W+S+N.I.

45Part 7 of ITEPA 2003 (employment income: income and exemptions relating to securities) is amended as follows.E+W+S+N.I.

Share incentive plansE+W+S+N.I.

46Part 4 of Schedule 2 (types of shares that may be awarded) is amended as follows.E+W+S+N.I.

47In paragraph 25 (introduction) in sub-paragraph (1)—E+W+S+N.I.

(a)after the entry for paragraph 28 insert “ and ”, and

(b)omit the entry for paragraph 30 and the “and” before it.

48Omit paragraphs 30 to 33 (only certain kinds of restrictions allowed).E+W+S+N.I.

49In Part 5 of Schedule 2 (free shares) in paragraph 35 (maximum annual award) omit sub-paragraphs (3) and (4).E+W+S+N.I.

50In Part 6 of Schedule 2 (partnership shares) in paragraph 43 (introduction) after sub-paragraph (2) insert—E+W+S+N.I.

(2A)The plan must provide that partnership shares are not to be subject to any provision for forfeiture.

51In Part 7 of Schedule 2 (matching shares) in paragraph 59 (general requirement for matching shares) omit sub-paragraph (2).E+W+S+N.I.

52In Part 9 of Schedule 2 (trustees) in paragraph 75 (duty to give notice of award of shares etc) in sub-paragraphs (2) and (3) after paragraph (a) insert—E+W+S+N.I.

(aa)if the shares are subject to any restriction, giving details of the restriction,.

53(1)In Part 10 of Schedule 2 (approval of plans) paragraph 84 (disqualifying events) is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (3)—

(a)after paragraph (b) insert “ or ”, and

(b)omit paragraph (c) and the “or” after it.

(3)In sub-paragraph (4)(b) for “provision for forfeiture” substitute “ restriction ”.

54Part 11 of Schedule 2 (supplementary provision) is amended as follows.E+W+S+N.I.

55In paragraph 92 (determination of market value) for sub-paragraph (2) substitute—E+W+S+N.I.

(2)For the purposes of this Schedule the market value of shares subject to a restriction is to be determined as if they were not subject to the restriction.

56In paragraph 99 (minor definitions) after sub-paragraph (3) insert—E+W+S+N.I.

(4)For the purposes of the SIP code—

(a)shares are subject to a “restriction” if there is any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) of section 423 (restricted securities) would apply if the references in those subsections to the employment-related securities were to the shares, and

(b)the “restriction” is that provision.

57In paragraph 100 (index of defined expressions) at the appropriate place insert—E+W+S+N.I.

restriction (in relation to shares)paragraph 99(4).

58(1)The amendments made by paragraphs 46 to 48 and 50 to 52 above have effect in relation to awards of shares made on or after the day on which this Act is passed.E+W+S+N.I.

(2)A SIP approved, or a trust instrument made, before that day has effect with any modifications needed to reflect the amendments made by paragraphs 46 to 57 above.

(3)In particular, in relation to awards of shares on or after that day, such a SIP has effect with the omission of any provision falling within a provision of Schedule 2 to ITEPA 2003 omitted by paragraph 48 above.

SAYE option schemesE+W+S+N.I.

59Part 4 of Schedule 3 (shares to which schemes can apply) is amended as follows.E+W+S+N.I.

60In paragraph 17 (introduction) in sub-paragraph (1)—E+W+S+N.I.

(a)after the entry for paragraph 20 insert “ and ”, and

(b)omit the entry for paragraph 21 and the “and” after it.

61Omit paragraph 21 (only certain kinds of restrictions allowed).E+W+S+N.I.

62In Part 6 of Schedule 3 (requirements etc relating to share options) in paragraph 28 (requirements as to price of acquisition of shares) after sub-paragraph (4) insert—E+W+S+N.I.

(5)At the time a share option is granted—

(a)it must be stated whether or not the shares which may be acquired by the exercise of the option may be subject to any restriction, and

(b)if so, the details of the restriction must also be stated.

(6)For the purposes of this paragraph the market value of shares subject to a restriction is to be determined as if they were not subject to the restriction.

63In Part 7 of Schedule 3 (exchange of share options) in paragraph 39 (requirements about share options granted in exchange) after sub-paragraph (6) insert—E+W+S+N.I.

(7)For the purposes of this paragraph the market value of shares subject to a restriction is to be determined as if they were not subject to the restriction.

64Part 9 of Schedule 3 (supplementary provisions) is amended as follows.E+W+S+N.I.

65In paragraph 48 (minor definitions) after sub-paragraph (2) insert—E+W+S+N.I.

(3)For the purposes of the SAYE code—

(a)shares are subject to a “restriction” if there is any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) of section 423 (restricted securities) would apply if the references in those subsections to the employment-related securities were to the shares, and

(b)the “restriction” is that provision.

66In paragraph 49 (index of defined expressions) at the appropriate place insert—E+W+S+N.I.

restriction (in relation to shares)paragraph 48(3).

67(1)The amendments made by paragraphs 59 to 62 above have effect in relation to options granted on or after the day on which this Act is passed.E+W+S+N.I.

(2)The amendment made by paragraph 63 above has effect for cases where the old options are granted on or after that day.

(3)A SAYE option scheme approved before that day has effect with any modifications needed to reflect the amendments made by paragraphs 59 to 66 above.

(4)In particular, in relation to options granted on or after that day, such a SAYE option scheme has effect with the omission of any provision falling within a provision of Schedule 3 to ITEPA 2003 omitted by paragraph 61 above.

CSOP schemesE+W+S+N.I.

68In Part 2 of Schedule 4 (general requirements for approval) in paragraph 6 (limit on value of shares subject to options) after sub-paragraph (3) insert—E+W+S+N.I.

(4)For the purposes of this paragraph the market value of shares subject to a restriction is to be determined as if they were not subject to the restriction.

69Part 4 of Schedule 4 (shares to which schemes can apply) is amended as follows.E+W+S+N.I.

70In paragraph 15 (introduction)—E+W+S+N.I.

(a)after the entry for paragraph 18 insert “ and ”, and

(b)omit the entry relating to paragraph 19 and the “and” after it.

71Omit paragraph 19 (only certain kinds of restrictions allowed).E+W+S+N.I.

72In Part 5 of Schedule 4 (requirements etc relating to share options) in paragraph 22 after sub-paragraph (4) insert—E+W+S+N.I.

(5)At the time a share option is granted—

(a)it must be stated whether or not the shares which may be acquired by the exercise of the option may be subject to any restriction, and

(b)if so, the details of the restriction must also be stated.

(6)For the purposes of this paragraph the market value of shares subject to a restriction is to be determined as if they were not subject to the restriction.

73In Part 6 of Schedule 4 (exchange of share options) in paragraph 27 (requirements about share options granted in exchange) after sub-paragraph (6) insert—E+W+S+N.I.

(7)For the purposes of this paragraph the market value of shares subject to a restriction is to be determined as if they were not subject to the restriction.

74Part 8 of Schedule 4 (supplementary provisions) is amended as follows.E+W+S+N.I.

75In paragraph 36 (minor definitions) after sub-paragraph (2) insert—E+W+S+N.I.

(3)For the purposes of the CSOP code—

(a)shares are subject to a “restriction” if there is any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) of section 423 (restricted securities) would apply if the references in those subsections to the employment-related securities were to the shares, and

(b)the “restriction” is that provision.

76In paragraph 37 (index of defined expressions) at the appropriate place insert—E+W+S+N.I.

restriction (in relation to shares)paragraph 36(3).

77(1)The amendment made by paragraph 68 above has effect for the purpose of determining whether options may be granted to an individual on or after the day on which this Act is passed; but the amendment is to be ignored in determining the market value of any shares to which an option granted before that day relates.E+W+S+N.I.

(2)The amendments made by paragraphs 69 to 72 above have effect in relation to options granted on or after that day.

(3)The amendment made by paragraph 73 above has effect for cases where the old options are granted on or after that day.

(4)A CSOP scheme approved before that day has effect with any modifications needed to reflect the amendments made by paragraphs 68 to 76 above.

(5)In particular, in relation to options granted on or after that day, such a CSOP scheme has effect with the omission of any provision falling within a provision of Schedule 4 to ITEPA 2003 omitted by paragraph 71 above.

PART 5E+W+S+N.I.Share incentive plans: partnership shares

78Schedule 2 to ITEPA 2003 is amended as follows.E+W+S+N.I.

79(1)In Part 6 (partnership shares) paragraph 52 (application of money deducted in accumulation period) is amended as follows.E+W+S+N.I.

(2)After sub-paragraph (2) insert—

(2A)The number of shares awarded to the employee must be determined in accordance with one of sub-paragraphs (3), (3A) and (3B) and the partnership share agreement must specify which one of those sub-paragraphs is to apply for the purposes of the agreement.

(3)In sub-paragraph (3) for “The number of shares awarded to each” substitute “ If the agreement specifies that this sub-paragraph is to apply, the number of shares awarded to the ”.

(4)After sub-paragraph (3) insert—

(3A)If the agreement specifies that this sub-paragraph is to apply, the number of shares awarded to the employee must be determined in accordance with the market value of the shares at the beginning of the accumulation period.

(3B)If the agreement specifies that this sub-paragraph is to apply, the number of shares awarded to the employee must be determined in accordance with the market value of the shares on the acquisition date.

(5)In sub-paragraphs (4) and (5) for “and (3)” substitute “ to (3B) ”.

80In Part 9 (trustees) in paragraph 75 (duty to give notice of award of shares etc) in sub-paragraph (3) for paragraph (c) substitute—E+W+S+N.I.

(c)stating the market value in accordance with which the number of shares awarded to the employee was determined.

81(1)The amendments made by paragraphs 79 and 80 above have effect in relation to partnership share agreements made on or after the day on which this Act is passed.E+W+S+N.I.

(2)A trust instrument made before that day has effect with any modifications needed to reflect the amendment made by paragraph 80 above.

PART 6E+W+S+N.I.Share incentive plans: dividend shares

IntroductionE+W+S+N.I.

82Part 8 of Schedule 2 to ITEPA 2003 (cash dividends and dividend shares) is amended as follows.E+W+S+N.I.

Company's power to direct reinvestment of cash dividendsE+W+S+N.I.

83(1)Paragraph 62 (reinvestment of dividends) is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (1) for the first “all” substitute “ some or all of the ”.

(3)After sub-paragraph (1) insert—

(1A)The company's direction must set out—

(a)the amount of the cash dividends to be applied as mentioned in sub-paragraph (1), or

(b)how that amount is to be determined.

(4)In sub-paragraph (4) after “may” insert “ modify or ”.

84In paragraph 68 (reinvestment: amounts to be carried forward) for sub-paragraph (1) substitute—E+W+S+N.I.

(1)This paragraph applies where an amount is not reinvested because it is not sufficient to acquire a share.

85In paragraph 69 (cash dividends with no requirement to reinvest) in sub-paragraph (2) for “which” substitute “ so far as they ”.E+W+S+N.I.

86(1)A SIP approved before the day on which this Act is passed which contains provision under paragraph 62(1) of Schedule 2 to ITEPA 2003 has effect with any modifications needed to reflect the amendments made by paragraphs 83 to 85 above.E+W+S+N.I.

(2)Sub-paragraph (3) applies to a direction requiring the reinvestment of cash dividends which is given before that day.

(3)For the purposes of paragraph 62(1A) of Schedule 2 to ITEPA 2003 the direction is to be treated as requiring the reinvestment of all the cash dividends, subject to any modification of the direction which is made on or after that day under paragraph 62(4) of that Schedule.

Removal of limit on amount reinvestedE+W+S+N.I.

87In paragraph 63 (requirements to be met as regards cash dividends) in sub-paragraph (1) omit the entry for paragraph 64.E+W+S+N.I.

88Omit paragraph 64 (limit on amount reinvested).E+W+S+N.I.

89(1)The amendments made by paragraphs 87 and 88 above have effect in relation to the tax year 2013-14 and subsequent tax years.E+W+S+N.I.

(2)A SIP approved before 6 April 2013 has effect accordingly with the omission of any provision falling within a provision of Schedule 2 to ITEPA 2003 omitted by paragraph 88 above.

Amounts to be carried forwardE+W+S+N.I.

90(1)Paragraph 68 (reinvestment: amounts to be carried forward) is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (4)—

(a)omit paragraph (a) and the “or” after it, and

(b)in paragraphs (b) and (c) omit “during that period”.

(3)Omit sub-paragraph (6).

(4)The amendments made by this paragraph have effect in relation to amounts held by trustees on or after 6 April 2013 (including amounts originally retained before that date in relation to which an event falling within paragraph 68(4)(a) to (c) of Schedule 2 to ITEPA 2003 did not occur before that date).

(5)A SIP approved before 6 April 2013 has effect accordingly with the omission of any provision falling within a provision of Schedule 2 to ITEPA 2003 omitted by this paragraph.

PART 7E+W+S+N.I.Share incentive plans: employee share ownership trusts

91Part 9 of Schedule 2 to ITEPA 2003 (trustees) is amended as follows.E+W+S+N.I.

92In paragraph 70 (introduction) in sub-paragraph (2)—E+W+S+N.I.

(a)after the entry for paragraph 77 insert “ and ”, and

(b)omit the entry for paragraph 78.

93(1)Omit paragraph 78 (acquisition of shares from employee share ownership trusts).E+W+S+N.I.

(2)A trust instrument made before the day on which this Act is passed has effect with the omission of any provision falling within a provision of Schedule 2 to ITEPA 2003 omitted by this paragraph.

PART 8E+W+S+N.I.Enterprise management incentives: consequences of disqualifying events

94(1)In section 532 of ITEPA 2003 (modified tax consequences following disqualifying events) in subsection (1)(b) for “40” substitute “ 90 ”.E+W+S+N.I.

(2)The amendment made by this paragraph has effect in relation to disqualifying events occurring on or after the day on which this Act is passed.

Section 16

SCHEDULE 3E+W+S+N.I.Limit on income tax reliefs

The limitE+W+S+N.I.

1In Chapter 3 of Part 2 of ITA 2007 (calculation of income tax liability) after section 24 insert—E+W+S+N.I.

24ALimit on Step 2 deductions

(1)If the taxpayer is an individual, there is a limit on certain deductions which may be made for the tax year at Step 2.

(2)The limit is determined as follows.

(3)Amount A must not exceed amount B.

(4)Amount A is—

(a)the deductions for the tax year at Step 2 for the reliefs listed in subsection (6) taken together, less

(b)so much of those deductions as fall within subsection (7).

(5)Amount B is—

(a)£50,000, or

(b)if more, 25% of the taxpayer's adjusted total income for the tax year (see subsection (8)).

(6)The reliefs are—

(a)relief under section 64 (trade loss relief against general income);

(b)relief under section 72 (early trade losses relief);

(c)relief under section 96 (post-cessation trade relief);

(d)relief under section 120 (property loss relief against general income);

(e)relief under section 125 (post-cessation property relief);

(f)relief under section 128 (employment loss relief against general income);

(g)relief under Chapter 6 of Part 4 (share loss relief);

(h)relief under Chapter 1 of Part 8 (interest payments);

(i)relief under section 555 of ITEPA 2003 (deduction for liabilities relating to former employment);

(j)relief under section 446 of ITTOIA 2005 (strips of government securities: relief for losses);

(k)relief under section 454(4) of ITTOIA 2005 (listed securities held since 26 March 2003: relief for losses: persons other than trustees).

(7)The deductions falling within this subsection are—

(a)deductions for amounts of relief so far as attributable to allowances under Part 3A of CAA 2001 (business premises renovation allowances);

(b)deductions for amounts of relief under a provision mentioned in subsection (6)(a) to (e) so far as made from profits of the trade or business to which the relief in question relates;

(c)deductions for amounts of relief under the provision mentioned in subsection (6)(a) or (b) so far as attributable to a deduction allowed under section 205 or 220 of ITTOIA 2005 (deduction for overlap profit in final tax year or on change of accounting date);

(d)deductions for amounts of relief under the provision mentioned in subsection (6)(g)—

(i)where the shares in question fall within section 131(2)(a) (qualifying shares to which EIS relief is attributable), or

(ii)where SEIS relief is attributable to the shares in question as determined in accordance with Part 5A (seed enterprise investment scheme).

(8)The taxpayer's “adjusted total income” for the tax year is calculated as follows.

  • Step 1 Take the amount of the taxpayer's total income for the tax year.

  • Step 2 Add back the amounts of any deductions allowed under Part 12 of ITEPA 2003 (payroll giving) in calculating the taxpayer's income which is charged to tax for the tax year.

  • Step 3 If the taxpayer is given relief in accordance with section 192 of FA 2004 (pension schemes: relief at source) in respect of any contribution paid in the tax year under a pension scheme, deduct the gross amount of the contribution. The “gross” amount of a contribution is the amount of the contribution before deduction of tax under section 192(1) of FA 2004.

  • Step 4 If the taxpayer is entitled to a deduction for relief under section 193(4) or 194(1) of FA 2004 (pension schemes: excess relief under net payment arrangements or relief on making a claim) for the tax year, deduct the amount of the excess or contribution (as the case may be). The result is the taxpayer's adjusted total income for the tax year.

Consequential amendmentsE+W+S+N.I.

2(1)ITA 2007 is amended as follows.E+W+S+N.I.

(2)In section 23 (calculation of income tax liability) at step 2 for “section 25” substitute “ sections 24A and 25 ”.

(3)In the following provisions (which explain how certain reliefs work) for “section 25(4) and (5)” substitute “ sections 24A and 25(4) and (5) ”

(a)section 65(1),

(b)section 73,

(c)section 121(1),

(d)section 129(1), and

(e)section 133(1).

(4)In section 148 (share loss relief: disposal of shares forming part of mixed holding) in subsection (3)(b) before sub-paragraph (i) insert—

(ai)shares to which SEIS relief is attributable (as determined in accordance with Part 5A),.

Commencement and transitional provisionE+W+S+N.I.

3The amendments made by paragraphs 1 and 2 above have effect for the tax year 2013-14 and subsequent tax years.E+W+S+N.I.

4(1)Sub-paragraph (2) applies to a claim which relates to the tax year 2013-14 or a subsequent tax year by virtue of paragraph 2 of Schedule 1B to TMA 1970 where the earlier year is a tax year before the tax year 2013-14.E+W+S+N.I.

(2)The amount of the claim is to be determined as if the amendments made by paragraphs 1 and 2 above also have effect for tax years before the tax year 2013-14.

(3)For this purpose, section 24A(6) of ITA 2007 (as inserted by paragraph 1 above) is treated as having effect for tax years before the tax year 2013-14 as if—

(a)in paragraphs (a), (b), (f) and (g) the references to relief were limited to relief in respect of a loss made in the tax year 2013-14 or a subsequent tax year, and

(b)all the other paragraphs were omitted.

5In section 24A(6)(d) of ITA 2007 (as inserted by paragraph 1 above) the reference to relief does not include relief in respect of a loss made in the tax year 2012-13.E+W+S+N.I.

Section 17

SCHEDULE 4E+W+S+N.I.Cash basis for small businesses

PART 1E+W+S+N.I.Main provisions

IntroductoryE+W+S+N.I.

1Part 2 of ITTOIA 2005 (trading income) is amended as follows.E+W+S+N.I.

Eligibility to calculate profits on cash basisE+W+S+N.I.

2Chapter 3 (trade profits: basic rules) is amended as follows.E+W+S+N.I.

3In section 25(3) (exception to requirement to use generally accepted accounting practice), for “section 160 (barristers and advocates in early years of practice)” substitute “ section 25A (cash basis for small businesses) ”.E+W+S+N.I.

4After section 25 insert—E+W+S+N.I.

25ACash basis for small businesses

(1)A person who is or has been carrying on a trade may elect for the profits of the trade to be calculated on the cash basis (instead of in accordance with generally accepted accounting practice).

(2)References in this Part to calculating the profits of a trade on the cash basis are references to doing so in accordance with this section.

(3)Chapter 3A contains provision about—

(a)when a person may make an election under this section, and

(b)the effect of such an election.

(4)Where an election under this section has effect in relation to a trade, sections 27, 28 and 30 do not apply in relation to the calculation of the profits of the trade.

5After Chapter 3 insert—E+W+S+N.I.

CHAPTER 3AE+W+S+N.I.Trade profits: cash basis
EligibilityE+W+S+N.I.
31AConditions to be met for profits to be calculated on cash basis

(1)A person may make an election under section 25A for a tax year if conditions A to C are met.

(2)Condition A is that the aggregate of the cash basis receipts of each trade, profession or vocation carried on by the person during that tax year does not exceed any relevant maximum applicable for that tax year (see section 31B).

(3)Condition B is that, in a case where the person is either an individual who controls a firm or a firm controlled by an individual—

(a)the aggregate of the cash basis receipts of each trade, profession or vocation carried on by the individual or the firm during that tax year does not exceed any relevant maximum applicable for that tax year, and

(b)the firm or the individual (as the case may be) has also made an election under section 25A for that tax year.

(4)Condition C is that the person is not an excluded person in relation to the tax year (see section 31C).

(5)For the purposes of this section, the “cash basis receipts” of a trade, profession or vocation, in relation to a tax year, are any receipts that—

(a)are received during the basis period for the tax year, and

(b)would be brought into account in calculating the profits of the trade, profession or vocation for that tax year on the cash basis.

31BRelevant maximum

(1)For the purposes of section 31A there is a “relevant maximum” applicable for a tax year in relation to a trade, profession or vocation carried on by a person if any of conditions A to C is met.

(2)Condition A is that an election under section 25A did not have effect in relation to the trade, profession or vocation for the previous tax year.

(3)Condition B is that the aggregate of the cash basis receipts of each trade, profession or vocation carried on by the person during the previous tax year is greater than an amount equal to twice the VAT threshold for that previous tax year.

(4)Condition C is that, in a case where the person is either an individual who controls a firm or a firm controlled by an individual, the aggregate of the cash basis receipts of each trade, profession or vocation carried on by the individual or the firm during the previous tax year is greater than an amount equal to twice the VAT threshold for that previous tax year.

(5)If there is a relevant maximum applicable for a tax year, the amount of the relevant maximum is—

(a)the VAT threshold, or

(b)in the case where the person is an individual who is a universal credit claimant in the tax year, an amount equal to twice the VAT threshold.

(6)For the purposes of this section, where the basis period for a tax year is less than 12 months, the VAT threshold is proportionately reduced.

(7)In this section—

  • universal credit claimant”, in relation to a tax year, means a person who is entitled to universal credit under the relevant legislation for an assessment period (within the meaning of the relevant legislation) that falls within the basis period for the tax year,

  • the relevant legislation” means—

    (a)

    Part 1 of the Welfare Reform Act 2012, or

    (b)

    any provision made for Northern Ireland which corresponds to that Part of that Act, and

  • the VAT threshold”, in relation to a tax year, means the amount specified at the end of that tax year in paragraph 1(1)(a) of Schedule 1 to VATA 1994.

(8)The Treasury may by order amend this section.

(9)A statutory instrument containing an order under subsection (8) that restricts the circumstances in which an election may be made under section 25A may not be made unless a draft of the instrument containing the order has been laid before, and approved by a resolution of, the House of Commons.

31CExcluded persons

(1)A person is an excluded person in relation to a tax year if the person meets any of conditions A to H.

(2)Condition A is that—

(a)the person is a firm, and

(b)one or more of the persons who have been partners in the firm at any time during the basis period for the tax year was not an individual at that time.

(3)Condition B is that the person was a limited liability partnership at any time during the basis period for the tax year.

(4)Condition C is that the person is an individual who has been a Lloyd's underwriter at any time during the basis period for the tax year.

(5)Condition D is that the person has made an election under Chapter 8 (trade profits: herd basis rules) that has effect in relation to the tax year.

(6)Condition E is that the person has made a claim under section 221 (claim for averaging of fluctuating profits) in relation to the tax year.

(7)Condition F is that, at any time within the period of 7 years ending immediately before the basis period for the tax year, the person obtained an allowance under Part 3A of CAA 2001 (business premises renovation allowances).

(8)Condition G is that the person has carried on a mineral extraction trade at any time during the basis period for the tax year.

In this subsection “mineral extraction trade” has the same meaning as in Part 5 of CAA 2001 (see section 394(2) of that Act).

(9)Condition H is that—

(a)at any time before the beginning of the basis period for the tax year the person obtained an allowance under Part 6 of CAA 2001 (research and development allowances) in respect of qualifying expenditure incurred by the person, and

(b)the person owns an asset representing the expenditure.

In this subsection “qualifying expenditure” has the same meaning as in Part 6 of CAA 2001.

(10)The Treasury may by order amend this section.

(11)A statutory instrument containing an order under subsection (10) that restricts the circumstances in which an election may be made under section 25A may not be made unless a draft of the instrument containing the order has been laid before, and approved by a resolution of, the House of Commons.

Elections under section 25AE+W+S+N.I.
31DEffect of election under section 25A

(1)An election made by a person under section 25A has effect—

(a)for the tax year for which it is made, and

(b)for every subsequent tax year.

This is subject to subsections (2) and (3).

(2)An election made by a person under section 25A ceases to have effect if any of conditions A to C in section 31A is not met for a subsequent tax year.

(3)An election made by a person under section 25A ceases to have effect if—

(a)there is a change of circumstances relating to any trade, profession or vocation carried on by the person which makes it more appropriate for its profits for a subsequent tax year to be calculated in accordance with generally accepted accounting practice, and

(b)the person elects to calculate those profits in that way.

(4)Neither subsection (2) nor subsection (3) prevents the person making an election under section 25A for any subsequent tax year.

(5)An election that—

(a)is made by a person under section 25A, and

(b)has effect for a tax year,

has effect in relation to every trade, profession or vocation carried on by the person during the tax year.

(6)For provision prohibiting a person who has made an election under section 25A from claiming any capital allowances (other than in respect of expenditure incurred on the provision of a car), see section 1(4) of CAA 2001.

Calculation of profits on cash basisE+W+S+N.I.
31ECalculation of profits on cash basis

(1)This section applies to professions and vocations as it applies to trades.

(2)To determine the profits of a trade for a tax year on the cash basis—

  • Step 1 Calculate the total amount of receipts of the trade received during the basis period for the tax year.

  • Step 2 Deduct from that amount the total amount of expenses of the trade paid during the basis period for the tax year.

(3)Subsection (2) is subject to any adjustment required or authorised by law in calculating profits for income tax purposes.

Overview of rest of Part 2E+W+S+N.I.
31FOverview of rest of Part 2 as it applies to cash basis

(1)For provision about the application of Chapters 4 to 6 (rules about deductions and receipts) in relation to the cash basis, see sections 32A, 56A and 95A.

(2)For provision about the application of Chapter 11 (trade profits: other specific trades) in relation to the cash basis, see section 148K.

(3)The following Chapters apply only where profits are calculated on the cash basis—

  • Chapter 6A (trade profits: amounts not reflecting commercial transactions),

  • Chapter 17A (cash basis: adjustments for capital allowances).

(4)The following Chapters do not apply in relation to the cash basis—

  • Chapter 8 (trade profits: herd basis rules),

  • Chapter 9 (trade profits: sound recordings),

  • Chapter 10 (trade profits: certain telecommunication rights),

  • Chapter 10A (leases of plant or machinery: special rules for long funding leases),

  • Chapter 11A (trade profits: changes in trading stock),

  • Chapter 13 (deductions from profits: unremittable amounts),

  • Chapter 14 (disposal and acquisition of know-how),

  • Chapter 16 (averaging profits of farmers and creative artists),

  • Chapter 16ZA (compensation for compulsory slaughter of animal),

  • Chapter 16A (oil activities).

Rules restricting deductionsE+W+S+N.I.

6Chapter 4 (trade profits: rules restricting deductions) is amended as follows.E+W+S+N.I.

7After section 32 insert—E+W+S+N.I.

Cash basis accountingE+W+S+N.I.
32AApplication of Chapter to the cash basis

(1)The following sections do not apply in calculating the profits of a trade on the cash basis—

  • section 33 (capital expenditure),

  • section 35 (bad and doubtful debts),

  • sections 36 and 37 (unpaid remuneration),

  • section 43 (employee benefit contributions: profits calculated before end of 9 month period),

  • sections 48 to 50B (car hire).

(2)For rules restricting deductions that apply only where profits are calculated on the cash basis, see the following—

  • section 33A (cash basis: capital expenditure),

  • section 51A (cash basis: interest payments on loans).

8After section 33 insert—E+W+S+N.I.

33ACash basis: capital expenditure

(1)In calculating the profits of a trade on the cash basis, no deduction is allowed for items of a capital nature, other than expenditure that—

(a)if it were not allowable as a deduction in calculating the profits of the trade, would be qualifying expenditure within the meaning of Part 2 of CAA 2001 (plant and machinery allowances), and

(b)is not expenditure incurred on the provision of a car.

(2)In this section “car” has the same meaning as in Part 2 of CAA 2001 (see section 268A of that Act).

9In section 38 (restriction of deductions in respect of employee benefit contributions), after subsection (2) insert—E+W+S+N.I.

(2A)In calculating for income tax purposes the profits of a trade on the cash basis, this section has effect as if—

(a)in subsection (1), the words “or to be made” were omitted, and

(b)in subsection (2), the words “or within 9 months from the end of it” were omitted (in both places).

10Before section 52 (and after the heading “Interest payments”) insert—E+W+S+N.I.

51ACash basis: interest payments on loans

(1)In calculating the profits of a trade on the cash basis, no deduction is allowed for the interest paid on a loan.

(2)This is subject to section 57B.

11(1)Section 55A (expenditure on integral features) is amended as follows.E+W+S+N.I.

(2)The existing provision becomes subsection (1).

(3)After that subsection insert—

(2)But section 33A(3) of CAA 2001 does not apply in calculating the profits of a trade on the cash basis.

Rules allowing deductionsE+W+S+N.I.

12Chapter 5 (trade profits: rules allowing deductions) is amended as follows.E+W+S+N.I.

13After section 56 insert—E+W+S+N.I.

Cash basis accountingE+W+S+N.I.
56AApplication of Chapter to the cash basis

(1)The following sections do not apply in calculating the profits of a trade on the cash basis—

  • sections 60 to 67 (tenants under taxed leases),

  • section 68 (replacement and alteration of trade tools).

(2)For rules allowing deductions that apply only where profits are calculated on the cash basis, see the following—

section 57B (cash basis: interest payments on loans).

(3)In calculating the profits of a trade on the cash basis, any reference in this Chapter to the incurring of expenses is to be read as a reference to the paying of expenses.

14After section 57A insert—E+W+S+N.I.

Cash basis: interest paymentsE+W+S+N.I.
57BCash basis: interest payments on loans

(1)This section applies if a person carrying on a trade in a period pays any interest on a loan during the period and—

(a)a deduction for the interest would not otherwise be allowable in calculating the profits of the trade because of section 51A, or

(b)in the absence of section 51A, a deduction for the interest would not otherwise be allowable in calculating the profits of the trade because (and only because) it was not an expense incurred wholly and exclusively for the purposes of the trade.

(2)In calculating the profits of the trade on the cash basis, a deduction is allowed for the interest.

(3)But the maximum amount that may be deducted by virtue of this section or section 58 (incidental costs of obtaining finance) in calculating the profits of a trade for any period is £500.

(4)The Treasury may by order amend the figure for the time being specified in subsection (3).

(5)A statutory instrument containing an order under this section that amends that figure so as to substitute a lower figure may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons.

15In section 58 (incidental costs of obtaining finance), in subsection (5), after “with” insert E+W+S+N.I.

(a)section 57B(3) (which imposes a limit on the total amount that may be deducted by virtue of this section or section 57B), and

(b).

16In section 72 (payroll deduction schemes: contributions to agents' expenses), after subsection (2) insert—E+W+S+N.I.

(2A)In calculating the profits of the employer's trade on the cash basis, subsection (2) has effect as if paragraph (b) were omitted.

17In section 94A (costs of setting up SAYE option scheme or CSOP scheme), after subsection (4) insert—E+W+S+N.I.

(5)But subsection (4) does not apply in calculating the profits of a trade on the cash basis.

ReceiptsE+W+S+N.I.

18Chapter 6 (trade profits: receipts) is amended as follows.E+W+S+N.I.

19After section 95 insert—E+W+S+N.I.

Cash basis accountingE+W+S+N.I.
95AApplication of Chapter to the cash basis

For rules about receipts that apply only for the purpose of calculating profits on the cash basis, see the following—

  • section 96A (cash basis: capital receipts),

  • section 97A (cash basis: value of trading stock on cessation of trade),

  • section 97B (cash basis: value of work in progress on cessation of profession or vocation).

20After section 96 insert—E+W+S+N.I.

96ACash basis: capital receipts

(1)This section applies if—

(a)the whole or part of any expenditure incurred in acquiring, creating or improving an asset has been brought into account in calculating the profits of a trade of a person on the cash basis, or

(b)the whole or part of any such expenditure would have been so brought into account if an election under section 25A had had effect in relation to the trade at the time the expenditure was paid.

(2)The following amounts are to be brought into account as a receipt in calculating the profits of the trade on the cash basis—

(a)any proceeds arising from the disposal of the asset or any part of it;

(b)any proceeds arising from the grant of any right in respect of, or any interest in, the asset;

(c)any amount of damages, proceeds of insurance or other compensation received in respect of the asset.

(3)In a case where only part of the expenditure incurred in acquiring, creating or improving an asset has been, or would have been, brought into account as mentioned in subsection (1), the amount brought into account under subsection (2) is proportionately reduced.

(4)If—

(a)at any time the person ceases to use the asset or any part of it for the purposes of the trade, but

(b)the person does not dispose of the asset (or that part) at that time,

the person is to be regarded for the purposes of this section as disposing of the asset (or that part) at that time for an amount equal to the market value amount.

(5)If at any time there is a material increase in the person's non-business use of the asset or any part of it, the person is to be regarded for the purposes of this section as disposing of the asset (or that part) at that time for an amount equal to the relevant proportion of the market value amount.

(6)For the purposes of subsection (5)—

(a)there is an increase in a person's non-business use of an asset (or part of an asset) if—

(i)the proportion of the person's use of the asset (or that part) that is for the purposes of the trade decreases, and

(ii)the proportion of the person's use of the asset (or that part) that is for other purposes (the “non-business use”) increases;

(b)“the relevant proportion” is the difference between—

(i)the proportion of the person's use of the asset (or part of the asset) that is non-business use, and

(ii)the proportion of the person's use of the asset (or that part) that was non-business use before the increase mentioned in subsection (5).

(7)In this section “the market value amount” means the amount that would be regarded as normal and reasonable—

(a)in the market conditions then prevailing, and

(b)between persons dealing with each other at arm's length in the open market.

21After section 97 insert—E+W+S+N.I.

Cash basis: value of stock and work in progress on cessationE+W+S+N.I.
97ACash basis: value of trading stock on cessation of trade

(1)This section applies if—

(a)a person permanently ceases to carry on a trade in a tax year, and

(b)an election under section 25A (cash basis for small businesses) has effect in relation to the trade for the tax year.

(2)The value of any trading stock belonging to the trade at the time of the cessation is brought into account as a receipt in calculating the profits of the trade for the tax year.

(3)The value is to be determined on a basis that is just and reasonable in all the circumstances.

(4)If there is a change in the persons carrying on a trade, subsection (2) does not apply in relation to the trade so long as a person carrying on the trade immediately before the change continues to carry it on after the change.

(5)In this section “trading stock” has the same meaning as in Chapter 12 (see section 174).

(6)This section does not apply to professions or vocations.

97BCash basis: value of work in progress on cessation of profession or vocation

(1)This section applies if—

(a)a person permanently ceases to carry on a profession or vocation in a tax year, and

(b)an election under section 25A (cash basis for small businesses) has effect in relation to the profession or vocation for the tax year.

(2)The value of any work in progress at the time of the cessation is brought into account as a receipt in calculating the profits of the profession or vocation for the tax year.

(3)The value is to be determined on a basis that is just and reasonable in all the circumstances.

(4)If there is a change in the persons carrying on a profession, subsection (2) does not apply in relation to the profession so long as a person carrying on the profession immediately before the change continues to carry it on after the change.

(5)In this section “work in progress” has the same meaning as in Chapter 12 (see section 183).

22(1)Section 105 (industrial development grants) is amended as follows.E+W+S+N.I.

(2)In subsection (2), at the end of paragraph (a) insert “ (but see subsection (2A)) ”.

(3)After that subsection insert—

(2A)Subsection (2)(a) is to be disregarded in calculating the profits of a trade on the cash basis.

Amounts not reflecting commercial transactionsE+W+S+N.I.

23After Chapter 6 insert—E+W+S+N.I.

CHAPTER 6AE+W+S+N.I.Trade profits: amounts not reflecting commercial transactions
106AProfessions and vocations

The provisions of this Chapter apply to professions and vocations as they apply to trades.

106BApplication of Chapter

This Chapter applies in calculating the profits of a person's trade for a period on the cash basis.

106CAmounts not reflecting commercial transactions

(1)This section applies if—

(a)the person does anything in relation to the trade (“the relevant act”),

(b)there is a difference between—

(i)the amount (if any) that, as a result of the relevant act, would (apart from this section) be brought into account in calculating the profits of the trade for the period, and

(ii)the amount (if any) that would have been so brought into account had the relevant act consisted of a transaction between the person and another person dealing with each other at arm's length in the open market (“the arm's length amount”), and

(c)the profits of the trade for the period are less than they would have been if the arm's length amount had been so brought into account.

(2)The amount to be brought into account in calculating the profits of the trade for the period is an amount that is just and reasonable in all the circumstances.

106DCapital receipts

Section 106C does not apply in relation to the relevant act if subsection (4) or (5) of section 96A (cash basis: capital receipts) applies in relation to that act.

106EGifts to charities etc

Section 106C does not apply in relation to the relevant act if any of the provisions of Chapter 7 (trade profits: gifts to charities etc) applies in relation to that act.

Herd basis rulesE+W+S+N.I.

24In Chapter 8 (trade profits: herd basis rules), after section 111 insert—E+W+S+N.I.

111AHerd basis rules not to apply where cash basis used

Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

Sound recordingsE+W+S+N.I.

25In Chapter 9 (trade profits: sound recordings), after section 130 insert—E+W+S+N.I.

130AChapter not to apply where cash basis used

Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

Telecommunication rightsE+W+S+N.I.

26In Chapter 10 (trade profits: certain telecommunication rights), before section 145 insert—E+W+S+N.I.

144AChapter not to apply where cash basis used

Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

Long funding leasesE+W+S+N.I.

27In Chapter 10A (leases of plant or machinery: special rules for long funding leases), before section 148A (and the italic heading preceding it) insert—E+W+S+N.I.

Application of ChapterE+W+S+N.I.
148ZAChapter not to apply where cash basis used

Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

Specific tradesE+W+S+N.I.

28In Chapter 11 (trade profits: other specific trades), before section 149 (and the italic heading preceding it) insert—E+W+S+N.I.

Cash basis accountingE+W+S+N.I.
148KApplication of Chapter to the cash basis

The following sections do not apply in calculating the profits of a trade, profession or vocation on the cash basis—

  • sections 149 to 154A (dealers in securities etc),

  • section 157 (relief in respect of mineral royalties),

  • section 158 (lease premiums etc: reduction of receipts),

  • section 159 (ministers of religion),

  • section 161 (mineral exploration and access),

  • section 162 (payments by persons liable to pool betting duty),

  • sections 163 and 164 (intermediaries treated as making employment payments),

  • section 164A (managed service companies),

  • sections 165 to 168 (waste disposal),

  • sections 169 to 172ZE (cemeteries and crematoria).

Changes in trading stockE+W+S+N.I.

29In Chapter 11A (trade profits: changes in trading stock), after section 172A insert—E+W+S+N.I.

172AAChapter not to apply where cash basis used

Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

Unremittable amountsE+W+S+N.I.

30In Chapter 13 (deductions from profits: unremittable amounts), after section 188 insert—E+W+S+N.I.

188AChapter not to apply where cash basis used

Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

Disposal and acquisition of know-howE+W+S+N.I.

31In Chapter 14 (disposal and acquisition of know-how), before section 192 insert—E+W+S+N.I.

191AChapter not to apply where cash basis used

Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

Averaging profits of farmers and creative artistsE+W+S+N.I.

32In Chapter 16 (averaging profits of farmers and creative artists), after section 221 insert—E+W+S+N.I.

221AClaim not available where cash basis used

Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

Compensation for compulsory slaughter of animalE+W+S+N.I.

33In Chapter 16ZA (compensation for compulsory slaughter of animal), after section 225ZA insert—E+W+S+N.I.

225ZAAChapter not to apply where cash basis used

Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

Oil activitiesE+W+S+N.I.

34In Chapter 16A (oil activities), before section 225A (and the italic heading preceding it) insert—E+W+S+N.I.

Application of ChapterE+W+S+N.I.
225ZHChapter not to apply where cash basis used

Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

Adjustment incomeE+W+S+N.I.

35Chapter 17 (adjustment income) is amended as follows.E+W+S+N.I.

36After section 227 insert—E+W+S+N.I.

227AApplication of Chapter where cash basis used

(1)This Chapter applies if—

(a)an election under section 25A (cash basis for small businesses) has effect in relation to a trade for a tax year but no such election has effect in relation to the trade for the following tax year, or

(b)no such election has effect in relation to a trade for a tax year but such an election has effect in relation to the trade for the following tax year.

(2)But this Chapter does not apply to income which is charged in accordance with section 832.

37After section 239 insert—E+W+S+N.I.

Spreading of adjustment income on leaving cash basisE+W+S+N.I.
239ASpreading on leaving cash basis

(1)This section applies if—

(a)an election under section 25A (cash basis for small businesses) has effect in relation to a trade for a tax year, and

(b)no such election has effect in relation to the trade for the following tax year.

(2)Any adjustment income is spread over 6 tax years as follows.

(3)In each of the 6 tax years beginning with that in which the whole amount of the adjustment income would otherwise be chargeable to tax, an amount equal to one-sixth of the amount of the adjustment income is treated as arising and is charged to tax.

(4)This section is subject to any election under section 239B (election to accelerate charge).

239BElection to accelerate charge under section 239A

(1)A person who under section 239A is liable to tax for a tax year on an amount of adjustment income may elect for an additional amount to be treated as arising in the tax year.

(2)The election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year.

(3)The election must specify the amount to be treated as income arising in the tax year (which may be any amount of the adjustment income not previously charged to tax).

(4)If an election is made, section 239A applies in relation to any subsequent tax year as if the amount of adjustment income (as reduced by any previous application of this section) were reduced by the amount given by the following formula—

where—

A is the additional amount treated as arising in the tax year for which the election is made, and

T is the number of tax years remaining after that tax year in the period of 6 tax years referred to in section 239A.

Adjustments for capital allowancesE+W+S+N.I.

38After Chapter 17 insert—E+W+S+N.I.

CHAPTER 17AE+W+S+N.I.Cash basis: adjustments for capital allowances
IntroductionE+W+S+N.I.
240AProfessions and vocations

The provisions of this Chapter apply to professions and vocations as they apply to trades.

Adjustments on entering cash basisE+W+S+N.I.
240B“Entering the cash basis”

For the purposes of this Chapter a person carrying on a trade enters the cash basis for a tax year if—

(a)an election under section 25A has effect in relation to the trade for the tax year, and

(b)immediately before the beginning of the basis period for the tax year, such an election does not have effect in relation to the trade.

240CUnrelieved qualifying expenditure

(1)This section applies if—

(a)a person carrying on a trade enters the cash basis for a tax year (“the current tax year”), and

(b)at the end of the basis period for the previous tax year, the person has unrelieved qualifying expenditure to carry forward from the chargeable period ending with that basis period.

(2)But this section does not apply if section 240D (assets not fully paid for) applies.

(3)In calculating the profits of the trade for the current tax year, a deduction is allowed for the relevant portion of the expenditure.

(4)The “relevant portion” of the expenditure means the amount of the expenditure for which a deduction would be allowed in calculating the profits of the trade on the cash basis for a period if the expenditure was paid during that period.

(5)The relevant portion of the expenditure is to be determined on such basis as is just and reasonable in all the circumstances.

(6)Section 59(1) and (2) of CAA 2001 (unrelieved qualifying expenditure) has effect for the purposes of this section.

240DAssets not fully paid for

(1)This section applies if—

(a)a person carrying on a trade enters the cash basis for a tax year,

(b)at any time before the beginning of the basis period for that tax year the person has obtained capital allowances in respect of expenditure on the provision of plant or machinery (“the relevant expenditure”), and

(c)not all of the relevant expenditure has actually been paid by the person.

(2)If the amount of the relevant expenditure that the person has actually paid exceeds the amount of capital allowances given in respect of the relevant expenditure, the difference is to be deducted in calculating the profits of the trade for the tax year.

(3)If the amount of the relevant expenditure that the person has actually paid is less than the amount of capital allowances given in respect of the relevant expenditure, the difference is to be treated as a receipt in calculating the profits of the trade for the tax year.

(4)The amount of any capital allowance obtained in respect of expenditure on the provision of any plant or machinery is to be determined on such basis as is just and reasonable in all the circumstances.

(5)If the amount of capital allowances given in respect of the relevant expenditure has been reduced under section 205 or 207 of CAA 2001 (reduction where asset provided or used only partly for qualifying activity), the amount of the relevant expenditure that the person has actually paid is to be proportionately reduced for the purposes of this section.

(6)This section does not apply where the relevant expenditure was incurred on the provision of a car.

In this subsection “car” has the same meaning as in Part 2 of CAA 2001 (see section 268A of that Act).

Successions where predecessor and successor are connected personsE+W+S+N.I.
240EEffect of election where predecessor and successor are connected persons

(1)This section applies if—

(a)a person carrying on a trade enters the cash basis for a tax year,

(b)the person is the successor for the purposes of section 266 of CAA 2001, and

(c)as a result of an election under section 267 of that Act, relevant plant or machinery is treated as sold by the predecessor to the successor at any time during the basis period for the tax year.

(2)The provisions of this Chapter have effect in relation to the successor as if everything done to or by the predecessor had been done to or by the successor.

(3)Any expenditure actually incurred by the successor on acquiring the relevant plant or machinery is to be ignored for the purposes of calculating the profits of the trade for the tax year.

(4)In this section “the predecessor” and “relevant plant or machinery” have the same meaning as in section 267 of CAA 2001.

Post-cessation receiptsE+W+S+N.I.

39(1)Chapter 18 (post-cessation receipts) is amended as follows.E+W+S+N.I.

(2)In section 246 (basic meaning of “post-cessation receipt”), after subsection (2) insert—

(2A)If, immediately before a person permanently ceases to carry on a trade, an election under section 25A (cash basis for small businesses) has effect in relation to the trade, a sum is to be treated as a post-cessation receipt only if it would have been brought into account in calculating the profits of the trade on the cash basis had it been received at that time.

(3)In section 254 (allowable deductions), after subsection (2) insert—

(2A)If, immediately before the person permanently ceases to carry on the trade, an election under section 25A (cash basis for small businesses) has effect in relation to the trade, assume for the purposes of subsection (2) that such an election has effect in relation to the trade.

Rent-a-room reliefE+W+S+N.I.

40In Chapter 1 of Part 7 of ITTOIA 2005 (rent-a-room relief), in section 786 (meaning of “rent-a-room receipts”), after subsection (4) insert—E+W+S+N.I.

(5)Subsections (6) and (7) apply if—

(a)the receipts would otherwise be brought into account in calculating the profits of a trade, and

(b)an election under section 25A (cash basis for small businesses) has effect in relation to the trade.

(6)Any amounts brought into account under section 96A (capital receipts) as a receipt in calculating the profits of the trade are to be treated as receipts within paragraph (a) of subsection (1) above.

(7)The reference in subsection (1)(b) to receipts that accrue to an individual during the income period for those receipts is to be read as a reference to receipts that are received by the individual during that period.

Qualifying care reliefE+W+S+N.I.

41Chapter 2 of Part 7 of ITTOIA 2005 (qualifying care relief) is amended as follows.E+W+S+N.I.

42In section 805 (meaning of “qualifying care receipts”), after subsection (3) insert—E+W+S+N.I.

(4)Subsections (5) and (6) apply if—

(a)the receipts would otherwise be brought into account in calculating the profits of a trade, and

(b)an election under section 25A (cash basis for small businesses) has effect in relation to the trade.

(5)Any amounts brought into account under section 96A (capital receipts) as a receipt in calculating the profits of the trade are to be treated as receipts within paragraph (a) of subsection (1) above.

(6)The reference in subsection (1)(b) to receipts that accrue to an individual during the income period for those receipts is to be read as a reference to receipts that are received by the individual during that period.

43In section 820 (periods of account not ending on 5th April)—E+W+S+N.I.

(a)the existing provision becomes subsection (1), and

(b)after that subsection insert—

(2)Where an election under section 25A (cash basis for small businesses) has effect in relation to the trade, any reference in this section or sections 821 to 823 to the period of account in which receipts accrue is to be read as a reference to the period of account in which receipts are received.

PART 2E+W+S+N.I.Consequential amendments

TMA 1970E+W+S+N.I.

44In section 42 of TMA 1970 (procedure for making claims etc), in subsection (7)(e), after “sections” insert “ 25A, ”.E+W+S+N.I.

TCGA 1992E+W+S+N.I.

45After section 47 of TCGA 1992 insert—E+W+S+N.I.

Cash basis accountingE+W+S+N.I.
47AExemption for disposals by persons using cash basis

(1)No chargeable gain shall accrue on the disposal of, or of an interest in, an asset if conditions A to D are met in relation to the asset.

(2)Condition A is that the asset is—

(a)tangible movable property, and

(b)a wasting asset.

(3)Condition B is that, at any time during the period of ownership of the person making the disposal, the asset has been used for the purposes of a trade, profession or vocation carried on by the person.

(4)Condition C is that an election under section 25A of ITTOIA 2005 (cash basis for small businesses) has effect in relation to the trade, profession or vocation at the time of the disposal.

(5)Condition D is that—

(a)any expenditure attributable to the asset or interest under paragraph (a) or (b) of section 38(1) has been brought into account in calculating the profits of the trade, profession or vocation on the cash basis, or

(b)any of that expenditure would have been so brought into account if an election under section 25A of ITTOIA 2005 had had effect in relation to the trade, profession or vocation at the time the expenditure was paid.

(6)Subsection (7) applies in the case of the disposal of, or of an interest in, an asset which, in the period of ownership of the person making the disposal—

(a)has been used partly for the purposes of the trade, profession or vocation and partly for other purposes, or

(b)has been used for the purposes of the trade, profession or vocation for part of that period.

(7)In such a case—

(a)the consideration for the disposal, and any expenditure attributable to the asset or interest by virtue of section 38(1)(a) and (b), shall be apportioned by reference to the extent to which that expenditure was, or (as the case may be) would have been, brought into account as mentioned in subsection (5) above,

(b)the computation of the gain shall be made separately in relation to the apportioned parts of the expenditure and consideration, and

(c)subsection (1) above shall apply to any gain accruing by reference to the computation in relation to the part of the consideration apportioned to use for the purposes of the trade, profession or vocation.

47BDisposals made by persons after leaving cash basis

(1)This section applies where—

(a)a person disposes of, or of an interest in, an asset that has been used for the purposes of a trade, profession or vocation carried on by the person, and

(b)conditions A and B are met in relation to the trade, profession or vocation.

(2)Condition A is that—

(a)any expenditure attributable to the asset or interest under paragraph (a) or (b) of section 38(1) was incurred at a time when an election under section 25A of ITTOIA 2005 (cash basis for small businesses) had effect in relation to the trade, profession or vocation, and

(b)that expenditure (“the relevant expenditure”) has been brought into account in calculating the profits of the trade, profession or vocation on the cash basis.

(3)Condition B is that no such election has effect in relation to the trade, profession or vocation at the time of the disposal.

(4)Section 39 (exclusion of expenditure by reference to tax on income) does not apply in relation to the relevant expenditure.

(5)Section 41 (restriction of losses by reference to capital allowances and renewals allowances) has effect as if—

(a)the election mentioned in subsection (2)(a) above had not had effect at the time the relevant expenditure was incurred, and

(b)the reference in subsection (7) to qualifying expenditure included a reference to expenditure which, if that election had not had effect at that time, would have been qualifying expenditure.

(6)Section 45 (exemption for certain wasting assets) and section 47 (wasting assets qualifying for capital allowances) have effect as if the election mentioned in subsection (2)(a) above had not had effect at the time the relevant expenditure was incurred.

Accordingly, any reference in those sections to expenditure qualifying for capital allowances is to be read as a reference to expenditure that would, in the absence of the election, have qualified for such allowances.

CAA 2001E+W+S+N.I.

46In section 1 of CAA 2001 (capital allowances), after subsection (3) insert—E+W+S+N.I.

(4)But a person is not entitled to any allowance or liable to any charge under this Act in calculating the profits of a trade, profession or vocation of the person in relation to which an election under section 25A of ITTOIA 2005 (cash basis for small businesses) has effect, other than an allowance in respect of expenditure incurred on the provision of a car (or a charge in connection with such an allowance).

(5)In subsection (4) “car” has the same meaning as in Part 2 (see section 268A).

47In section 59 of CAA 2001 (unrelieved qualifying expenditure), after subsection (3) insert—E+W+S+N.I.

(4)If a person carrying on a trade, profession or vocation enters the cash basis for a tax year, no amount may be carried forward as unrelieved qualifying expenditure from the chargeable period ending with the basis period for the previous tax year.

(5)But subsection (4) does not apply to unrelieved qualifying expenditure incurred on the provision of a car.

(6)Where a person has unrelieved qualifying expenditure to carry forward from a chargeable period that is not expenditure allocated to a single asset pool, the amount of unrelieved qualifying expenditure incurred on the provision of a car is to be determined on such basis as is just and reasonable in all the circumstances.

(7)Section 240B of ITTOIA 2005 (meaning of “entering the cash basis”) applies for the purposes of this section as it applies for the purposes of Chapter 17A of Part 2 of that Act.

48In Chapter 5 of Part 2 of CAA 2001 (plant and machinery allowances and charges), after section 66 insert—E+W+S+N.I.

Application of Chapter to person leaving cash basisE+W+S+N.I.
66APersons leaving cash basis

(1)This section applies if—

(a)a person carrying on a trade, profession or vocation leaves the cash basis in a chargeable period, and

(b)the person has at any time incurred expenditure which, if an election under section 25A of ITTOIA 2005 (cash basis for small businesses) had not had effect at that time, would have been qualifying expenditure.

(2)In this section—

(a)the “relieved portion” of the expenditure is the amount of that expenditure for which—

(i)a deduction was allowed in calculating the profits of the trade, profession or vocation, or

(ii)a deduction would have been so allowed if the expenditure had been incurred wholly and exclusively for the purposes of the trade, profession or vocation;

(b)the “unrelieved portion” of the expenditure is any remaining amount of the expenditure.

(3)For the purposes of determining any entitlement of the person to an annual investment allowance or a first-year allowance, the person is to be treated as incurring the unrelieved portion of the expenditure in the chargeable period.

(4)For the purposes of determining the person's available qualifying expenditure in a pool for the chargeable period (see section 58)—

(a)the whole of the expenditure must be allocated to the appropriate pool (or pools) in that chargeable period, and

(b)the available qualifying expenditure in a pool to which the expenditure (or some of it) is allocated is reduced by the relieved portion of that expenditure.

(5)For the purposes of determining any disposal receipts (see section 60), the expenditure incurred by the person is to be regarded as qualifying expenditure.

(6)For the purposes of this section a person carrying on a trade, profession or vocation leaves the cash basis in a chargeable period if—

(a)immediately before the beginning of the chargeable period an election under section 25A had effect in relation to the trade, profession or vocation, and

(b)such an election does not have effect in relation to the trade, profession or vocation for the chargeable period.

ITTOIA 2005E+W+S+N.I.

49In section 31 of ITTOIA 2005 (relationship between rules prohibiting and allowing deductions), in subsection (2), omit the “or” at the end of paragraph (b) and after paragraph (c) insert or E+W+S+N.I.

(d)Chapter 17A,.

50In section 56 of ITTOIA 2005 (rules allowing deductions: professions and vocations), after “marks)” insert “ and section 97A (cash basis: value of trading stock on cessation of trade) ”.E+W+S+N.I.

51Omit section 160 of ITTOIA 2005 (cash basis of calculation for barristers and advocates in early years of practice).E+W+S+N.I.

52(1)Chapter 17 of Part 2 of ITTOIA 2005 (adjustment income) is amended as follows.E+W+S+N.I.

(2)In section 229(2)(a), for “sections 237 to 239” substitute “ sections 237 to 239B ”.

(3)Omit sections 238 and 239 (spreading of adjustment income: barristers and advocates).

53In Part 2 of Schedule 4 to ITTOIA 2005 (index of defined expressions), at the appropriate place insert—E+W+S+N.I.

the cash basis (in Part 2)section 25A”;
“entering the cash basis (in Chapter 17A of Part 2)section 240B.

ITA 2007E+W+S+N.I.

54(1)In Part 4 of ITA 2007 (loss relief), Chapter 2 (trade losses) is amended as follows.E+W+S+N.I.

(2)In section 64 (deduction of losses from general income), in subsection (8), after paragraph (ba) insert—

(bb)section 74E (restriction on the relief and early trade losses relief where cash basis applies),.

(3)In section 72 (relief for individuals for losses in first 4 years of trade), in subsection (5), after paragraph (ba) insert—

(bb)section 74E (restriction on the relief and trade loss relief where cash basis applies),.

(4)After section 74D insert—

Restriction on sideways relief and capital gains relief where cash basis appliesE+W+S+N.I.
74ENo relief where cash basis used to calculate losses

(1)This section applies if—

(a)a person makes a loss in any trade in a tax year, and

(b)an election under section 25A of ITTOIA 2005 (cash basis for small businesses) has effect in relation to the trade for that tax year.

(2)No sideways relief or capital gains relief may be given to the person for the loss.

(3)For the purposes of this section—

(a)capital gains relief is, in relation to a loss, the treatment of a loss as an allowable loss by virtue of section 261B of TCGA 1992 (use of trading loss as a CGT loss), and

(b)capital gains relief is given for a loss when it is so treated.

55(1)Chapter 1 of Part 8 of ITA 2007 (relief for interest payments) is amended as follows.E+W+S+N.I.

(2)In section 383(5), after paragraph (a) insert—

(aa)section 384B (restriction on relief where cash basis applies),.

(3)After section 384A insert—

384BRestriction on relief where cash basis applies

(1)Relief is not to be given under this Chapter for a tax year for interest paid by a person on a relevant loan if the partnership to which the loan relates has made an election under section 25A of ITTOIA 2005 (cash basis for small businesses) for the tax year.

(2)A loan is a “relevant loan” if—

(a)it is a loan to which section 388 applies (loan to buy plant or machinery for partnership use), or

(b)it is a loan to which section 398 applies (loan to invest in partnership) and which is not used for purchasing a share in a partnership.

PART 3E+W+S+N.I.Commencement and transitional provision

56Subject to paragraph 57, the amendments made by this Schedule have effect for the tax year 2013-14 and subsequent tax years.E+W+S+N.I.

57(1)In a case where—E+W+S+N.I.

(a)the profits of a barrister or advocate in independent practice for a period of account ending in the tax year 2012-13 have been calculated in accordance with section 160 of ITTOIA 2005 (barristers and advocates: alternative basis of calculation in early years of practice), and

(b)if that section had not been repealed by this Schedule, the profits of the barrister or advocate for any subsequent period of account could have been calculated in accordance with that section,

the profits of the barrister or advocate for that subsequent period of account may be calculated in accordance with that section.

(2)The repeal of sections 238 and 239 of ITTOIA 2005 (spreading of adjustment income: barristers and advocates) does not have effect in relation to any individual whose profits for a period of account ending in or before the tax year 2012-13 have been calculated in accordance with section 160 of ITTOIA 2005.

Section 18

SCHEDULE 5E+W+S+N.I.Deductions allowable at a fixed rate

1Part 2 of ITTOIA 2005 (trading income) is amended as follows.E+W+S+N.I.

2After Chapter 5 insert—E+W+S+N.I.

CHAPTER 5AE+W+S+N.I.Trade profits: deductions allowable at a fixed rate

IntroductionE+W+S+N.I.

94BProfessions and vocations

The provisions of this Chapter apply to professions and vocations as they apply to trades.

94CProvisions not applicable to certain firms

The provisions of this Chapter do not apply in calculating the profits of a trade carried on by a firm for a period if one or more of the persons who have been partners in the firm at any time during the period was not an individual at that time.

Expenditure on vehiclesE+W+S+N.I.

94DExpenditure on vehicles

(1)This section applies if, in calculating the profits of a trade of a person for a period—

(a)a deduction would otherwise be allowable for the period in respect of qualifying expenditure incurred in relation to a relevant vehicle (see subsection (2)), or

(b)a deduction would be so allowable in respect of such expenditure but for the fact it is capital expenditure.

(2)In this section “relevant vehicle” means a car, motor cycle or goods vehicle that—

(a)is used for the purposes of the trade, and

(b)is not an excluded vehicle (see section 94E).

(3)The person may make a deduction under this section for the period in respect of the qualifying expenditure.

(4)If a deduction for a period is made under this section—

(a)no other deduction is allowed (for that or any other period) in respect of the qualifying expenditure, and

(b)this section applies in relation to the relevant vehicle for every subsequent period for which the vehicle is used for the purposes of the trade.

(5)The amount of the deduction is the appropriate mileage amount in relation to the relevant vehicle for the period (see section 94F).

(6)In this section “qualifying expenditure”, in relation to a vehicle, means any expenditure incurred in respect of the acquisition, ownership, hire, leasing or use of the vehicle, other than incidental expenses incurred in connection with a particular journey.

(7)For provision preventing capital allowances from being claimed in respect of qualifying expenditure incurred in relation to a relevant vehicle, see section 38ZA of CAA 2001.

94EExcluded vehicles

(1)A car, motor cycle or goods vehicle that is used for the purposes of a trade is an “excluded vehicle” for the purposes of section 94D if condition A or B is met in relation to the vehicle.

(2)Condition A is that the person who is or has been carrying on the trade has at any time claimed any capital allowances under Part 2 of CAA 2001 in respect of any expenditure incurred on the provision of the vehicle.

(3)Condition B is that—

(a)the vehicle is a goods vehicle or a motor cycle, and

(b)any of the expenditure incurred on acquiring the vehicle has been deducted in calculating the profits of the trade for a period on the cash basis (see section 25A).

94FThe appropriate mileage amount

(1)In calculating the profits of a trade for a period, the appropriate mileage amount in relation to a relevant vehicle for the period is—

where—

M is the number of miles of business journeys made by a person (other than as a passenger) using that vehicle in the period, and

R is the rate applicable to that kind of vehicle.

(2)The rates applicable are as follows—

Table
Kind of vehicleRate per mile
Car or goods vehicle45p for the first 10,000 miles
25p after that
Motor cycle24p

(3)In a case where the total number of miles of relevant business journeys made in the period is greater than 10,000, the rate of 45p per mile is available only in relation to 10,000 of those miles.

(4)Relevant business journey” means any business journey made in the period by a car or goods vehicle—

(a)that is used for the purposes of the trade, and

(b)in relation to which section 94D applies for the period.

(5)In this section—

  • business journey”, in relation to a vehicle used for the purposes of a trade, means any journey, or any identifiable part or proportion of a journey, that is made wholly and exclusively for the purposes of the trade, and

  • relevant vehicle” has the same meaning as in section 94D.

(6)The Treasury may by regulations amend subsection (2) so as to alter the rates or rate bands.

Regulations under this subsection may also make consequential amendments to subsection (3).

94GDefinitions of types of vehicle

(1)This section applies for the purposes of sections 94D to 94F (and this section).

(2)Car” means a mechanically propelled road vehicle which is not—

(a)a goods vehicle,

(b)a motor cycle,

(c)an invalid carriage, or

(d)a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used.

(3)Goods vehicle” means a mechanically propelled road vehicle which—

(a)is of a construction primarily suited for the conveyance of goods or burden of any description, and

(b)is not a motor cycle.

(4)Motor cycle” has the meaning given by section 185(1) of the Road Traffic Act 1988.

(5)For the purposes of this section “invalid carriage” has the meaning given by section 185(1) of the Road Traffic Act 1988.

Use of home for business purposesE+W+S+N.I.

94HUse of home for business purposes

(1)This section applies if, in calculating the profits of a trade of a person for a period, a deduction (“the standard deduction”) would otherwise be allowable for the period in respect of the use of the person's home for the purposes of the trade.

(2)The person may, instead of making the standard deduction, make a deduction for the period under this section.

(3)The amount of the deduction allowable for the period is the sum of the applicable amounts for each month, or part of a month, falling within the period.

(4)The applicable amount for a month, or part of a month, is given by the following Table—

Table
Number of hours workedApplicable amount
25 or more£10.00
51 or more£18.00
101 or more£26.00

where the “number of hours worked” in a month (or part of a month) is the number of hours spent wholly and exclusively on work done by the person, or any employee of the person, in the person's home wholly and exclusively for the purposes of the trade.

(5)If the person has more than one home, this section has effect as if those homes were a single home.

(6)The Treasury may by regulations amend subsection (4) so as to alter the rates or rate bands.

Premises used both as home and business premisesE+W+S+N.I.

94IPremises used both as a home and as business premises

(1)This section applies if—

(a)a person carries on a trade at any premises,

(b)the premises are used mainly for the purposes of carrying on the trade, but are also used by the person as a home,

(c)the person incurs expenses in relation to the premises,

(d)the expenses are incurred mainly (but not wholly and exclusively) for the purposes of the trade, and

(e)in calculating the profits of the trade for a period, a deduction (“the standard deduction”) would otherwise be allowable for the period in respect of a part or proportion of the expenses in accordance with section 34(2).

(2)The person may, instead of making the standard deduction, make a deduction for the period under this section.

(3)The amount of the deduction allowable for the period is the amount of the expenses less the non-business use amount.

(4)The non-business use amount is the sum of the applicable amounts for each month, or part of a month, falling within the period.

(5)The applicable amount for a month, or part of a month, is given by the following Table—

Table
Number of relevant occupantsApplicable amount
1£350
2£500
3 or more£650

(6)For the purposes of subsection (5) “relevant occupant”, in relation to a month (or part of a month), means an individual who, at any time during that month (or that part of a month)—

(a)occupies the premises as a home, or

(b)stays at the premises otherwise than in the course of the trade.

(7)The Treasury may by regulations amend subsection (5) so as to alter the rates or rate bands.

3In section 31 (relationship between rules prohibiting and allowing deductions), in subsection (2), after paragraph (a) insert—E+W+S+N.I.

(aa)Chapter 5A,.

4In Chapter 18 (post-cessation receipts), in section 254 (allowable deductions), after subsection (2A) (inserted by paragraph 39 of Schedule 4) insert—E+W+S+N.I.

(2B)If—

(a)the loss or expense is incurred, or the debit arises, in relation to a vehicle, and

(b)immediately before the person permanently ceases to carry on the trade, section 94D (deduction allowable at fixed rate for expenditure on vehicles) applies in relation to the vehicle,

assume for the purposes of subsection (2) that that section applies in relation to the vehicle.

5(1)Part 2 of CAA 2001 (plant and machinery allowances) is amended as follows.E+W+S+N.I.

(2)In Chapter 3 (qualifying expenditure), after section 38 insert—

38ZAVehicles for which deductions allowed at fixed rate under Part 2 of ITTOIA 2005

Expenditure is not qualifying expenditure if—

(a)it is incurred in respect of a vehicle in a period, and

(b)a deduction is made for the period in respect of the expenditure under section 94D of ITTOIA 2005 (deduction allowable at fixed rate for expenditure on vehicles).

(3)In Chapter 5 (allowances and charges), in section 59 (unrelieved qualifying expenditure), at the end insert—

(8)Subsection (9) applies if—

(a)a person carrying on a trade, profession or vocation incurs expenditure in relation to a vehicle,

(b)at the end of the basis period for a tax year, the person has unrelieved qualifying expenditure incurred in relation to the vehicle to carry forward from the chargeable period ending with that basis period (“the relevant chargeable period”),

(c)in calculating the profits of a trade, profession or vocation of a person for the following tax year, a deduction is made under section 94D of ITTOIA 2005 in respect of expenditure incurred in relation to the vehicle, and

(d)the person does not enter the cash basis for that tax year.

(9)None of the unrelieved qualifying expenditure incurred in relation to the vehicle may be carried forward as unrelieved qualifying expenditure from the relevant chargeable period.

(10)Where a person has unrelieved qualifying expenditure to carry forward from a chargeable period that is not expenditure allocated to a single asset pool, the amount of the unrelieved qualifying expenditure incurred in relation to the vehicle is to be determined on such basis as is just and reasonable in all the circumstances.

6The amendments made by this Schedule have effect for the tax year 2013-14 and subsequent tax years.E+W+S+N.I.

Section 19

SCHEDULE 6E+W+S+N.I.Employment income: duties performed in the UK and overseas

PART 1E+W+S+N.I.Apportionment of earnings

1Part 2 of ITEPA 2003 (employment income: charge to tax) is amended as follows.E+W+S+N.I.

2In section 15 (earnings for year when employee UK resident), as amended by Schedule 45 to this Act, in subsection (5)—E+W+S+N.I.

(a)after paragraph (a) omit “and”, and

(b)after paragraph (b) insert , and

(c)section 41ZA (which is about determining the extent to which general earnings are in respect of United Kingdom duties).

3In Chapter 5 (taxable earnings: remittance basis rules and rules for non-UK resident employees), after section 41 insert—E+W+S+N.I.

Apportionment of earningsE+W+S+N.I.

41ZABasis of apportionment

The extent to which general earnings are in respect of duties performed in the United Kingdom is to be determined under this Chapter on a just and reasonable basis.

PART 2E+W+S+N.I.Remittance basis of taxation: special mixed fund rules

4Chapter A1 of Part 14 of ITA 2007 (remittance basis) is amended as follows.E+W+S+N.I.

5In section 809Q (sections 809L and 809P: transfers from mixed funds), after subsection (1) insert—E+W+S+N.I.

(1A)But this section must be read subject to section 809RA.

6After section 809R insert—E+W+S+N.I.

809RASpecial mixed fund rules for certain employment cases

(1)This section applies if—

(a)an individual has general earnings from an employment for a tax year,

(b)those earnings include both general earnings within section 15(1) of ITEPA 2003 (“section 15(1) earnings”) and general earnings within section 26(1) of that Act (“section 26(1) earnings”),

(c)at least some of the section 15(1) earnings, or sums deriving (wholly or in part, and directly or indirectly) from at least some of the section 15(1) earnings, are paid into an account in that tax year at a time (a “relevant time”) when the account is a qualifying account of the individual, and

(d)at least some of the section 26(1) earnings, or sums deriving (wholly or in part, and directly or indirectly) from at least some of the section 26(1) earnings, are also paid into the account in that tax year at a relevant time.

(2)If this section applies, the composition of each transfer made from the account in that tax year at a relevant time is to be determined as follows—

  • Step 1 Suppose that all the condition A transfers made from the account in the tax year at a relevant time had been a single transfer made from the account at the end of the tax year.

  • Step 2 Suppose that all the other transfers made from the account in the tax year at a relevant time had been a single offshore transfer made at the end of the tax year immediately after the single transfer mentioned in step 1.

  • Step 3 Applying those suppositions—

    (a)

    find under section 809Q(3) the extent to which the single transfer mentioned in step 1 is of the individual's income or chargeable gains, and

    (b)

    find under section 809R(4) the content of the single offshore transfer mentioned in step 2.

  • Step 4 Each transfer made from the account in the tax year at a relevant time is to be treated as containing the specified proportion of each kind of income or capital contained in the relevant deemed transfer.“The specified proportion” is the amount of the transfer divided by the amount of the relevant deemed transfer.“The relevant deemed transfer” is—

    (a)

    if the transfer is a condition A transfer, the single transfer mentioned in step 1, and

    (b)

    otherwise, the single offshore transfer mentioned in step 2.

(3)Subsection (2) applies in determining the composition of a transfer for the purposes of sections 809Q and 809R but it does not otherwise affect the date on which a transfer is considered to occur for the purposes of this Chapter.

(4)If the tax year is the tax year in which the account becomes a qualifying account, for the purpose of applying section 809Q(3) in relation to the single transfer mentioned in step 1 of subsection (2), treat the part of the tax year falling before the qualifying date for the account as a separate tax year.

(5)If the account ceases to be a qualifying account of the individual during the tax year other than as a result of a breach of the deposit rule—

(a)subsection (2) has effect as if references to the end of the tax year were to the end of the day on which the account ceases to be a qualifying account, and

(b)for the purpose of applying section 809Q(3) in relation to the single transfer mentioned in step 1 of subsection (2), treat the part of the tax year falling after the day mentioned in paragraph (a) as a separate tax year.

(6)A transfer from the account is a “condition A transfer” if and to the extent that—

(a)condition A in section 809L is met, and

(b)either—

(i)the property or consideration for the service is (wholly or in part), or derives (wholly or in part, and directly or indirectly) from, the transfer, or

(ii)the transfer, or anything deriving (wholly or in part, and directly or indirectly) from the transfer, is used as mentioned in section 809L(3)(c).

(7)A transfer from the account is an “other transfer” if and to the extent that it is not a condition A transfer.

(8)Treat a transfer as an “other transfer” if and to the extent that, at the end of the tax year—

(a)it is not a condition A transfer, and

(b)on the basis of the best estimate that can reasonably be made at that time, it will not become a condition A transfer.

(9)If the account ceases to be a qualifying account of the individual during the tax year other than as a result of a breach of the deposit rule, subsection (8) has effect as if the reference to the end of the tax year were to the end of the day on which the account ceases to be a qualifying account.

(10)“Qualifying account” and “the qualifying date” for an account are defined in section 809RB.

(11)For the purposes of this section and sections 809RB to 809RD—

(a)employment” is to be read in accordance with section 4(1) of ITEPA 2003, and includes an office (as read in accordance with section 5(3) of that Act),

(b)whether general earnings are “for” a tax year is to be determined as for the purposes of the employment income Parts of ITEPA 2003 (see section 3(2) of that Act),

(c)a reference to anything “paid into” an account includes anything credited to the account by whatever means, and

(d)references to a breach of the deposit rule are to be read in accordance with section 809RC.

809RBQualifying accounts

(1)An individual may by notice to the Commissioners nominate an account to be a qualifying account of the individual for the purposes of section 809RA.

(2)The notice must specify the qualifying date for the account.

(3)“The qualifying date” for the account is the first date on which there is paid into the account sums falling within subsection (4) which (in total) are more than £10.

(4)A sum falls within this subsection if it is, or derives wholly (whether directly or indirectly) from, general earnings of the individual from an employment for a tax year which is a relevant tax year in relation to the employment.

(5)A tax year is a “relevant” tax year in relation to an employment if the general earnings which the individual has for the tax year from the employment include both general earnings within section 15(1) of ITEPA 2003 and general earnings within section 26(1) of that Act.

(6)The individual may withdraw the nomination by giving a further notice to the Commissioners, specifying the date with effect from which the nomination is withdrawn.

(7)A notice under subsection (1) or (6) must be in writing and include such information as the Commissioners may reasonably require.

(8)A notice under subsection (1) or (6) must be given no later than—

(a)31 January in the tax year following the tax year in which falls, as the case may be—

(i)the qualifying date for the account, or

(ii)the date with effect from which the nomination is withdrawn, or

(b)such later date as the Commissioners may allow.

(9)If an individual nominates an account under this section, the account is a “qualifying account” of the individual throughout the period—

(a)beginning with the qualifying date, and

(b)ending with the date before the earliest of the following dates—

(i)the date on which the account is closed or ceases to be an ordinary bank account held by and for the benefit of the individual (alone or jointly with others);

(ii)the date with effect from which the nomination is withdrawn under this section;

(iii)the qualifying date for another qualifying account of the individual;

(iv)6 April in a tax year in which there is a breach of the deposit rule which is not remedied or cannot be remedied;

(v)6 April in a tax year for which the individual has no general earnings within section 26(1) of ITEPA 2003.

(10)The account is not to be a qualifying account at all if—

(a)at any time on the qualifying date, the account is not an ordinary bank account held by and for the benefit of the individual (alone or jointly with others), or

(b)immediately before the qualifying date, the account has a credit balance of more than £10.

(11)The account is not to be a qualifying account at all if the qualifying date falls in a tax year—

(a)for which the individual has no general earnings within section 26(1) of ITEPA 2003, or

(b)in which there is a breach of the deposit rule which is not remedied or cannot be remedied.

(12)Subsection (9)(b)(iv) or (11)(b) (as relevant) is to be ignored if the breach occurs on or after a date falling within subsection (9)(b)(i) to (iii).

(13)If, apart from this subsection, an individual might have nominated two or more accounts for which the qualifying date would be the same, the individual may nominate only one of those accounts.

(14)If, apart from this subsection, an account would be a qualifying account of two or more individuals at any time, it is not to be a qualifying account of either or any of them at that time or any other time.

(15)For the purposes of this section an account is an “ordinary bank account” if it is a cash account in a bank (whether a current or savings account) where sums standing to the credit of the account from time to time represent a debt owed by the bank to the account-holder.

809RCBreaches of the deposit rule

(1)There is a breach of the deposit rule if a prohibited sum is paid into the account on or after the qualifying date.

(2)A breach of the deposit rule is remedied if, within 30 days beginning with the day on which the individual became or ought reasonably to have become aware of the payment of the prohibited sum, the required amount is transferred out of the account by way of a single one-off transfer.

(3)“The required amount” is an amount equal to—

(a)the prohibited sum, plus

(b)all the other prohibited sums (if any) that have been paid into the account since that sum was paid in.

(4)If there are 3 breaches of the deposit rule in any 12 month period, subsection (2) does not apply to the third breach and, accordingly, the third breach cannot be remedied.

(5)The payment of a prohibited sum (“the later prohibited sum”) into the account does not result in a breach of the deposit rule if—

(a)a breach resulting from an earlier payment of a prohibited sum into the account is remedied, and

(b)the later prohibited sum is represented by the required amount in relation to that breach.

(6)A “prohibited sum” is anything other than a sum that is, or derives wholly (whether directly or indirectly) from, any of the following kinds of income or capital—

(a)general earnings of the individual from an employment for a tax year which is a relevant tax year in relation to the employment,

(b)general earnings of the individual from an employment which consist of money and are paid in a tax year which is a relevant tax year in relation to the employment,

(c)an amount of specific employment income which, by virtue of Part 6, 7 or 7A of ITEPA 2003 or any other enactment, counts as employment income of the individual in respect of an employment for a tax year which is a relevant tax year in relation to the employment,

(d)interest on the account, or

(e)consideration for the disposal of employment-related securities or employment-related securities options in the circumstances described in subsection (7).

(7)The circumstances are—

(a)the securities or options were acquired pursuant to a right or opportunity available by reason of an employment of the individual,

(b)the disposal is or occurs in conjunction with, or as soon as reasonably practicable after, a relevant event involving those securities or options, and

(c)the tax year in which the relevant event occurs is a relevant tax year in relation to the employment.

(8)For the purposes of subsection (7) each of the following is a “relevant event”—

(a)the acquisition mentioned in subsection (7)(a), and

(b)any event on the occurrence of which an amount (if positive) counts as employment income by virtue of Part 7 of ITEPA 2003 or would do so but for—

(i)section 421E or 474 of that Act (exclusions: residence etc), or

(ii)an election under section 430 or 431 of that Act.

(9)For the purposes of this section a tax year is a “relevant” tax year in relation to an employment if—

(a)the individual has general earnings from the employment for the tax year,

(b)those earnings include both general earnings within section 15(1) of ITEPA 2003 (“section 15(1) earnings”) and general earnings within section 26(1) of that Act (“section 26(1) earnings”),

(c)at least some of the section 15(1) earnings, or sums deriving (wholly or in part, and directly or indirectly) from at least some of the section 15(1) earnings, are paid into the account in the tax year, and

(d)at least some of the section 26(1) earnings, or sums deriving (wholly or in part, and directly or indirectly) from at least some of the section 26(1) earnings, are also paid into the account in the tax year.

(10)For the purposes of this section—

(a)employment-related securities” has the meaning given in section 421B(8) of ITEPA 2003, and

(b)employment-related securities options” has the meaning given in section 471(5) of that Act.

809RDEffect where 30-day deadline is met

(1)This section applies if the required amount in relation to a breach of the deposit rule was transferred out of the account in accordance with section 809RC(2).

(2)Sections 809Q and 809R have effect as if—

(a)the intervening transactions had never taken place, and

(b)each prohibited sum represented by the required amount had instead been transferred directly (at the time that sum was paid into the qualifying account) into the account or other property into which the required amount was transferred by virtue of the single one-off transfer.

(3)Each of the following is an “intervening transaction”—

(a)each payment into the qualifying account of a prohibited sum represented by the required amount, and

(b)the single one-off transfer out of the qualifying account.

(4)If it is supposed under step 1 or 2 of section 809RA(2) that a single transfer had been made in the intervening period, re-apply section 809Q or 809R in relation to that transfer taking account of subsection (2).

(5)“The intervening period” is the period—

(a)beginning with the day on which the breach occurred, and

(b)ending with the day on which the single one-off transfer was made in accordance with section 809RC(2).

(6)If more than one transfer of a sum equal to the required amount was transferred out of the qualifying account within the 30-day grace period, the first of those transfers is assumed to be the single one-off transfer.

(7)“The 30-day grace period” is the period of 30 days mentioned in section 809RC(2).

PART 3E+W+S+N.I.Commencement

7The amendments made by Part 1 of this Schedule have effect in relation to earnings for the tax year 2013-14 and subsequent tax years.E+W+S+N.I.

8The amendments made by Part 2 of this Schedule have effect in relation to transfers from a mixed fund that are made in the tax year 2013-14 or any subsequent tax year.E+W+S+N.I.

Section 20

SCHEDULE 7E+W+S+N.I.Remittance basis: exempt property

1Chapter A1 of Part 14 of ITA 2007 (remittance basis) is amended as follows.E+W+S+N.I.

2In section 809X(3) (exempt property: public access rule), for “sections 809Z and 809Z1)” substitute “ section 809Z) ”.E+W+S+N.I.

3(1)Section 809Y (property that ceases to be exempt property treated as remitted) is amended as follows.E+W+S+N.I.

(2)In subsection (2), for “either” substitute “ any ”.

(3)After subsection (4) insert—

(4A)Where exempt property has been lost, stolen or destroyed, the first and second cases do not apply in relation to the property during any period—

(a)beginning with the time at which it was lost, stolen or destroyed, and

(b)(if lost or stolen) ending with the time at which it is recovered.

(4B)The third case is where a compensation payment is released in respect of exempt property that has been lost, stolen or destroyed.

(4)In subsection (6), after “exempt property” insert “ by virtue of the first or second case ”.

4After section 809YE insert—E+W+S+N.I.

809YFException to section 809Y: compensation taken offshore or invested

(1)Section 809Y(1) does not apply to property if—

(a)it ceases to be exempt property because a compensation payment in respect of it is released, and

(b)conditions A and B are met.

(2)Condition A is that the whole of the compensation payment is taken offshore or used by a relevant person to make a qualifying investment within the period of 45 days beginning with the day on which the payment is released.

(3)Condition B is that, if Condition A is satisfied wholly or in part by using the compensation payment to make a qualifying investment, the remittance basis user makes a claim for relief under subsection (4) on or before the first anniversary of the 31 January following the tax year in which the payment is released.

(4)If section 809Y(1) does not apply to property by virtue of subsection (1), the income and gains treated under section 809X as not remitted to the United Kingdom continue to be treated after the compensation payment is released as not remitted to the United Kingdom even though the property has ceased to be exempt property.

(5)But nothing in subsection (4) prevents anything done in relation to any part of the compensation payment after that payment is taken offshore (or used to make a qualifying investment) from counting as a remittance of the underlying income or gains to the United Kingdom at the time when the thing is done.

(6)Treat the compensation payment as containing or deriving from an amount of each kind of income and gain mentioned in section 809Q(4)(a) to (h) equal to the amount of that kind of income or gain contained in the exempt property when it was brought to, or received or used in, the United Kingdom (as mentioned in section 809X).

(7)Where Condition A was met by using the compensation payment to make a qualifying investment—

(a)the business investment provisions apply to the income and gains that continue, by virtue of subsection (4), to be treated as not remitted as they apply to income or gains that are treated under section 809VA(2) as not remitted, and

(b)if the investment was made using more than just the compensation payment, treat only the part of the investment made using the payment as “the investment” for the purposes of those provisions.

5(1)Section 809Z (public access rule: general) is amended as follows.E+W+S+N.I.

(2)In subsection (1), for “A to D” substitute “ B and C ”.

(3)Omit subsection (2).

(4)After subsection (8) insert—

(8A)But if the property is lost or stolen—

(a)the relevant period ends with the time at which it is lost or stolen, and

(b)a new relevant period begins with its importation or the time at which it is recovered.

(5)Omit subsection (10).

6Omit section 809Z1 (public access rule: relevant VAT relief).E+W+S+N.I.

7(1)Section 809Z4 (temporary importation rule) is amended as follows.E+W+S+N.I.

(2)In subsection (1), after “days” insert “ (subject to any increase under subsection (3B)) ”.

(3)In subsection (3)—

(a)before paragraph (a) insert—

(za)the property meets the public access rule,,

(b)after paragraph (b) insert—

(ba)subsection (3A) applies to the property,, and

(c)in paragraph (d) for “or 809YC(2)” substitute “ , 809YC(2) or 809YF(4) ”.

(4)After that subsection insert—

(3A)This subsection applies to the property if—

(a)it is not available to be used or enjoyed in the United Kingdom by or for the benefit of a relevant person because it has been lost, stolen or destroyed,

(b)(if lost or stolen) it has not been recovered, and

(c)no compensation payment has been released in respect of it.

(3B)If—

(a)property that has been lost or stolen is recovered,

(b)the first day after the day on which it is recovered is a countable day, and

(c)excluding that countable day there have already been 231 or more countable days in relation to the property,

the number of countable days specified in subsection (1) is read as being increased by the number necessary for there to be 45 countable days beginning with the countable day mentioned in paragraph (b).

(5)Omit subsections (4) to (10).

8In section 809Z6 (exempt property: other interpretation), after subsection (4) insert—E+W+S+N.I.

(5)References to property being lost, stolen or destroyed are to the property being lost, stolen or destroyed whilst in the United Kingdom.

(6)Compensation payment”, in relation to property that has been lost, stolen or destroyed, means any payment of compensation (whether under an insurance policy or otherwise) in respect of the property.

(7)A compensation payment is “released” on the day on which it first becomes available for use in the United Kingdom by or for the benefit of any relevant person.

(8)Property that has been lost or stolen is “recovered” on the day on which it becomes available to be used or enjoyed in the United Kingdom by or for the benefit of a relevant person.

9The amendments made by paragraphs 3, 4, 5(4), 7(2), (3)(b) and (c) and (4) and 8 have effect in relation to property that is lost, stolen or destroyed on or after 6 April 2013.E+W+S+N.I.

10The other amendments made by this Schedule have effect—E+W+S+N.I.

(a)in relation to property that is not in the United Kingdom on 6 April 2013, as from that date, and

(b)in relation to property that is in the United Kingdom on that date, as from the time when it ceases to be in the United Kingdom or is lost or stolen.

11In the case of property that falls within paragraph 10(b) by virtue of being lost or stolen, any period that is a period of importation in relation to the property for the purposes of section 809Z4 of ITA 2007 ends with the time at which it is lost or stolen.E+W+S+N.I.

Section 24

SCHEDULE 8E+W+S+N.I.Gains from contracts for life insurance etc

1Chapter 9 of Part 4 of ITTOIA 2005 (gains from contracts for life insurance etc) is amended as follows.E+W+S+N.I.

2In section 476 (special rules: foreign policies) in subsection (2)—E+W+S+N.I.

(a)after the entry relating to section 474(3) to (5) insert “ and ”,

(b)omit the entry relating to section 528,

(c)omit the “and” after the entry relating to sections 531 to 534, and

(d)omit the entry relating to section 536(6).

3For section 528 substitute—E+W+S+N.I.

528Reduction in amount charged on basis of non-UK residence where individual liable for tax

(1)Subsection (2) applies if—

(a)an individual is liable for tax charged on a gain from a policy of life insurance or a capital redemption policy, and

(b)there are one or more days in the material interest period on which the individual is not UK resident.

(2)In determining the individual's liability for tax, the gain on which the tax is charged in the case of the individual is to be reduced by the appropriate fraction.

(3)The appropriate fraction is—

where—

A is the number of days in the material interest period which are days falling within subsection (1)(b), and

B is the number of days in the material interest period.

(4)In subsection (2) the reference to the gain is to be read in accordance with section 463A(4), 463D(4) or 463E(3) (which relates to restricted relief qualifying policies etc) if applicable.

(5)In this section “the material interest period” means so much of the policy period as during which the individual meets condition A, B or C in section 465 in relation to the policy (subject to subsection (7)).

(6)Subsections (7) and (8) apply if, before the chargeable event, there is an assignment falling within section 487(c) in relation to the policy where the individual is the assignee.

(7)There is to be added to the material interest period any part of the policy period falling before the assignment—

(a)during which the assignor meets condition A, B or C in section 465 in relation to the policy, and

(b)which is not included in the material interest period under subsection (5).

(8)In relation to any period added to the material interest period under subsection (7), in subsection (1)(b) the reference to the individual is to be read as a reference to the assignor.

(9)For the purposes of subsections (5) and (7), in section 465(2) to (4) references to the rights under the policy are to be read as including references to a share of those rights.

(10)In this section “the policy period” means the period for which the policy has run before the chargeable event occurs.

(11)If the policy is a policy of life insurance which is a new policy in relation to another policy, for the purposes of subsection (10) the new policy is to be taken to have run—

(a)from the issue of the other policy, or

(b)if it also was a new policy in relation to an earlier policy, from the issue of the earlier policy,

and so on; and in subsections (5) to (9) references to the policy are to be read accordingly as including any relevant earlier policy.

(12)In subsection (11) “new policy” has the meaning given in paragraph 17 of Schedule 15 to ICTA.

528AReduction in amount charged on basis of non-UK residence of deceased person

(1)Subsection (3) applies if—

(a)personal representatives are liable for tax charged on a gain from a policy of life insurance or a capital redemption policy under section 466, and

(b)there were one or more days in the material interest period on which the deceased was not UK resident.

(2)Subsection (3) also applies if—

(a)trustees are liable for tax charged on a gain from a policy of life insurance or a capital redemption policy under section 467 where—

(i)of conditions A to D in that section, only condition B is met, and

(ii)the absent settlor condition which is met is the one in subsection (4)(b) of that section (deceased settlor),

(b)there were one or more days in the material interest period on which the deceased was not UK resident, and

(c)the deceased was UK resident when the deceased died.

(3)In determining the liability for tax of the personal representatives or trustees, the gain on which the tax is charged in the case of the personal representatives or trustees is to be reduced by the appropriate fraction.

(4)The appropriate fraction is—

where—

A is the number of days in the material interest period which are days falling within subsection (1)(b) or (2)(b) (as the case may be), and

B is the number of days in the material interest period.

(5)In subsection (3) the reference to the gain is to be read in accordance with section 463C(8) (which relates to restricted relief qualifying policies) if applicable.

(6)In this section “the material interest period” means so much of the policy period falling before the deceased's death as during which the deceased met condition A, B or C in section 465 in relation to the policy (subject to subsection (8)).

(7)Subsections (8) and (9) apply if, before the deceased's death, there was an assignment falling within section 487(c) in relation to the policy where the deceased was the assignee.

(8)There is to be added to the material interest period any part of the policy period falling before the assignment—

(a)during which the assignor met condition A, B or C in section 465 in relation to the policy, and

(b)which is not included in the material interest period under subsection (6).

(9)In relation to any period added to the material interest period under subsection (8), in subsection (1)(b) or (2)(b) the reference to the deceased is to be read as a reference to the assignor.

(10)For the purposes of subsections (6) and (8), in section 465(2) to (4) references to the rights under the policy are to be read as including references to a share of those rights.

(11)In this section “the policy period” means the period for which the policy has run before the chargeable event occurs.

(12)If the policy is a policy of life insurance which is a new policy in relation to another policy, for the purposes of subsection (11) the new policy is to be taken to have run—

(a)from the issue of the other policy, or

(b)if it also was a new policy in relation to an earlier policy, from the issue of the earlier policy,

and so on; and in subsections (6) to (10) references to the policy are to be read accordingly as including any relevant earlier policy.

(13)In subsection (12) “new policy” has the meaning given in paragraph 17 of Schedule 15 to ICTA.

4Omit section 529 (exceptions to section 528).E+W+S+N.I.

5(1)Section 536 (top slicing relieved liability: one chargeable event) is amended as follows.E+W+S+N.I.

(2)In subsection (6) for the words from “from” to the end substitute “ reduced under section 528 in the case of the individual. ”

(3)For subsection (7) substitute—

(7)If in the case of the individual the gain is reduced under section 528, for steps 1 and 3 in subsection (1) N is reduced by the number of complete years consisting wholly of days falling within section 528(1)(b) (including days falling within section 528(1)(b) by virtue of section 528(8)).

6In section 552 of ICTA (information: duty of insurers) after subsection (13) insert—E+W+S+N.I.

(14)For the purposes of this section no account is to be taken of the effect of sections 528 and 528A of ITTOIA 2005.

7(1)The amendments made by this Schedule have effect in relation to—E+W+S+N.I.

(a)any policy of life insurance issued in respect of an insurance made on or after 6 April 2013, or

(b)any contract constituting a capital redemption policy made on or after that date.

(2)The amendment made by paragraph 3 above has effect in relation to any insurance or contract made before 6 April 2013 if on or after that date—

(a)the policy or contract is varied with the result that there is an increase in the benefits secured,

(b)there is or was an assignment (or assignation) of rights, or a share of the rights, conferred by the policy or contract (whether or not for money's worth) to the individual or deceased, or

(c)some or all of the rights conferred by the policy or contract become or became held as a security for a debt of the individual or deceased,

and the other amendments made by this Schedule have effect in relation to the insurance or contract accordingly.

(3)For the purposes of sub-paragraph (2)(a) an exercise of rights conferred by a policy or contract is to count as a variation of the policy or contract.

(4)In the case of a policy or contract treated under section 473A of ITTOIA 2005 as a single policy or contract, for the purposes of sub-paragraphs (1) and (2) the date on which the insurance or contract is made is the date on which, as the case may be—

(a)the first insurance is made in respect of which the connected policies are issued, or

(b)the first of the connected contracts is made.

Section 25

SCHEDULE 9E+W+S+N.I.Qualifying insurance policies

PART 1E+W+S+N.I.Amendments of Schedule 15 to ICTA etc

1Schedule 15 to ICTA (qualifying insurance policies) is amended as follows.E+W+S+N.I.

2Before Part 1 insert—E+W+S+N.I.

PART A1E+W+S+N.I.Premium limit for qualifying policies

Premium limit for qualifying policies to apply from 6 April 2013E+W+S+N.I.

A1(1)Sub-paragraph (2) applies if—

(a)an event falling within sub-paragraph (3) occurs,

(b)apart from sub-paragraph (2), the policy to which the event relates would be a qualifying policy after the event, and

(c)an individual who is a beneficiary under that policy is in breach of the premium limit for qualifying policies.

(2)That policy is not to be a qualifying policy after the event.

(3)The events falling within this sub-paragraph are—

(a)the issue of a policy in respect of an insurance made on or after 6 April 2013;

(b)the variation of a policy on or after 6 April 2013 where as a result of the variation—

(i)the period over which premiums are payable under the policy is or could be lengthened, or

(ii)the total amount of the premiums payable under the policy in any relevant period is or could be increased,

or both;

(c)the assignment on or after 6 April 2013 of any rights, or any share in any rights, under a policy where the assignment falls within paragraph B2(3)(c) to (g) or (5) below;

(d)a deceased beneficiary event on or after 6 April 2013;

(e)the conditions in paragraph 24(3) below being fulfilled for the first time in respect of a new non-resident policy where—

(i)the conditions are fulfilled for the first time on or after 6 April 2013, and

(ii)but for the conditions being fulfilled, the policy could not be a qualifying policy because of paragraph 24(2).

(4)An event does not fall within sub-paragraph (3) if—

(a)the policy to which the event relates is—

(i)a protected policy,

(ii)a restricted relief qualifying policy, or

(iii)a pure protection policy,

(b)the event is the issue of a policy which is a new policy in relation to an earlier policy where—

(i)the new policy is issued in substitution for the earlier policy (and not on its maturity), and

(ii)the life assured under the new policy is different to the life assured under the earlier policy but that is the only difference to what the position would have been had the earlier policy continued to run,

(c)paragraph 20ZA below applies to a policy and the event is the reinstatement or replacement of the policy as mentioned in paragraph 20ZA(4),

(d)the event is the issue or variation of a policy in relation to which paragraph 29 of Schedule 39 to the Finance Act 2012 applies, or

(e)the event is an assignment falling within paragraph B2(3)(e) below where the assignment is a mortgage endowment assignment.

(5)In sub-paragraph (3)(b)(ii) “relevant period” means any period of 12 months beginning at or after the time of the variation.

(6)A variation is to be ignored for the purposes of sub-paragraph (3)(b) if its effect is nullified before the end of the period of 3 months after the day on which the variation occurs.

(7)Sub-paragraph (4)(a)(i) does not apply in the case of an event mentioned in sub-paragraph (3)(e).

(8)Sub-paragraph (4)(a)(ii) does not apply in the case of—

(a)an event mentioned in sub-paragraph (3)(c) or (d) occurring in relation to a restricted relief qualifying policy (“the assigned policy”),

(b)any subsequent event relating to the assigned policy, or

(c)any event relating to—

(i)a later policy which is a new policy in relation to the assigned policy, or

(ii)any policy which is a new policy in relation to the later policy,

and so on.

(9)In the case of an event mentioned in sub-paragraph (3)(b), sub-paragraph (4)(a)(iii) applies only if the policy is a pure protection policy both before and after the variation.

(10)This paragraph is to be applied after all other provisions of this Schedule relevant to the question of whether a policy is a qualifying policy after an event have been applied.

Restricted relief qualifying policiesE+W+S+N.I.

A2(1)Sub-paragraph (2) applies if—

(a)an event falling within sub-paragraph (3) occurs,

(b)the policy to which the event relates is a qualifying policy after the event, and

(c)an individual who is a beneficiary under that policy is in breach of the premium limit for qualifying policies.

(2)That policy is to be a restricted relief qualifying policy after the event.

(3)The events falling within this sub-paragraph are—

(a)a premium limit event in relation to a protected policy on or after 21 March 2012;

(b)the issue of a policy as mentioned in paragraph A4(2)(b) below if, assuming that the substitution of the protected policy were instead a variation of that policy, there would be a premium limit event in relation to that policy;

(c)the assignment on or after 6 April 2013 of any rights, or any share in any rights, under a protected policy where the assignment falls within paragraph B2(3)(c) to (g) or (5) below;

(d)a deceased beneficiary event on or after 6 April 2013 where the policy in question is a protected policy;

(e)the issue of a policy in respect of an insurance made on or after 21 March 2012 but before 6 April 2013 otherwise than as mentioned in paragraph A4(2)(b) below;

(f)the variation of a policy, other than a protected policy, on or after 21 March 2012 but before 6 April 2013 where as a result of the variation—

(i)the period over which premiums are payable under the policy is or could be lengthened, or

(ii)the total amount of the premiums payable under the policy in any relevant period is or could be increased,

or both;

(g)the conditions in either sub-paragraph (3) or sub-paragraph (4) of paragraph 24 below being fulfilled for the first time in respect of a new non-resident policy where—

(i)the conditions are fulfilled for the first time on or after 21 March 2012 but before 6 April 2013, and

(ii)but for the conditions being fulfilled, the policy could not be a qualifying policy because of sub-paragraph (2) of paragraph 24.

(4)An event does not fall within sub-paragraph (3) if—

(a)the policy to which the event relates is a pure protection policy,

(b)the event is the issue of a policy which is a new policy in relation to an earlier policy where—

(i)the new policy is issued in substitution for the earlier policy (and not on its maturity), and

(ii)the life assured under the new policy is different to the life assured under the earlier policy but that is the only difference to what the position would have been had the earlier policy continued to run,

(c)paragraph 20ZA below applies to a policy and the event is the reinstatement or replacement of the policy as mentioned in paragraph 20ZA(4),

(d)the event is the issue or variation of a policy in relation to which paragraph 29 of Schedule 39 to the Finance Act 2012 applies, or

(e)the event is an assignment falling within paragraph B2(3)(e) below where the assignment is a mortgage endowment assignment.

(5)In sub-paragraph (3)(f)(ii) “relevant period” means any period of 12 months beginning at or after the time of the variation.

(6)A premium limit event or a variation is to be ignored for the purposes of sub-paragraph (3)(a) or (f) if its effect is nullified before 6 July 2013.

(7)In the case of a premium limit event which occurs on or after 6 April 2013, in sub-paragraph (6) the reference to 6 July 2013 is to be read as a reference to the end of the period of 3 months after the day on which the premium limit event occurs.

(8)In the case of an event mentioned in sub-paragraph (3)(a) or (f), sub-paragraph (4)(a) applies only if the policy is a pure protection policy both before and after the premium limit event or variation.

(9)A “premium limit event” occurs in relation to a protected policy if—

(a)the policy is varied or a relevant option is exercised so as to change the terms of the policy, and

(b)as a result of the variation or exercise of the relevant option—

(i)the period over which premiums are payable under the policy is or could be lengthened, or

(ii)the total amount of the premiums payable under the policy in any relevant period is or could be increased,

or both.

(10)A “premium limit event” also occurs in relation to a protected policy if on or after 6 April 2013—

(a)the policy is varied or a relevant option is exercised so as to change the terms of the policy, and

(b)as a result of the variation or exercise of the relevant option—

(i)the period over which premiums are payable under the policy is or could be shortened, or

(ii)the total amount of the premiums payable under the policy in any relevant period is or could be decreased,

or both.

(11)In sub-paragraphs (9)(b)(ii) and (10)(b)(ii) “relevant period” means any period of 12 months beginning at or after the time of the variation or exercise of the relevant option.

(12)The variation of, or exercise of a relevant option under, a protected policy is not a premium limit event in relation to the policy if—

(a)the policy secures a capital sum payable either—

(i)on survival for a specified term, or

(ii)on earlier death or on earlier death or disability,

(b)the policy is issued and maintained for the sole purpose of ensuring that the borrower under an interest-only mortgage will have sufficient funds to repay the principal lent under the mortgage, and

(c)the policy is varied, or the relevant option is exercised, for that sole purpose.

(13)In sub-paragraph (3)(g) references to paragraph 24 below are to that paragraph as it has effect before the appointed date for the purposes of section 55 of the Finance Act 1995.

(14)A qualifying policy which is a new policy in relation to an earlier policy is a restricted relief qualifying policy if the earlier policy is a restricted relief qualifying policy.

(15)A policy which is a restricted relief qualifying policy remains a restricted relief qualifying policy so long as it is a qualifying policy.

(16)Paragraph A1 above is to be ignored in determining for the purposes of sub-paragraph (14) or (15) if a policy is a qualifying policy. This is subject to paragraph A1(8).

(17)For further provision about restricted relief qualifying policies, see sections 463A to 463D of ITTOIA 2005.

The premium limit for qualifying policiesE+W+S+N.I.

A3(1)For the purposes of paragraphs A1(1)(c) and A2(1)(c) above an individual is in breach of the premium limit for qualifying policies if the total amount of the premiums payable under relevant policies in any relevant period—

(a)exceeds £3,600, or

(b)could exceed £3,600 as a result of—

(i)the exercise of any one or more relevant options conferred by one or more relevant policies, or

(ii)so far as not covered by sub-paragraph (i), the application of one or more terms of one or more relevant policies relating to increases in premiums.

(2)For the purposes of sub-paragraph (1)—

(a)so much of a premium payable under a relevant policy as is charged on the grounds that an exceptional risk of death or disability is involved is to be left out of account in determining the premiums payable under the policy,

(b)so much of the first premium payable under a relevant policy the liability for the payment of which—

(i)is discharged in accordance with paragraph 15(2) below, or

(ii)in the case of a policy in relation to which paragraph 3 below applies, is discharged under a provision of the policy falling within paragraph 3(4)(c),

is to be left out of account in determining the premiums payable under the policy (subject to sub-paragraph (3) below),

(c)in determining the premiums payable under a relevant policy any provision for the waiver of premiums by reason of a person's disability is to be ignored, and

(d)relevant period” means any period of 12 months beginning at or after the time when the event falling within paragraph A1(3) or A2(3) above (“the relevant event”) occurs.

(3)The maximum amount that may be left out of account under sub-paragraph (2)(b) in the case of a relevant policy is—

where N is the number of complete years for which ran—

a

the other policy involved, or

b

if there is more than one other policy involved, the policy which ran for the most number of complete years.

(4)For the purposes of this paragraph the following are “relevant policies”—

(a)the policy to which the relevant event relates, and

(b)any other policy—

(i)which is a qualifying policy, and

(ii)under which the individual is a beneficiary.

(5)But neither a protected policy nor a pure protection policy is to be a relevant policy by virtue of sub-paragraph (4)(b).

(6)Sub-paragraph (7) applies if this paragraph is to be applied in the case of an individual in consequence of two or more events occurring at the same time (including where one or more of the events falls within paragraph A1(3) above and one or more of the events falls within paragraph A2(3) above).

(7)For the purpose of applying this paragraph in the case of the individual in consequence of any of the events, sub-paragraph (4)(a) has effect as if the reference to the policy to which the relevant event relates were a reference to all the policies to which the events, taken together, relate.

(8)But sub-paragraph (7) does not apply, and sub-paragraph (9) applies instead, if—

(a)all the policies in question are policies issued by the same issuer, and

(b)each of them has an unique identifier in a series of unique identifiers which the issuer gives to policies issued by it.

(9)For the purpose of applying this paragraph in the case of the individual in consequence of any of the events, an event relating to a policy (“policy A”) is treated as occurring before an event relating to another policy (“policy B”) if, in the issuer's series of unique identifiers, policy A's unique identifier comes before policy B's unique identifier.

Protected policiesE+W+S+N.I.

A4(1)This paragraph applies for the purposes of this Part of this Schedule.

(2)A policy is “protected” if—

(a)it is issued in respect of an insurance made before 21 March 2012, or

(b)it is issued in respect of an insurance made on or after 21 March 2012 where—

(i)it is a new policy in relation to an earlier policy,

(ii)it is issued in substitution for the earlier policy (and not on its maturity), and

(iii)the earlier policy is a protected policy (whether by virtue of paragraph (a) or this paragraph).

(3)A policy which is protected ceases to be protected if it becomes a restricted relief qualifying policy.

(4)A policy issued as mentioned in sub-paragraph (2)(b) is not protected if—

(a)its issue is an event falling within paragraph A2(3) above, and

(b)after that event it is a restricted relief qualifying policy.

How to determine if an individual is a beneficiary under a policyE+W+S+N.I.

A5(1)This paragraph applies for the purposes of this Part of this Schedule in determining if an individual is a beneficiary under a policy.

(2)An individual is a beneficiary under a policy if the individual beneficially owns—

(a)any rights under the policy, or

(b)any share in any rights under the policy.

(3)An individual is a beneficiary under a policy if—

(a)any rights under the policy are, or any share in any rights under the policy is, held on non-charitable trusts created by the individual, and

(b)those rights are, or that share is, not beneficially owned by any individual.

(4)The following provisions of ITTOIA 2005 apply for the purposes of sub-paragraph (3)(a)—

(a)section 465(6), and

(b)the definition of “non-charitable trust” in section 545(1).

(5)An individual is a beneficiary under a policy if—

(a)any rights under the policy are, or any share in any rights under the policy is, held as security for a debt of the individual, and

(b)those rights are, or that share is, not beneficially owned by any individual.

Further definitionsE+W+S+N.I.

A6(1)In this Part of this Schedule—

(a)new policy” has the meaning given in paragraph 17 below,

(b)references to the variation of a policy are to a variation in relation to which paragraph 18 below applies,

(c)pure protection policy” means a policy—

(i)which has no surrender value and is not capable of acquiring a surrender value, or

(ii)under which the benefits payable cannot exceed the amount of the premiums paid except on death or in respect of disability, and

(d)relevant option”, in relation to a policy, means an option conferred by the policy on the person to whom it is issued to have another policy substituted for it or to have any of its terms changed.

(2)For the purposes of this Part of this Schedule a “deceased beneficiary event” occurs if, in connection with the death of an individual (“D”) who was a beneficiary under a policy, an individual (“B”) becomes a beneficiary under that policy by reference (wholly or partly) to any rights, or to any share in any rights, by reference to which D was a beneficiary (wholly or partly).

For this purpose, it does not matter if B is already a beneficiary under the policy.

(3)For the purposes of this Part of this Schedule an assignment is a “mortgage endowment assignment” if—

(a)the policy to which the assignment relates secures a capital sum payable either—

(i)on survival for a specified term, or

(ii)on earlier death or on earlier death or disability,

(b)the policy is issued and maintained for the sole purpose of ensuring that the borrower under an interest-only mortgage will have sufficient funds to repay the principal lent under the mortgage, and

(c)when the assignment occurs, it is intended that the policy will continue to be maintained for that sole purpose.

3At the beginning of Part 1 (qualifying conditions) insert— RULES FOR QUALIFYING POLICIES E+W+S+N.I.

Rights to be beneficially owned by individuals onlyE+W+S+N.I.

B1(1)Sub-paragraph (2) applies in relation to a policy issued in respect of an insurance made on or after 6 April 2013.

(2)In order for the policy to be a qualifying policy, when it is issued all the rights under it must be beneficially owned by (and only by)—

(a)one individual, or

(b)two or more individuals taken together.

(This is the case notwithstanding any other provision of this Schedule.)

(3)Sub-paragraph (2) does not apply if the policy is protected.

(4)A policy is “protected” if it is a new policy (as defined in paragraph 17 below) in relation to—

(a)a policy issued in respect of an insurance made before 21 March 2012, or

(b)a policy which is protected (whether by virtue of paragraph (a) or this paragraph).

AssignmentsE+W+S+N.I.

B2(1)Sub-paragraph (2) applies if any rights under a qualifying policy are, or any share in any rights under a qualifying policy is, assigned on or after 6 April 2013.

(2)The policy is not to be a qualifying policy after the assignment (notwithstanding any other provision of this Schedule).

(3)Sub-paragraph (2) does not apply if—

(a)the assignment is from an individual by way of security for a debt of the individual,

(b)the assignment is to an individual on the discharge of a debt of the individual secured by the rights or share,

(c)the assignment is from an individual to the individual's spouse or civil partner,

(d)the assignment is to an individual in pursuance of an order made by a court,

(e)the assignment is to an individual in pursuance of a legally enforceable obligation relating to a divorce or the dissolution of a civil partnership,

(f)the assignment is from an individual and, as a result of the assignment, the rights assigned are, or the share assigned is, held on trusts created by the individual,

(g)the assignment is to an individual and, as a result of the assignment, the rights assigned are, or the share assigned is, no longer held on trusts, or

(h)the assignment—

(i)is to the personal representatives of a deceased individual, or

(ii)is to an individual where, as a result of the assignment, a deceased beneficiary event (see paragraph A6(2) above) occurs.

(4)Section 465(6) of ITTOIA 2005 applies for the purposes of sub-paragraph (3)(f).

(5)The Commissioners for Her Majesty's Revenue and Customs may by regulations provide that sub-paragraph (2) does not apply if prescribed conditions are met in relation to the assignment.

Prescribed” means prescribed by the regulations.

(6)Regulations under sub-paragraph (5) may—

(a)make different provision for different cases or circumstances, and

(b)contain incidental, supplementary, consequential, transitional, transitory or saving provision.

(7)See paragraphs A1 and A2 above which may apply in consequence of an assignment falling within sub-paragraph (3) or (5).

Required statementsE+W+S+N.I.

B3(1)Sub-paragraph (2) applies if any of the following events occurs—

(a)the issue of a policy in respect of an insurance made on or after 6 April 2013;

(b)the variation of a policy on or after 6 April 2013 where paragraph 18 below applies in relation to the variation and as a result of the variation—

(i)the period over which premiums are payable under the policy is or could be lengthened, or

(ii)the total amount of the premiums payable under the policy in any relevant period is or could be increased,

or both;

(c)a premium limit event in relation to a protected policy on or after 6 April 2013 (see paragraph A2(9) to (12) above);

(d)an event on or after 6 April 2013 which would be a premium limit event in relation to a protected policy but for paragraph A2(12) above;

(e)the assignment on or after 6 April 2013 of any rights, or any share in any rights, under a policy where the assignment falls within paragraph B2(3)(c) to (g) or (5) above;

(f)a deceased beneficiary event (see paragraph A6(2) above) on or after 6 April 2013;

(g)the conditions in paragraph 24(3) below being fulfilled for the first time in respect of a new non-resident policy where—

(i)the conditions are fulfilled for the first time on or after 6 April 2013, and

(ii)but for the conditions being fulfilled, the policy could not be a qualifying policy because of paragraph 24(2).

(2)Each individual who is a beneficiary under the policy must, before the end of the statement period, make to the issuer of the policy a statement dealing with the prescribed matters.

(3)If an individual does not comply with sub-paragraph (2) the policy is not to be a qualifying policy after the event (notwithstanding any other provision of this Schedule).

(4)In sub-paragraph (1)(b)(ii) “relevant period” means any period of 12 months beginning at or after the time of the variation.

(5)Sub-paragraph (2)—

(a)does not apply in the case of an event mentioned in sub-paragraph (1)(a), (e), (f) or (g) if the policy is a pure protection policy, and

(b)does not apply in the case of an event mentioned in sub-paragraph (1)(b), (c) or (d) if the policy is a pure protection policy both before and after the event.

Pure protection policy” has the meaning given by paragraph A6(1)(c) above.

(6)Sub-paragraph (2) does not apply in the case of an event mentioned in sub-paragraph (1)(e) where the assignment falls within paragraph B2(3)(e) above and is a mortgage endowment assignment.

Mortgage endowment assignment” is to be read in accordance with paragraph A6(3) above.

(7)The Commissioners for Her Majesty's Revenue and Customs may by regulations provide that an individual is not required to comply with sub-paragraph (2) if prescribed conditions are met.

Prescribed” means prescribed by the regulations.

(8)Accordingly, if by virtue of regulations under sub-paragraph (7) an individual is not required to comply with sub-paragraph (2), sub-paragraph (3) does not apply because that individual does not comply with sub-paragraph (2).

(9)In sub-paragraph (2)—

(a)the reference to an individual who is a beneficiary under the policy is to be read in accordance with paragraph A5 above,

(b)the statement period” means—

(i)the period of 3 months after the day on which the event occurs, or

(ii)if the event occurs before the day on which the first regulations under paragraph (c) below come into force, the period of 3 months after that day,

or such longer period as an officer of Revenue and Customs may allow, and

(c)prescribed” means prescribed by regulations made by the Commissioners for Her Majesty's Revenue and Customs.

(10)An officer of Revenue and Customs may allow a longer period for the purposes of sub-paragraph (9)(b) only if—

(a)the individual in question has made a request in writing to an officer of Revenue and Customs for a longer period to be allowed, and

(b)such an officer is satisfied—

(i)that there is a reasonable excuse for the required statement not having been made within the period mentioned in sub-paragraph (9)(b)(i) or (ii), and

(ii)that the request under paragraph (a) was made without unreasonable delay after the reasonable excuse ceased.

(11)Sub-paragraph (12) applies in relation to a policy if the obligations under the policy of its issuer are at any time the obligations of another person (“the transferee”) to whom there has been a transfer of the whole or any part of a business previously carried on by the issuer.

(12)In relation to that time, in sub-paragraph (2) the reference to the issuer of the policy is to be read as a reference to the transferee.

(13)Regulations under sub-paragraph (7) or (9)(c) may—

(a)make different provision for different cases or circumstances, and

(b)contain incidental, supplementary, consequential, transitional, transitory or saving provision.

4(1)Paragraph 17 (substitutions) is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (2) before paragraph (a) insert—

(za)the new policy cannot be a qualifying policy if the old policy was not a qualifying policy by virtue of—

(i)paragraph A1(2), B1(2), B2(2) or B3(3) above, or

(ii)sub-paragraph (i) above or this sub-paragraph;.

(3)In sub-paragraph (2)(a) after the first “not” insert “ and paragraph (za) above does not apply ”.

(4)In sub-paragraph (4) for “(2)” substitute “ (2)(a) to (c) ”.

(5)After sub-paragraph (4) insert—

(5)In determining under sub-paragraph (2)(a) to (c) above whether the new policy would apart from this paragraph be a qualifying policy, paragraph A1 above is not to be applied in relation to the issue of the new policy; but this does not stop that paragraph being applied in relation to the issue of the new policy after this paragraph has been applied.

5In paragraph 25 (application of paragraph 17 in cases involving new non-resident policies) after sub-paragraph (2) insert—E+W+S+N.I.

(2A)In determining for the purposes of sub-paragraph (2)(a) above whether a policy would, apart from paragraph 24, have been a qualifying policy, paragraphs A1 and B1 to B3 above are to be ignored.

(But this does not affect the application of any of those paragraphs in relation to the new policy.).

6(1)In section 55 of FA 1995 (qualifying life insurance policies: disapplication of paragraph 21 of Schedule 15 to ICTA from appointed date) in subsection (3) after “subject” insert “ to paragraphs A1(2), B2(2) and B3(3) of that Schedule and ”.E+W+S+N.I.

(2)The amendment made by this paragraph is treated as having come into force on the appointed date (see section 55(9) of FA 1995).

PART 2E+W+S+N.I.Restricted relief qualifying policies

7Chapter 9 of Part 4 of ITTOIA 2005 (gains from contracts for life insurance etc) is amended as follows.E+W+S+N.I.

8After section 463 insert—E+W+S+N.I.

463ARestricted relief qualifying policies: disapplication of section 485 etc

(1)This section applies for the purpose of determining if an individual is liable for tax charged under this Chapter.

(2)In relation to an event occurring on or after 6 April 2013, section 485 (disregard of certain events in relation to qualifying policies) does not apply in relation to a policy (“policy X”) which is a restricted relief qualifying policy (see paragraph A2 of Schedule 15 to ICTA).

(3)If an individual is liable for tax charged under this Chapter as a result of subsection (2), the gain on which the tax is charged in the case of the individual is reduced by the following amount—

where—

G is the amount of the gain (apart from this subsection),

TAP is the total amount of premiums payable under policy X during the policy X period so far as they are allowable premiums as determined in accordance with section 463B, and

TP is the total amount of premiums payable under policy X during the policy X period.

(4)If section 528 also applies in the case of the individual in relation to the gain, subsection (3) is to be applied to the gain before section 528 and, accordingly, the reduction to be made under section 528 is to be determined by reference to the gain as reduced by subsection (3).

(5)The following subsections apply for the purposes of this section (except subsection (2)) and section 463B.

(6)The policy X period” means the period for which policy X has run before the chargeable event occurs.

(7)Subsections (8) and (9) apply if policy X is a new policy in relation to another policy.

(8)For the purposes of subsection (6) policy X is to be taken to have run—

(a)from the issue of the other policy, or

(b)if the other policy was also a new policy in relation to an earlier policy, from the issue of the earlier policy,

and so on.

(9)References to premiums payable under policy X are to be read as including references to premiums payable under any earlier policy taken into account under subsection (8).

(10)The following are to be left out of account in determining the premiums payable under a policy—

(a)so much of a premium as is charged on the grounds that an exceptional risk of death or disability is involved;

(b)subject to subsection (11), so much of the first premium payable the liability for the payment of which—

(i)is discharged in accordance with paragraph 15(2) of Schedule 15 to ICTA, or

(ii)in the case of a policy in relation to which paragraph 3 of that Schedule applies, is discharged under a provision of the policy falling within paragraph 3(4)(c) of that Schedule.

(11)The maximum amount that may be left out of account under subsection (10)(b) in the case of a policy is—

where N is the number of complete years for which ran—

a

the other policy involved, or

b

if there is more than one other policy involved, the policy which ran for the most number of complete years.

(12)In determining the premiums payable under a policy any provision for the waiver of premiums by reason of a person's disability is to be ignored.

(13)New policy” has the meaning given in paragraph 17 of Schedule 15 to ICTA.

463BRestricted relief qualifying policies: allowable premiums

(1)This section sets out how to determine the extent to which premiums payable under policy X during the policy X period are allowable premiums for the purposes of section 463A(3).

(2)A premium payable under policy X is allowable if it is payable before the restricted relief date.

(3)In this section “the restricted relief date” means—

(a)6 April 2013, or

(b)if later, the date on which policy X became a restricted relief qualifying policy.

(4)Premiums payable under policy X in a relevant premium period are allowable so far as they do not exceed in total the premium limit for the period.

(5)In subsection (4) “relevant premium period” means—

(a)any period of one year which—

(i)begins with a relevant date, and

(ii)ends in the policy X period, and

(b)if it is not covered by paragraph (a), the period which—

(i)begins with the last relevant date to fall within the policy X period, and

(ii)ends at the end of the policy X period.

(6)In subsection (5) “relevant date” means—

(a)the restricted relief date, or

(b)any anniversary of the restricted relief date.

(7)For the purposes of subsection (4) “the premium limit” for a relevant premium period is determined in accordance with subsections (8) to (10).

(8)Determine the premiums payable in the relevant premium period under policies related to policy X.

(9)If the total of those premiums is £3,600 or more, the premium limit is nil (and, accordingly, no premiums payable under policy X in the relevant premium period are allowable).

(10)If the total of those premiums is less than £3,600, the premium limit is the difference between that total and £3,600.

(11)Subsection (4) does not apply if, at the time policy X became a restricted relief qualifying policy, any policy related to policy X was itself a restricted relief qualifying policy.

(12)For the purposes of this section a policy is “related” to policy X if it met the following requirements at the time policy X became a restricted relief qualifying policy—

(a)the policy is a qualifying policy under which the individual is a beneficiary (as determined in accordance with paragraph A5 of Schedule 15 to ICTA);

(b)the policy is neither a protected policy nor a pure protection policy.

(13)In subsection (12)(b)—

  • protected policy” is to be read in accordance with paragraph A4 of Schedule 15 to ICTA, and

  • pure protection policy” has the meaning given by paragraph A6(1)(c) of that Schedule.

(14)A policy which is a new policy in relation to a policy “related” to policy X (whether by virtue of subsection (12) or this subsection) is also “related” to policy X if it meets the requirements of subsection (12)(a) and (b) when issued.

(15)A policy ceases to be “related” to policy X if it ceases to meet those requirements.

(16)If policy X is a restricted relief qualifying policy as provided for by paragraph A2(14) of Schedule 15 to ICTA, references in this section to policy X becoming a restricted relief qualifying policy are to be read as references to the policy determined under subsection (17) becoming a restricted relief qualifying policy.

(17)The policy is—

(a)the policy (“policy Y”) in relation to which policy X was the new policy, or

(b)if policy Y was also a restricted relief qualifying policy as provided for by paragraph A2(14) of Schedule 15 to ICTA, the policy in relation to which policy Y was the new policy,

and so on.

(18)The following subsections apply for the purposes of this section if—

(a)a premium (“premium A”) is payable under policy X on a day (“day A”) which is on or after 21 March 2012 but before 6 April 2013, and

(b)the next premium payable under policy X is payable on a day (“day B”) which is—

(i)on or after 6 April 2013, and

(ii)more than one month after day A.

(19)Premium A is to be treated as if, instead of being one premium payable on day A, it were a series of premiums payable at monthly intervals with the first premium in the series payable on day A.

(20)The number of premiums in the series is equal to the number of complete months falling within the period beginning with day A and ending with day B.

(21)The amount of each premium in the series is the amount of premium A divided by the number of premiums in the series.

463CRestricted relief qualifying policies: personal representatives and trustees with deceased settlors

(1)This section applies for the purpose of determining if personal representatives are liable for tax charged under this Chapter as provided for by section 466.

(2)This section also applies for the purpose of determining if trustees are liable for tax charged under this Chapter as provided for by section 467 where—

(a)condition B in that section is met, and

(b)the person who created the trusts has died.

(3)In relation to an event occurring on or after 6 April 2013, section 485 (disregard of certain events in relation to qualifying policies) does not apply in relation to a policy if the policy is a restricted relief qualifying policy (see paragraph A2 of Schedule 15 to ICTA).

(4)If any personal representatives or trustees are liable for tax charged under this Chapter as a result of subsection (3), section 463A(3) is to apply in the case of the personal representatives or the trustees—

(a)as if the reference to the individual were to the personal representatives or to the trustees, and

(b)as if the restricted relief qualifying policy were policy X.

(5)For this purpose—

(a)in section 463B(12)(a) the reference to the individual is to be read as a reference to the deceased, and

(b)a policy—

(i)which would otherwise have ceased to be “related” to policy X for the purposes of section 463B on the deceased's death, but

(ii)which continues to run after the deceased's death,

is to be treated as “related” to policy X after the deceased's death.

(6)A policy which is a new policy (as defined in paragraph 17 of Schedule 15 to ICTA) in relation to a policy treated as “related” to policy X under subsection (5)(b) or this subsection is also to be treated as “related” to policy X if, apart from the deceased's death, it would meet the requirements of section 463B(12)(a) and (b) on its issue.

(7)A policy treated as “related” to policy X under subsection (5)(b) or (6) ceases to be so treated if, apart from the deceased's death, it would cease to meet the requirements of section 463B(12)(a) and (b).

(8)If section 528A also applies in the case of the personal representatives or the trustees in relation to the gain, section 463A(3) is to be applied to the gain before section 528A and, accordingly, the reduction to be made under section 528A is to be determined by reference to the gain as reduced by section 463A(3).

463DRestricted relief qualifying policies: assignments and events following assignments etc

(1)This section applies if—

(a)paragraph A1 of Schedule 15 to ICTA applies in relation to a policy by virtue of paragraph A1(8) in consequence of an event relating to the policy (“the relevant event”),

(b)after the relevant event, the policy is not a qualifying policy by virtue of paragraph A1(2), and

(c)in relation to an event occurring after the relevant event—

(i)an individual is liable for tax charged under this Chapter on a gain from the policy, and

(ii)but for the application of paragraph A1 in relation to the policy, section 463A(3) would have applied in the case of the individual so as to reduce the gain.

(2)Section 463A(3) is to apply in the case of the individual in relation to the gain as if the policy were policy X.

(3)But, for this purpose, section 463B(5) has effect as if the references to the policy X period were to the part of that period falling before the relevant event.

(4)If section 528 also applies in the case of the individual in relation to the gain, section 463A(3) is to be applied to the gain before section 528 and, accordingly, the reduction to be made under section 528 is to be determined by reference to the gain as reduced by section 463A(3).

463ETransitional protection for policies issued in respect of insurances made on or after 21 March 2012 but before 6 April 2013

(1)This section applies if—

(a)a policy (“policy Z”) is issued,

(b)the issue of policy Z is an event falling within paragraph A2(3) of Schedule 15 to ICTA by virtue of paragraph (e),

(c)after its issue, policy Z is a qualifying policy but not a restricted relief qualifying policy,

(d)policy Z is varied on or after 6 April 2013 and the variation is an event falling within paragraph A1(3) of Schedule 15,

(e)after the variation, policy Z is not a qualifying policy by virtue of paragraph A1(2) of that Schedule,

(f)in relation to an event occurring after the variation, an individual is liable for tax charged under this Chapter on a gain from policy Z, and

(g)but for the application of paragraph A1 of Schedule 15 in relation to policy Z, the individual would not have been liable because of section 485.

(2)The gain on which the tax is charged in the case of the individual is reduced by the following amount—

where—

G is the amount of the gain (apart from this subsection),

TPV is the total amount of premiums payable under policy Z before the variation, and

TP is the total amount of premiums payable under policy Z before the chargeable event.

(3)If section 528 also applies in the case of the individual in relation to the gain, subsection (2) is to be applied to the gain before section 528 and, accordingly, the reduction to be made under section 528 is to be determined by reference to the gain as reduced by subsection (2).

(4)Section 463A(10) to (12) applies for the purposes of subsection (2).

9In section 485 (disregard of certain events in relation to qualifying policies) after subsection (7) insert—E+W+S+N.I.

(8)This section is subject to sections 463A and 463C.

PART 3E+W+S+N.I.Information powers

10After section 552ZA of ICTA insert—E+W+S+N.I.

552ZBRegulations in relation to qualifying policies

(1)The Commissioners for Her Majesty's Revenue and Customs may make regulations—

(a)requiring relevant persons—

(i)to provide prescribed information to persons who apply for the issue of qualifying policies or who are, or may be, required to make statements under paragraph B3(2) of Schedule 15;

(ii)to provide to an officer of Revenue and Customs prescribed information about qualifying policies which have been issued by them or in relation to which they are or have been a relevant transferee;

(b)making such provision (not falling within paragraph (a)) as the Commissioners think fit for securing that an officer of Revenue and Customs is able—

(i)to ascertain whether there has been or is likely to be any contravention of the requirements of the regulations or of paragraph B3(2) of Schedule 15;

(ii)to verify any information provided to an officer of Revenue and Customs as required by the regulations.

(2)The provision that may be made by virtue of subsection (1)(b) includes, in particular, provision requiring relevant persons to make available books, documents and other records for inspection by or on behalf of an officer of Revenue and Customs.

(3)The regulations may—

(a)make different provision for different cases or circumstances, and

(b)contain incidental, supplementary, consequential, transitional, transitory or saving provision.

(4)In this section—

  • prescribed” means prescribed by the regulations,

  • qualifying policy” includes a policy which would be a qualifying policy apart from—

    (a)

    paragraph A1(2), B1(2), B2(2) or B3(3) of Schedule 15, or

    (b)

    paragraph 17(2)(za) of that Schedule (including as applied by paragraph 18), and

  • relevant person” means a person—

    (a)

    who issues, or has issued, qualifying policies, or

    (b)

    who is, or has been, a relevant transferee in relation to qualifying policies.

(5)For the purposes of this section a person (“X”) is at any time a “relevant transferee” in relation to a qualifying policy if the obligations under the policy of its issuer are at that time the obligations of X as a result of there having been a transfer to X of the whole or any part of a business previously carried on by the issuer.

11In section 552B of ICTA (duties of overseas insurers' tax representatives) in subsection (2)—E+W+S+N.I.

(a)after paragraph (b) omit “and”, and

(b)after paragraph (c) insert and

(d)any duties imposed by regulations under section 552ZB,.

12In section 98 of TMA 1970 (special returns etc), in the second column of the Table, after the entry for regulations under section 552ZA(6) of ICTA insert— “ regulations under section 552ZB; ”.E+W+S+N.I.

Section 26

SCHEDULE 10E+W+S+N.I.Transfer of assets abroad

PART 1E+W+S+N.I.Introduction

1Chapter 2 of Part 13 of ITA 2007 (tax avoidance: transfer of assets abroad) is amended as follows.E+W+S+N.I.

PART 2E+W+S+N.I.New exemption for genuine transactions etc

2(1)Section 718 (meaning of “person abroad” etc) is amended as follows.E+W+S+N.I.

(2)For subsection (1) substitute—

(1)In this Chapter “person abroad” means—

(a)a person who is resident outside the United Kingdom, or

(b)an individual who is domiciled outside the United Kingdom.

(3)Omit subsection (2)(a).

3In section 720 (charge to tax on income treated as arising under section 721) in subsection (7)—E+W+S+N.I.

(a)for “742” substitute “ 742A ”, and

(b)after “transaction” insert “ , etc ”.

4In section 727 (charge to tax on income treated as arising under section 728) in subsection (5)—E+W+S+N.I.

(a)for “742” substitute “ 742A ”, and

(b)after “transaction” insert “ , etc ”.

5In section 731 (charge to tax on income treated as arising under section 732) in subsection (4)—E+W+S+N.I.

(a)for “742” substitute “ 742A ”, and

(b)after “transaction” insert “ , etc ”.

6(1)Section 736 (exemptions: introduction) is amended as follows.E+W+S+N.I.

(2)In subsection (1) for “742” substitute “ 742A ”.

(3)After subsection (2) insert—

(2A)The exemption given by section 742A applies only in the case of a relevant transaction effected on or after 6 April 2012.

7After section 742 insert—E+W+S+N.I.

742APost-5 April 2012 transactions: exemption for genuine transactions

(1)Subsection (2) applies for the purpose of determining the liability of an individual to tax under this Chapter by reference to a relevant transaction if—

(a)the transaction is effected on or after 6 April 2012, and

(b)conditions A and B are met.

(2)Income is to be left out of account so far as the individual satisfies an officer of Revenue and Customs that it is attributable to the transaction.

(3)Condition A is that—

(a)were, viewed objectively, the transaction to be considered to be a genuine transaction having regard to any arrangements under which it is effected and any other relevant circumstances, and

(b)were the individual to be liable to tax under this Chapter by reference to the transaction,

the individual's liability to tax would, in contravention of a relevant treaty provision, constitute an unjustified and disproportionate restriction on a freedom protected under that relevant treaty provision.

(4)In subsection (3) “relevant treaty provision” means—

(a)Title II or IV of Part Three of the Treaty on the Functioning of the European Union,

(b)Part II or III of the EEA agreement, or

(c)the provision of any subsequent treaty replacing a provision mentioned in paragraph (a) or (b).

(5)Condition B is that the individual satisfies an officer of Revenue and Customs that, viewed objectively, the transaction must be considered to be a genuine transaction having regard to any arrangements under which it is effected and any other relevant circumstances.

(6)Without prejudice to the generality of subsection (3)(a) or (5), in order for the transaction to be considered to be a genuine transaction the transaction must not—

(a)be on terms other than those that would have been made between persons not connected with each other dealing at arm's length, or

(b)be a transaction that would not have been entered into between such persons so dealing,

having regard to any arrangements under which the transaction is effected and any other relevant circumstances.

(7)Subsection (8) applies if any asset or income falling within subsection (12) is used for the purposes of, or is received in the course of, activities carried on in a territory outside the United Kingdom by a person (“the relevant person”) through a business establishment which the relevant person has in that territory.

(8)Without prejudice to the generality of subsection (3)(a) or (5), in order for the transaction to be considered to be a genuine transaction the activities mentioned in subsection (7) must consist of the provision by the relevant person of goods or services to others on a commercial basis and involve—

(a)the use of staff in numbers, and with competence and authority,

(b)the use of premises and equipment, and

(c)the addition of economic value, by the relevant person, to those to whom the goods or services are provided,

commensurate with the size and nature of those activities.

(9)In subsection (8)(a) “staff” means employees, agents or contractors of the relevant person.

(10)To determine if a person has a “business establishment” in a territory outside the United Kingdom, apply sections 1141, 1142(1) and 1143 of CTA 2010 as if in those provisions—

(a)references to a company were to a person, and

(b)references to a permanent establishment were to a business establishment.

(11)Subsection (6) does not apply if—

(a)the relevant transfer is made by an individual who makes it wholly—

(i)for personal reasons (and not commercial reasons), and

(ii)for the personal benefit (and not the commercial benefit) of other individuals, and

(b)no consideration is given (directly or indirectly) for the relevant transfer or otherwise for any benefit received by any individual mentioned in paragraph (a)(ii),

and all assets and income falling within subsection (12) are dealt with accordingly.

(12)The assets and income falling within this subsection are—

(a)any of the assets transferred by the relevant transfer;

(b)any assets directly or indirectly representing any of the assets transferred;

(c)any income arising from any assets within paragraph (a) or (b);

(d)any assets directly or indirectly representing the accumulations of income arising from any assets within paragraph (a) or (b).

(13)In subsections (11) and (12) references to the relevant transfer are to—

(a)if the transaction mentioned in subsection (1) is a relevant transfer, the transfer, or

(b)if the transaction so mentioned is an associated operation, the relevant transfer to which it relates.

(14)Subsection (15) applies if—

(a)subsection (2) would apply in relation to a transaction but for the individual being unable to satisfy an officer of Revenue and Customs for the purposes of condition B that the transaction meets the requirements set out in subsection (6), but

(b)the individual does satisfy an officer of Revenue and Customs that those requirements are met in relation to a part of the transaction.

(15)Subsection (2) applies as if the reference to the transaction were to that part of the transaction.

8In section 751 (the Tribunal's jurisdiction on appeals) after paragraph (d) insert—E+W+S+N.I.

(da)section 742A (post-5 April 2012 transactions: exemption for genuine transactions),.

9(1)The amendments made by paragraph 2 above have effect in relation to times on or after 6 April 2012.E+W+S+N.I.

(2)The amendments made by paragraphs 3 to 8 above have effect for the tax year 2012-13 and subsequent tax years.

PART 3E+W+S+N.I.Amendments relating to the charges under sections 720 and 727

Main provisionE+W+S+N.I.

10(1)Section 721 (individuals with power to enjoy income as a result of a relevant transaction) is amended as follows.E+W+S+N.I.

(2)In subsection (3) after “the income” insert “ of the person abroad ”.

(3)Before subsection (4) insert—

(3B)The amount of the income treated as arising under subsection (1) is equal to the amount of the income of the person abroad (subject to sections 724 and 725).

(3C)Subsection (1) does not apply if—

(a)the individual is liable for income tax charged on the income of the person abroad by virtue of a charge not contained in this Chapter, and

(b)all that income tax has been paid.

(4)In subsection (4) after “the income” insert “ of the person abroad ”.

(5)Omit subsection (5)(a).

11(1)Section 724 (special rules where benefit provided out of income of person abroad) is amended as follows.E+W+S+N.I.

(2)In subsection (2) after “on” insert “ an amount equal to ”.

(3)In subsection (3)—

(a)for “on” substitute “ by reference to ”, and

(b)after “previous tax year” insert “ under this Chapter ”.

12(1)Section 725 (reduction in amount charged where controlled foreign company involved) is amended as follows.E+W+S+N.I.

(2)In subsection (1), as substituted by paragraph 22 of Schedule 20 to FA 2012, for paragraph (b) and the “ and ” before it substitute—

(b)an amount of income is treated as arising to an individual under section 721 for a tax year, and

(c)the income mentioned in section 721(2) is or includes a sum forming part of the CFC's chargeable profits for that accounting period.

(3)After subsection (2) insert—

(2A)In a case in which section 724 applies, the reference to S in the formula in subsection (2) is to be read as a reference to X% of S.

(2B)“X%” is determined as follows—

where—

A is the amount on which the individual is liable as determined under section 724(2), and

I is the amount of the income mentioned in section 721(2).

(4)In relation to cases in which the amendments made by paragraph 22 of Schedule 20 to FA 2012 are to be ignored in accordance with paragraph 50(9) of that Schedule, the amendment made by sub-paragraph (5) below has effect instead of the amendment made by sub-paragraph (2) above.

(5)In subsection (1) for paragraph (c) and the “and” before it substitute—

(c)an amount of income is treated as arising to an individual under section 721 for a tax year, and

(d)the income mentioned in section 721(2) is or includes a sum forming part of the controlled foreign company's chargeable profits for that accounting period.

13In section 726 (non-UK domiciled individuals to whom remittance basis applies) in subsection (2) for “the extent” substitute “ the corresponding extent ”.E+W+S+N.I.

14(1)Section 728 (individuals receiving capital sums as a result of a relevant transaction) is amended as follows.E+W+S+N.I.

(2)After subsection (1) insert—

(1A)The amount of the income treated as arising under subsection (1) is equal to the amount of the income of the person abroad (subject to subsection (2)).

(3)In subsection (2) for the words from “it applies” to the end substitute if—

(a)in subsection (1) of that section—

(i)the reference to section 721 were a reference to this section, and

(ii)the reference to section 721(2) were a reference to subsection (1)(a) of this section, and

(b)subsections (2A) and (2B) of that section were omitted.

(4)After subsection (2) insert—

(2A)Subsection (1) does not apply if—

(a)the individual is liable for income tax charged on the income of the person abroad by virtue of a charge not contained in this Chapter, and

(b)all that income tax has been paid.

(5)Omit subsection (3)(a).

15In section 730 (non-UK domiciled individuals to whom remittance basis applies) in subsection (2) for “the extent” substitute “ the corresponding extent ”.E+W+S+N.I.

16(1)Section 743 (no duplication of charges) is amended as follows.E+W+S+N.I.

(2)After subsection (2) insert—

(2A)Subsection (2B) applies if—

(a)in the case of an individual, an amount of income is taken into account in charging income tax under section 720 or 727, and

(b)the individual subsequently receives that income.

(2B)The income received is treated as not being the individual's income for income tax purposes.

(3)In subsection (3) for “subsections (1) and (2)” substitute “ this section ”.

(4)Omit subsection (4).

17(1)Section 744 (meaning of taking income into account in charging income tax for section 743) is amended as follows.E+W+S+N.I.

(2)In subsection (1) for “743(1) and (2)” substitute “ 743 ”.

(3)In subsection (2)—

(a)in paragraph (a) omit “or value of the benefit”, and

(b)in paragraph (b) for “income charged” substitute “ the income mentioned in section 721(2) ”.

(4)In subsection (3) for “that income” substitute “ the income mentioned in section 728(1)(a) ”.

18(1)Section 745 (rates of tax applicable to income charged under sections 720 and 727 etc) is amended as follows.E+W+S+N.I.

(2)In subsection (1) for “so far as it” substitute “ if (and to the corresponding extent that) the income mentioned in section 721(2) or 728(1)(a) ”.

(3)For subsections (3) and (4) substitute—

(3)Subsection (4) applies to income treated as arising to an individual under section 721 or 728 so far as subsection (1) does not apply to it.

(4)The charge to income tax under section 720 or 727 operates by treating the income as if it were income within section 19(2) (meaning of “dividend income”) if the income mentioned in section 721(2) or 728(1)(a) would be dividend income were it the income of the individual.

19In section 746 (deductions and reliefs where individual charged under section 720 or 727) for subsection (2) substitute—E+W+S+N.I.

(2)For the purpose of determining the deductions and reliefs allowed to the individual, the individual is to be treated as if the individual had actually received the amount by reference to which the income treated as arising to the individual under section 721 or 728 is determined.

Commencement and transitional provisionE+W+S+N.I.

20(1)The amendments made by this Part of this Schedule have effect for the tax year 2013-14 and subsequent tax years.E+W+S+N.I.

(2)They have effect in relation to relevant transfers occurring before 6 April 2013 as well as relevant transfers occurring on or after that date.

21(1)Sections 721(3C) and 728(2A) of ITA 2007 (as inserted by paragraphs 10(3) and 14(4) above) have effect only if the income of the person abroad arises to that person on or after 6 April 2013.E+W+S+N.I.

(2)The amendments made by paragraphs 10(5) and 14(5) above have no effect in relation to income arising to a person abroad before 6 April 2013.

Section 27

SCHEDULE 11E+W+S+N.I.Deduction of income tax at source etc

Deduction from interest payable on compensationE+W+S+N.I.

1Chapter 3 of Part 15 of ITA 2007 (deduction from certain payments of yearly interest) is amended as follows.E+W+S+N.I.

2In section 874 (duty to deduct from certain payments of yearly interest), after subsection (5) insert—E+W+S+N.I.

(5A)For the purposes of subsection (1) a payment of interest which is payable to an individual in respect of compensation is to be treated as a payment of yearly interest (irrespective of the period in respect of which the interest is paid).

(5B)But the Commissioners for Her Majesty's Revenue and Customs may make regulations which provide that subsection (5A) does not apply in the circumstances prescribed in the regulations.

3In section 875 (interest paid by building societies), at the end insert “ unless it is treated as a payment of yearly interest by virtue of section 874(5A). ”E+W+S+N.I.

4In section 878 (interest paid by banks), after subsection (1) insert—E+W+S+N.I.

(1A)But that duty does apply to such a payment if it is treated as a payment of yearly interest by virtue of section 874(5A).

Deduction from yearly interest: specialtiesE+W+S+N.I.

5In section 874 of ITA 2007 (duty to deduct from certain payments of yearly interest), after subsection (6) insert—E+W+S+N.I.

(6A)In determining for the purposes of subsection (1) whether a payment of interest arises in the United Kingdom no account is to be taken of the location of any deed which records the obligation to pay the interest.

Payment of interest in kindE+W+S+N.I.

6After section 370 of ITTOIA 2005 insert—E+W+S+N.I.

370AValuation of interest not paid in cash

(1)This section applies to the payment of an amount of interest in the form of—

(a)goods or services, or

(b)a voucher.

(2)Where this section applies by virtue of subsection (1)(a), the amount of the payment is to be taken to be equal to the market value, at the time the payment is made, of the goods or services.

(3)Where this section applies by virtue of subsection (1)(b), the amount of the payment is to be taken to be equal to whichever is the higher of—

(a)the face value of the voucher,

(b)the amount of money for which the voucher is capable of being exchanged, or

(c)the market value, at the time the payment is made, of any goods or services for which the voucher is capable of being exchanged.

(4)In this section references to a voucher are to a voucher, stamp or similar document or token which is capable of being exchanged for money, goods or services.

7In section 380 of that Act (funding bonds), in subsection (3), at the end insert “ (but does not include any instrument providing for payment in the form of goods or services or a voucher) ”.E+W+S+N.I.

8In section 939 of ITA 2007 (duty to retain bonds where issue treated as payment of interest), in subsection (6), at the end insert “ (but does not include any instrument providing for payment in the form of goods or services or a voucher) ”.E+W+S+N.I.

9In section 975 of that Act (statements about deduction of income tax), in subsection (1)—E+W+S+N.I.

(a)after “if” insert

(a)”, and

(b)at the end insert , and

(b)the person is not under a duty to provide a statement under section 975A.

10After section 975 of that Act insert—E+W+S+N.I.

975AStatements about certain payments of interest

(1)Subsection (2) applies if a person makes a payment of interest of which the whole or part is in the form of goods or services or a voucher.

(2)The person must provide the recipient of the payment with a statement showing—

(a)the gross amount of the payment,

(b)the amount of the sum deducted under any provision of Chapters 2 to 7 or under section 919 or 928 (if any),

(c)the actual amount paid, and

(d)the date on which the payment was made.

(3)The amounts mentioned in paragraphs (a) to (c) of subsection (2) are to be calculated in accordance with section 370A of ITTOIA 2005.

(4)Subsection (5) applies where a person—

(a)is treated as making a payment of an amount of interest (“the deemed interest”) by virtue of section 413 of CTA 2009 or section 380 of ITTOIA 2005 (funding bonds), and

(b)is under a duty under section 939(2) to retain funding bonds equal in value to income tax on the deemed interest at the basic rate.

(5)The person must provide the recipient of the funding bonds with a statement showing—

(a)the gross amount of the deemed interest,

(b)the sum representing income tax which the person is treated under section 939(3) as having deducted by retaining funding bonds,

(c)the amount of the deemed interest after the deduction of that sum, and

(d)the date on which the deemed interest is treated as being paid.

(6)The amount of the deemed interest is to be calculated in accordance with section 413 of CTA 2009 or section 380 of ITTOIA 2005, as the case may require.

(7)A statement under this section must be provided in writing to the recipient on the date that the payment is made or (as the case may be) the date that the deemed interest is treated as being paid.

(8)The duty to comply with this section is enforceable by the recipient.

(9)In this section—

(a)references to a voucher are to a voucher, stamp or similar document or token which is capable of being exchanged for money, goods or services, and

(b)funding bonds” has the same meaning as in Chapter 12 (see section 939(6)).

11In section 413 of CTA 2009 (issue of funding bonds), in subsection (3), at the end insert “ (but does not include any instrument providing for payment in the form of goods or services or a voucher) ”.E+W+S+N.I.

CommencementE+W+S+N.I.

12(1)The amendments made by paragraphs 1 to 4 have effect—E+W+S+N.I.

(a)in relation to any payment of interest by a building society which is made on or after 1 September 2013, and

(b)in relation to any other payment of interest which is made on or after 1 October 2013.

(2)The amendments made by paragraphs 5 to 11 have effect in relation to any payment of interest which is made on or after the day on which this Act is passed.

Section 28

SCHEDULE 12E+W+S+N.I.Disguised interest

Key amendments to Part 4 of ITTOIA 2005E+W+S+N.I.

1Part 4 of ITTOIA 2005 (savings and investment income) is amended in accordance with paragraphs 2 and 3.E+W+S+N.I.

2In section 365(1) (overview of Part 4)—E+W+S+N.I.

(a)after paragraph (a) insert—

(aa)Chapter 2A (disguised interest),, and

(b)omit paragraph (k).

3After Chapter 2 insert—E+W+S+N.I.

CHAPTER 2AE+W+S+N.I.Disguised interest

381ACharge to tax on disguised interest

(1)This Chapter applies where a person is party to an arrangement which produces for the person a return in relation to any amount which is economically equivalent to interest.

(2)Income tax is charged on the return if the return is not charged to income tax under or as a result of any other provision of this Act or any other Act.

(3)Subsection (2) does not apply to a return that would be charged to income tax under or as a result of another provision but for an exemption.

(4)For the purposes of this Chapter a return produced for a person by an arrangement in relation to any amount is “economically equivalent to interest” if (and only if)—

(a)it is reasonable to assume that it is a return by reference to the time value of that amount of money,

(b)it is at a rate reasonably comparable to what is (in all the circumstances) a commercial rate of interest, and

(c)at the relevant time there is no practical likelihood that it will cease to be produced in accordance with the arrangement unless the person by whom it falls to be produced is prevented (by reason of insolvency or otherwise) from producing it.

(5)In subsection (4)(c) “the relevant time” means the time when the person becomes party to the arrangement or, if later, when the arrangement begins to produce a return for the person.

(6)In this Chapter “arrangement” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

381BIncome charged

Tax is charged under this Chapter on the full amount of the return, or any part of the return, arising in the tax year.

381CPerson liable

The person liable for any tax charged under this Chapter is the person receiving or entitled to the return or the part of the return.

381DAvoidance of double taxation

(1)This section applies if at any time a tax other than income tax (“the other tax”) is charged in relation to a return on which income tax is charged under this Chapter.

(2)In order to avoid a double charge to tax in respect of the return, a person may make a claim for one or more consequential adjustments to be made in respect of the other tax.

(3)On a claim under this section an officer of Revenue and Customs must make such of the consequential adjustments claimed (if any) as are just and reasonable.

(4)Consequential adjustments may be made—

(a)in respect of any period,

(b)by way of an assessment, the modification of an assessment, the amendment of a claim, or otherwise, and

(c)despite any time limit imposed by or under any enactment.

381EException for returns from certain shares

(1)This Chapter does not apply in relation to an arrangement that produces a return for a person, in relation to an amount, which is economically equivalent to interest where—

(a)the arrangement involves only excluded shares, and

(b)no relevant arrangement has been made (by any person) in relation to those excluded shares.

(2)For the purposes of this section shares are excluded shares if they are admitted to trading on a regulated market and—

(a)they were issued before 6 April 2013, or

(b)if issued on or after that date, at the time of issue no arrangements involving only the shares would produce a return, in relation to an amount, which is economically equivalent to interest.

(3)In subsection (2) “regulated market” has the same meaning as in Directive 2004/39/EC of the European Parliament and of the Council on markets in financial instruments (see Article 4.1(14)).

(4)For the purposes of this section an arrangement is relevant, in relation to excluded shares, where—

(a)the arrangement is made on or after 6 April 2013, and

(b)it is reasonable to assume that the main purpose, or one of the main purposes, of the arrangement is to secure that arrangements involving only the shares produce a return, in relation to an amount, which is economically equivalent to interest.

Consequential amendmentsE+W+S+N.I.

4The following amendments are in consequence of the amendments made by paragraphs 2(a) and 3.E+W+S+N.I.

TCGA 1992E+W+S+N.I.

5TCGA 1992 is amended as follows.E+W+S+N.I.

6In section 37 (consideration chargeable to tax on income), after subsection (2) insert—E+W+S+N.I.

(2A)Subsection (1) is not to be taken as excluding from the consideration so taken into account any money or money's worth which is, or is taken into account in computing, a return on which income tax is charged under Chapter 2A of Part 4 of ITTOIA 2005 (disguised interest) (but see section 381D of that Act).

7In section 39 (exclusion of expenditure by reference to tax on income), after subsection (3) insert—E+W+S+N.I.

(3A)This section is not to be taken as excluding, from the sums allowable under section 38 as a deduction in the computation of the gain, expenditure allowable as a deduction in computing a return on which income tax is charged under Chapter 2A of Part 4 of ITTOIA 2005 (disguised interest) (but see section 381D of that Act).

8Omit sections 148A to 148C (provision dealing with the capital gains tax consequences of Chapter 12 of Part 4 of ITTOIA 2005).E+W+S+N.I.

9(1)Section 263A (agreements for sale and repurchase of securities) is amended as follows.E+W+S+N.I.

(2)Before subsection (1) insert—

(A1)For the purposes of this section there is a repo in respect of securities if—

(a)a person (“the original owner”) has agreed to sell the securities to another person (“the interim holder”), and

(b)the original owner or a person connected with the original owner—

(i)is required to buy back the securities by the agreement or a related agreement,

(ii)is required to buy back the securities as a result of the exercise of an option acquired under the agreement or a related agreement, or

(iii)exercises an option to buy back the securities which was acquired under the agreement or a related agreement.

(3)In subsection (1), for the words from “falling” to “repos)” substitute “ where under a repo in respect of securities the original owner has transferred the securities to the interim holder ”.

(4)Omit subsection (5).

10After section 263A insert—E+W+S+N.I.

263AASection 263A: interpretation

(1)Subsections (2) to (7) apply for the purposes of section 263A.

(2)References to buying back securities include references to—

(a)buying similar securities, and

(b)in the case of a person connected with the person who is the original owner under the repo, buying the securities sold by the original owner or similar securities.

(3)Subsection (2) applies even if the person buying the securities has not held them before.

(4)References to repurchase or a repurchaser are to be read accordingly.

(5)For the purposes of subsection (2) securities are similar if they give their holders—

(a)the same rights against the same persons as to capital and distributions, interest and dividends, and

(b)the same remedies to enforce those rights.

(6)Subsection (5) applies even if there is a difference in—

(a)the total nominal amounts of the securities,

(b)the form in which they are held, or

(c)the manner in which they can be transferred.

(7)Agreements are related if they are entered into in pursuance of the same arrangement (regardless of the date on which either agreement is entered into).

(8)In section 263A and this section “securities” means—

(a)shares in a company wherever resident,

(b)loan stock or other securities of—

(i)the government of the United Kingdom,

(ii)a local authority in the United Kingdom,

(iii)another public authority in the United Kingdom,

(iv)a company resident in the United Kingdom or other body resident in the United Kingdom, or

(c)shares, loan stock, stock or other securities issued by—

(i)a government, local authority or other public authority of a territory outside the United Kingdom, or

(ii)another body of persons not resident in the United Kingdom.

11(1)Section 263F (power to modify repo provisions: non-standard repo cases) is amended as follows.E+W+S+N.I.

(2)In subsection (2), for the words from “cases” to the end substitute “ any case mentioned in section 263A(1). ”

(3)For subsection (9) substitute—

(9)Post-agreement fluctuations” are fluctuations in the value of—

(a)securities transferred in pursuance of the original sale, or

(b)representative securities,

which occur in the period after the making of the agreement for the original sale.

(10)“Representative securities” are securities which, for the purposes of the repurchase, are to represent securities transferred in pursuance of the original sale.

12In section 263G (power to modify repo provisions: redemption arrangements)—E+W+S+N.I.

(a)in subsection (2), for the words from “cases” to the end substitute “ any case mentioned in section 263A(1). ”, and

(b)omit subsection (4).

ITTOIA 2005E+W+S+N.I.

13(1)ITTOIA 2005 is amended as follows.E+W+S+N.I.

(2)Omit Chapter 12 of Part 4 (disposals of futures and options involving guaranteed returns).

(3)In section 687(2) (application of charge to tax), at the end insert “ or to income falling within Chapter 2A of Part 4 ”.

(4)In Schedule 1 (consequential amendments), omit paragraph 435.

(5)In Schedule 2 (transitionals and savings), omit paragraph 95.

(6)In Schedule 4 (abbreviations and defined expressions), omit the entry for “future (in Chapter 12 of Part 4)”.

FA 2007E+W+S+N.I.

14In Schedule 14 of FA 2007 (sale and repurchase of securities: minor and consequential amendments), omit paragraphs 22 and 23.E+W+S+N.I.

ITA 2007E+W+S+N.I.

15(1)ITA 2007 is amended as follows.E+W+S+N.I.

(2)Omit the following provisions (which deal with deemed manufactured payments and repos)—

(a)section 596(5),

(b)sections 597 to 605,

(c)section 606(1) to (7) and (9) and (10), and

(d)sections 607 to 614.

(3)In Schedule 1 (minor and consequential amendments), omit paragraphs 310, 543 and 544.

(4)In Schedule 2 (transitionals and savings), omit paragraphs 112 to 124.

(5)In Schedule 4 (index of defined expressions)—

(a)omit the entries for—

company UK REIT (in Chapter 4 of Part 11),

distribution (in Chapter 4 of Part 11),

gross amount (in Chapter 4 of Part 11),

group (in Chapter 4 of Part 11),

group UK REIT (in Chapter 4 of Part 11),

Manufactured dividend (in Chapter 4 of Part 11),

principal company (in Chapter 4 of Part 11),

property rental business (in Chapter 4 of Part 11), and

“the repurchase price of the securities (in Chapter 4 of Part 11), and

(b)in the entry for “distribution (except in Chapter 4 of Part 11)”, omit “(except in Chapter 4 of Part 11)”.

CTA 2010E+W+S+N.I.

16In Schedule 1 of CTA 2010 (minor and consequential amendments), omit paragraphs 540 to 543 and 544(a), (c) and (d).E+W+S+N.I.

FA 2010E+W+S+N.I.

17In Schedule 6 of FA 2010 (charities etc), omit paragraph 21(4).E+W+S+N.I.

Commencement and transitional provisionE+W+S+N.I.

18(1)Subject to sub-paragraph (2), the amendments made by this Schedule have effect for the tax year 2013-2014 and subsequent tax years.E+W+S+N.I.

(2)Chapter 2A of Part 4 of ITTOIA 2005 does not apply in relation to an arrangement that produces a return for a person, in relation to an amount, which is economically equivalent to interest if—

(a)the person became party to the arrangement before 6 April 2013, and

(b)none of the provisions repealed by paragraphs 13(2) and 15(2) applied in relation to the arrangement before that date.

Section 33

SCHEDULE 13E+W+S+N.I.Change in ownership of shell company: restriction of relief

Amendments of Part 14 of CTA 2010E+W+S+N.I.

1(1)Part 14 of CTA 2010 (change in company ownership) is amended as follows.E+W+S+N.I.

(2)In section 672 (overview of Part)—

(a)after subsection (3) insert—

(3A)Chapter 5A restricts relief for certain non-trading deficits and losses where there is a change of ownership of a shell company.;

(b)in subsection (7), omit the “and” at the end of paragraph (b) and after that paragraph insert—

(ba)shell company”, see section 705A, and.

(3)After Chapter 5 insert—

CHAPTER 5AE+W+S+N.I.Shell companies: restrictions on relief

IntroductionE+W+S+N.I.
705AIntroduction to Chapter

(1)This Chapter applies where there is a change in the ownership of a shell company.

(2)In this Chapter—

  • the change in ownership” means the change in ownership mentioned in subsection (1);

  • the company” means the company mentioned in subsection (1);

  • shell company” means a company that—

    (a)

    is not carrying on a trade,

    (b)

    is not a company with investment business, and

    (c)

    is not carrying on a UK property business.

705BNotional split of accounting period in which change in ownership occurs

(1)This section applies for the purposes of this Chapter.

(2)The accounting period in which the change in ownership occurs (“the actual accounting period”) is treated as two separate accounting periods (“notional accounting periods”), the first ending with the change and the second consisting of the remainder of the period.

(3)The amounts for the actual accounting period in column 1 of the table in section 705F(2) are apportioned to the two notional accounting periods in accordance with section 705F.

(4)In this Chapter “the actual accounting period” and “notional accounting periods” have the same meaning as in this section.

Restrictions on reliefE+W+S+N.I.
705CRestriction on debits to be brought into account

(1)This section has effect for the purpose of restricting the debits to be brought into account for the purposes of Part 5 of CTA 2009 (loan relationships) in respect of the company's loan relationships.

(2)The debits to be brought into account for the purposes of Part 5 of CTA 2009 for—

(a)the accounting period beginning immediately after the change in ownership, or

(b)any subsequent accounting period,

do not include relevant non-trading debits so far as amount A exceeds amount B.

(3)Amount A is the sum of—

(a)the amount of those relevant non-trading debits, and

(b)the amount of any relevant non-trading debits which have been brought into account for the purposes of that Part for any previous accounting period ending after the change in ownership.

(4)Amount B is the amount of the taxable total profits of the accounting period ending with the change in ownership.

(5)For the meaning of “relevant non-trading debit”, see section 730.

705DRestriction on carry forward of non-trading deficit from loan relationships

(1)This section has effect for the purpose of restricting the carry forward of a non-trading deficit from the company's loan relationships under Part 5 of CTA 2009 (loan relationships).

(2)Subsection (3) applies if the non-trading deficit in column 1 of row 4 of the table in section 705F(2) is apportioned in accordance with section 705F to the first notional accounting period.

(3)None of that non-trading deficit may be carried forward to—

(a)the accounting period beginning immediately after the change in ownership, or

(b)any subsequent accounting period.

705ERestriction on relief for non-trading loss on intangible fixed assets

(1)This section has effect for the purpose of restricting relief under section 753 of CTA 2009 (treatment of non-trading losses) in respect of a non-trading loss on intangible fixed assets.

(2)Relief under section 753 of CTA 2009 against the total profits of the same accounting period is available only in relation to each of the notional accounting periods considered separately.

(3)A non-trading loss on intangible fixed assets for an accounting period beginning before the change in ownership may not be—

(a)carried forward under section 753(3) of that Act to an accounting period ending after the change in ownership, or

(b)treated under that section as if it were a non-trading debit of that period.

Apportionment of amountsE+W+S+N.I.
705FApportionment of amounts

(1)This section applies for the purposes of this Chapter.

(2)Any amount for the actual accounting period in column 1 of the following table is to be apportioned to the two notional accounting periods in accordance with the corresponding method of apportionment in column 2 of the table.

Row1. Amount to be apportioned2. Method of apportionment
1The amount for the actual accounting period of any adjusted non-trading profits from the company's loan relationships (see section 705G(2))).Apportion the amount in column 1 on a time basis according to the respective lengths of the two notional accounting periods.
2The amount for the actual accounting period of any adjusted non-trading deficit from the company's loan relationships (see section 705G(3)).Apportion the amount in column 1 on a time basis according to the respective lengths of the two notional accounting periods.
3The amount of any non-trading debit that falls to be brought into account for the actual accounting period for the purposes of Part 5 of CTA 2009 (loan relationships) in respect of any debtor relationship of the company.

(1)If condition A in section 705G(4) is met, apportion the amount in column 1 by reference to the time of accrual of the amount to which the debit relates.

(2)If condition B in section 705G(5) is met, apportion the amount in column 1 to the first notional accounting period.

4The amount of any non-trading deficit carried forward to the actual accounting period under section 457(1) of CTA 2009 (basic rule for deficits: carry forward to accounting periods after deficit period).Apportion the whole of the amount in column 1 to the first notional accounting period.
5The amount of any non-trading credits or debits in respect of intangible fixed assets that fall to be brought into account for the actual accounting period under section 751 of CTA 2009 (non-trading gains and losses), but excluding any amount within column 1 of row 6.Apportion to each notional accounting period the credits or debits that would fall to be brought into account in that period if it were a period of account for which accounts were drawn up in accordance with generally accepted accounting practice.
6The amount of any non-trading loss on intangible fixed assets carried forward to the actual accounting period under section 753(3) of CTA 2009 and treated under that section as if it were a non-trading debit of that period.Apportion the whole of the amount in column 1 to the first notional accounting period.
7Any other amounts by reference to which the profits or losses of the actual accounting period would (but for this Chapter) be calculated.Apportion the amount in column 1 on a time basis according to the respective lengths of the two notional accounting periods.

(3)If any method of apportionment in column 2 of the table in subsection (2) would work unjustly or unreasonably in any case, such other method is to be used as is just and reasonable.

(4)For the meaning of certain expressions used in this section, see section 705G.

705GMeaning of certain expressions in section 705F

(1)This section applies for the purposes of the table in section 705F(2).

(2)For the purposes of column 1 of row 1 of the table, the amount for the actual accounting period of any adjusted non-trading profits from the company's loan relationships is the amount which would be the amount of the profits from those relationships chargeable under section 299 of CTA 2009 (charge to tax on non-trading profits) if, in calculating that amount, amounts for that period within column 1 of row 3 or 4 of the table were disregarded.

(3)For the purposes of column 1 of row 2 of the table, the amount for the actual accounting period of any adjusted non-trading deficit from the company's loan relationships is the amount which would be the amount of the non-trading deficit from those relationships if, in calculating that amount, amounts for that period within column 1 of row 3 or 4 of the table were disregarded.

(4)Condition A is that—

(a)the amount in column 1 of row 3 of the table is determined on an amortised cost basis of accounting, and

(b)none of the following provisions applies—

(i)section 373 of CTA 2009 (late interest treated as not accruing until paid in some cases),

(ii)section 407 of that Act (postponement until redemption of debits for connected companies' deeply discounted securities), or

(iii)section 409 of that Act (postponement until redemption of debits for close companies' deeply discounted securities).

(5)Condition B is that—

(a)the amount in column 1 of row 3 of the table is determined on an amortised cost basis of accounting, and

(b)any of the provisions mentioned in subsection (4)(b) applies.

(4)In section 721 (when things other than share capital may be taken into account: Chapters 2 to 5)—

(a)in the heading, for “5” substitute 5A;

(b)in subsection (1), for “5” substitute “ 5A ”;

(c)in subsection (4), for “or 5” substitute “ , 5 or 5A ”.

(5)In section 725 (provision applying for the purposes of Chapters 2 to 5)—

(a)in the heading, for “5” substitute 5A;

(b)in subsection (1), for “5” substitute “ 5A ”.

(6)In section 730 (meaning of “relevant non-trading debit”)—

(a)in subsection (1), for “and 696” substitute “ , 696 and 705C ”;

(b)in subsections (3)(c), (4)(c) and (5)(b) for “or 696” substitute “ , 696 or 705C ”.

Consequential amendmentsE+W+S+N.I.

2In Schedule 4 to that Act (index of defined expressions) insert at the appropriate places—E+W+S+N.I.

the actual accounting period (in Chapter 5A of Part 14)section 705B(4)
the change in ownership (in Chapter 5A of Part 14)section 705A(2)
the company (in Chapter 5A of Part 14)section 705A(2)
notional accounting periods (in Chapter 5A of Part 14)section 705B(4)
shell company (in Chapter 5A of Part 14)section 705A(2).

CommencementE+W+S+N.I.

3The amendments made by this Schedule have effect in relation to changes in ownership that occur on or after 20 March 2013.E+W+S+N.I.

Section 34

SCHEDULE 14E+W+S+N.I.Transfer of deductions

New Part 14A of CTA 2010E+W+S+N.I.

1After Part 14 of CTA 2010 insert—E+W+S+N.I.

PART 14AE+W+S+N.I.Transfer of deductions

730AOverview

(1)This Part makes provision restricting the circumstances in which deductible amounts may be brought into account where there has been a qualifying change in relation to a company.

(2)For the meaning of “deductible amount” and “qualifying change” see section 730B.

730BInterpretation of Part

(1)In this Part—

  • arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable),

  • C” means the company mentioned in section 730A(1),

  • deductible amount” means—

    (a)

    an expense of a trade,

    (b)

    an expense of a UK property business or an overseas property business,

    (c)

    an expense of management of a company's investment business within the meaning of section 1219 of CTA 2009,

    (d)

    a non-trading debit within the meaning of Parts 5 and 6 of CTA 2009 (loan relationships and derivative contracts) (see section 301(2) of that Act), or

    (e)

    a non-trading debit within the meaning of Part 8 of CTA 2009 (intangible fixed assets) (see section 746 of that Act),

    but does not include any amount that has been taken into account in determining RTWDV within the meaning of Chapter 16A of Part 2 of CAA 2001 (restrictions on allowance buying) (see section 212K of that Act),

  • qualifying change”, in relation to a company, has the same meaning as in that Chapter, and

  • the relevant day” means the day on which the qualifying change in relation to C occurred.

(2)In this Part, references to bringing an amount into account “as a deduction” in any period are to bringing it into account as a deduction in that period—

(a)in calculating profits, losses or other amounts for corporation tax purposes, or

(b)from profits or other amounts chargeable to corporation tax.

730CDisallowance of deductible amounts: relevant claims

(1)This section applies where a relevant claim is made for an accounting period ending on or after the relevant day.

(2)Relevant claim” means a claim by C, or a company connected with C, under—

(a)section 37 (relief for trade losses against total profits), or

(b)Chapter 4 of Part 5 (group relief).

(3)A deductible amount that meets conditions A and B may not be the subject of, or brought into account as a deduction in, the claim.

(4)But subsection (3) does not exclude any amount which could have been the subject of, or brought into account as a deduction in, the claim in the absence of the qualifying change.

(5)Condition A is that, on the relevant day, it is highly likely that the amount, or any part of it, would (disregarding this Part) be the subject of, or brought into account as a deduction in, a relevant claim for an accounting period ending on or after the relevant day.

(6)Any question as to what is “highly likely” on the relevant day for the purposes of subsection (5) is to be determined having regard to—

(a)any arrangements made on or before that day, and

(b)any events that take place on or before that day.

(7)Condition B is that the main purpose, or one of the main purposes, of change arrangements is for the amount (whether or not together with other deductible amounts) to be the subject of, or brought into account as a deduction in, a relevant claim for an accounting period ending on or after the relevant day.

(8)Change arrangements” means any arrangements made to bring about, or otherwise connected with, the qualifying change.

(9)This section does not apply to a deductible amount if, and to the extent that—

(a)section 730D(2) applies to it, or

(b)for the purposes of section 432, a loss, or any part of a loss, to which section 433(2) applies derives from it.

730DDisallowance of deductible amounts: profit transfers

(1)This section applies where arrangements (“the profit transfer arrangements”) are made which result in—

(a)an increase in the total profits of C, or of a company connected with C, or

(b)a reduction of any loss or other amount for which relief from corporation tax could (disregarding this section) have been given to C or a company connected with C,

in any accounting period ending on or after the relevant day.

(2)A deductible amount that meets conditions D and E may not be brought into account by C, nor any company connected with C, as a deduction in any accounting period ending on or after the relevant day.

(3)Condition D is that, on the relevant day, it is highly likely that the amount, or any part of it, would (disregarding this Part) be brought into account by C, or any company connected with C, as a deduction in any accounting period ending on or after the relevant day.

(4)Any question as to what is “highly likely” on the relevant day for the purposes of subsection (3) is to be determined having regard to—

(a)any arrangements made on or before that day, and

(b)any events that take place on or before that day.

(5)Condition E is that the main purpose, or one of the main purposes, of the profit transfer arrangements is to bring the amount (whether or not together with other deductible amounts) into account as a deduction in any accounting period ending on or after the relevant day.

(6)Subsection (7) applies if—

(a)(disregarding subsection (7)) subsection (2) would prevent a deductible amount being brought into account by a company as a deduction in any accounting period ending on or after the relevant day, and

(b)in the absence of the profit transfer arrangements and disregarding any deductible amounts, the company would have an amount of total profits for that accounting period.

(7)Subsection (2) applies only in relation to such proportion of the deductible amount mentioned in subsection (6)(a) as is just and reasonable.

Consequential amendmentsE+W+S+N.I.

2(1)In section 1(4) of CTA 2010 (overview of Act), after paragraph (a) insert—E+W+S+N.I.

(aa)transfer of deductions (see Part 14A),.

(2)In section 432 of that Act (sale of lessors: restriction on relief for certain expenses), after subsection (1) insert—

(1A)For the purposes of subsection (1), an expense is to be disregarded if, and to the extent that, section 730D(2) (disallowance of deductible amounts: profit transfers) applies to it.

(3)In Schedule 4 to that Act (index of defined expressions), insert at the appropriate places—

arrangements (in Part 14A)section 730B
as a deduction (in Part 14A)section 730B
C (in Part 14A)section 730B
deductible amount (in Part 14A)section 730B
qualifying change (in Part 14A)section 730B
the relevant day (in Part 14A)section 730B.

Commencement and transitional provisionE+W+S+N.I.

3(1)The amendments made by this Schedule have effect in relation to a qualifying change if the relevant day is on or after 20 March 2013.E+W+S+N.I.

(2)But those amendments do not have effect if before that date—

(a)the arrangements made to bring about the qualifying change were entered into, or

(b)there was an agreement, or common understanding, between the parties to those arrangements as to the principal terms on which the qualifying change would be brought about.

(3)If—

(a)the relevant day in relation to a qualifying change is before 26 June 2013, or

(b)paragraph (a) or (b) of sub-paragraph (2) was satisfied before that date,

those amendments have effect in relation to the qualifying change as if section 730C(9)(b) were omitted.

Section 35

SCHEDULE 15E+W+S+N.I.R&D expenditure credits

PART 1E+W+S+N.I.Amendments of CTA 2009

1In Part 3 of CTA 2009 (trading income), after Chapter 6 insert—E+W+S+N.I.

CHAPTER 6AE+W+S+N.I.Trade profits: R&D expenditure credits

Claims for creditsE+W+S+N.I.
104AR&D expenditure credits

(1)A company carrying on a trade may make a claim for an amount (an “R&D expenditure credit”) to be brought into account as a receipt in calculating the profits of the trade for an accounting period.

(2)The company is entitled to an R&D expenditure credit for the accounting period if the company has qualifying R&D expenditure which is allowable as a deduction in calculating for corporation tax purposes the profits of the trade for the accounting period.

(3)In the case of a company that is a small or medium-sized enterprise in the accounting period, the company's “qualifying R&D expenditure” means—

(a)its qualifying expenditure on sub-contracted R&D (see section 104C),

(b)its subsidised qualifying expenditure (see section 104F), and

(c)its capped R&D expenditure (see section 104I).

(4)In the case of a company that is a large company throughout the accounting period, the company's “qualifying R&D expenditure” means—

(a)its qualifying expenditure on in-house direct research and development (see section 104J),

(b)its qualifying expenditure on contracted out research and development (see section 104K), and

(c)its qualifying expenditure on contributions to independent research and development (see section 104L).

(5)The amount of an R&D expenditure credit to which a company is entitled is determined in accordance with section 104M.

(6)Section 104N contains provision about the effect of a successful claim for an R&D expenditure credit.

(7)Sections 104U to 104W contain provision about insurance companies and group companies.

(8)Section 104X contains anti-avoidance provision.

(9)Section 104Y contains definitions.

(10)For information about the procedure for making claims under this Chapter, see Schedule 18 to FA 1998, in particular Part 9A of that Schedule.

104BRestriction on claiming relief under Part 13 and credit for same expenditure

A company may not make a claim for an R&D expenditure credit and for relief under Part 13 (additional relief for expenditure on research and development) in respect of the same expenditure.

SMEs: qualifying expenditure on sub-contracted R&DE+W+S+N.I.
104CQualifying expenditure on sub-contracted R&D

(1)For the purposes of this Chapter a company's “qualifying expenditure on sub-contracted R&D” means expenditure incurred by it that meets conditions A and B.

(2)Condition A is that the expenditure is incurred on research and development contracted out to the company by—

(a)a large company, or

(b)any person otherwise than in the course of carrying on a chargeable trade.

(3)A “chargeable trade” is—

(a)a trade, profession or vocation carried on wholly or partly in the United Kingdom, the profits of which are chargeable to income tax under Chapter 2 of Part 2 of ITTOIA 2005, or

(b)a trade carried on wholly or partly in the United Kingdom, the profits of which are chargeable to corporation tax under Chapter 2 of this Part.

(4)Condition B is that the expenditure is expenditure to which section 104D or 104E applies.

104DExpenditure on sub-contracted R&D undertaken in-house

(1)This section applies to expenditure on research and development contracted out to a company if conditions A, B and C are met.

(2)Condition A is that the research and development is undertaken by the company itself.

(3)Condition B is that the expenditure is—

(a)incurred on staffing costs (see section 1123),

(b)incurred on software or consumable items (see section 1125),

(c)qualifying expenditure on externally provided workers (see section 1127), or

(d)incurred on relevant payments to the subjects of a clinical trial (see section 1140).

(4)Condition C is that the expenditure is attributable to relevant research and development in relation to the company.

(5)See sections 1124, 1126 and 1132 for provision about when expenditure within subsection (3)(a), (b) or (c) is attributable to relevant research and development.

104EExpenditure on sub-contracted R&D not undertaken in-house

(1)This section applies to expenditure on research and development contracted out to a company if conditions A, B and C are met.

(2)Condition A is that the expenditure is incurred in making payments to—

(a)a qualifying body,

(b)an individual, or

(c)a firm, each member of which is an individual,

in respect of research and development contracted out by the company to the body, individual or firm.

(3)Condition B is that the research and development is undertaken by the body, individual or firm itself.

(4)Condition C is that the expenditure is attributable to relevant research and development in relation to the company.

(5)See sections 1124, 1126 and 1132 for provision about when particular kinds of expenditure are attributable to relevant research and development.

SMEs: subsidised qualifying expenditureE+W+S+N.I.
104FSubsidised qualifying expenditure

For the purposes of this Chapter a company's “subsidised qualifying expenditure” means—

(a)its subsidised qualifying expenditure on in-house direct research and development (see section 104G), and

(b)its subsidised qualifying expenditure on contracted out research and development (see section 104H).

104GSubsidised qualifying expenditure on in-house direct R&D

(1)A company's “subsidised qualifying expenditure on in-house direct research and development” means expenditure incurred by it in relation to which each of conditions A to D is met.

(2)Condition A is that the expenditure is subsidised.

(3)Condition B is that the expenditure is—

(a)incurred on staffing costs (see section 1123),

(b)incurred on software or consumable items (see section 1125),

(c)qualifying expenditure on externally provided workers (see section 1127), or

(d)incurred on relevant payments to the subjects of a clinical trial (see section 1140).

(4)Condition C is that the expenditure is attributable to relevant research and development undertaken by the company itself.

(5)Condition D is that the expenditure is not incurred by the company in carrying on activities which are contracted out to the company by any person.

(6)See sections 1124, 1126 and 1132 for provision about when expenditure within subsection (3)(a), (b) or (c) is attributable to relevant research and development.

104HSubsidised qualifying expenditure on contracted out R&D

(1)A company's “subsidised qualifying expenditure on contracted out research and development” means expenditure—

(a)which is incurred by it in making the qualifying element of a sub-contractor payment (see sections 1134 to 1136), and

(b)in relation to which each of conditions A to E is met.

(2)Condition A is that the expenditure is subsidised.

(3)Condition B is that the sub-contractor is—

(a)a qualifying body,

(b)an individual, or

(c)a firm, each member of which is an individual.

(4)Condition C is that the body, individual or firm concerned undertakes the contracted out research and development itself.

(5)Condition D is that the expenditure is attributable to relevant research and development in relation to the company.

(6)Condition E is that the expenditure is not incurred by the company in carrying on activities which are contracted out to the company by any person.

(7)See sections 1124, 1126 and 1132 for provision about when particular kinds of expenditure are attributable to relevant research and development.

SMEs: capped R&D expenditureE+W+S+N.I.
104ICapped R&D expenditure

For the purposes of this Chapter a company's “capped R&D expenditure” means any expenditure—

(a)in respect of which the company is not entitled to relief under Chapter 2 of Part 13 merely because of section 1113 (cap on R&D aid),

(b)which is not qualifying expenditure on sub-contracted R&D, and

(c)which would have been qualifying R&D expenditure had the company been a large company throughout the accounting period in question.

Large companies: qualifying R&D expenditureE+W+S+N.I.
104JQualifying expenditure on in-house direct R&D

(1)A company's “qualifying expenditure on in-house direct research and development” means expenditure incurred by it in relation to which conditions A, B and C are met.

(2)Condition A is that the expenditure is—

(a)incurred on staffing costs (see section 1123),

(b)incurred on software or consumable items (see section 1125),

(c)qualifying expenditure on externally provided workers (see section 1127), or

(d)incurred on relevant payments to the subjects of a clinical trial (see section 1140).

(3)Condition B is that the expenditure is attributable to relevant research and development undertaken by the company itself.

(4)Condition C is that, if the expenditure is incurred in carrying on activities contracted out to the company, the activities are contracted out by—

(a)a large company, or

(b)any person otherwise than in the course of carrying on a chargeable trade.

(5)A “chargeable trade” is—

(a)a trade, profession or vocation carried on wholly or partly in the United Kingdom, the profits of which are chargeable to income tax under Chapter 2 of Part 2 of ITTOIA 2005, or

(b)a trade carried on wholly or partly in the United Kingdom, the profits of which are chargeable to corporation tax under Chapter 2 of this Part.

(6)See sections 1124, 1126 and 1132 for provision about when expenditure within subsection (2)(a), (b) or (c) is attributable to relevant research and development.

104KQualifying expenditure on contracted out R&D

(1)A company's “qualifying expenditure on contracted out research and development” means expenditure incurred by it in relation to which each of conditions A to D is met.

(2)Condition A is that the expenditure is incurred in making payments to—

(a)a qualifying body,

(b)an individual, or

(c)a firm, each member of which is an individual,

in respect of research and development contracted out by the company to the body, individual or firm concerned (“the contracted out R&D”).

(3)Condition B is that the body, individual or firm concerned undertakes the contracted out R&D itself.

(4)Condition C is that the expenditure is attributable to relevant research and development in relation to the company.

(5)Condition D is that, if the contracted out R&D is itself contracted out to the company, it is contracted out by—

(a)a large company, or

(b)any person otherwise than in the course of carrying on a chargeable trade.

(6)A “chargeable trade” is—

(a)a trade, profession or vocation carried on wholly or partly in the United Kingdom, the profits of which are chargeable to income tax under Chapter 2 of Part 2 of ITTOIA 2005, or

(b)a trade carried on wholly or partly in the United Kingdom, the profits of which are chargeable to corporation tax under Chapter 2 of this Part.

(7)See sections 1124, 1126 and 1132 for provision about when particular kinds of expenditure are attributable to relevant research and development.

104LQualifying expenditure on contributions to independent R&D

(1)A company's “qualifying expenditure on contributions to independent research and development” means expenditure incurred by it in relation to which each of conditions A to E is met.

(2)Condition A is that the expenditure is incurred in making payments to—

(a)a qualifying body,

(b)an individual, or

(c)a firm, each member of which is an individual,

for the purpose of funding research and development carried on by the body, individual or firm concerned (“the funded R&D”).

(3)Condition B is that the funded R&D is relevant research and development in relation to the company.

(4)Condition C is that the funded R&D is not contracted out to the qualifying body, individual or firm concerned by another person.

(5)Condition D is that, if the payment is made to an individual, the company is not connected with the individual when the payment is made.

(6)Condition E is that, if the payment is made to a firm (other than a qualifying body), the company is not connected with any member of the firm when the payment is made.

Amount of creditE+W+S+N.I.
104MAmount of R&D expenditure credit

(1)The amount of the R&D expenditure credit to which a company is entitled for an accounting period is the relevant percentage of the amount of the company's qualifying R&D expenditure for the period.

(2)In the case of a ring fence trade, the relevant percentage is 49%.

In this subsection “ring fence trade” has the meaning given by section 277 of CTA 2010.

(3)In any other case, the relevant percentage is 10%.

(4)The Treasury may by order replace the percentage for the time being specified in subsection (2) or (3) with a different percentage.

(5)An order under subsection (4) may contain incidental, supplemental, consequential and transitional provision and savings.

Payment of creditE+W+S+N.I.
104NPayment of R&D expenditure credit

(1)This section applies if a company is entitled to an R&D expenditure credit for an accounting period under this Chapter.

(2)The amount to which the company is entitled in respect of the R&D expenditure credit (“the set-off amount”) is to be treated in the following way—

  • Step 1 The set-off amount is to be applied in discharging any liability of the company to pay corporation tax for the accounting period. If any of the set-off amount is remaining, go to step 2.

  • Step 2 If the amount remaining after step 1 is greater than the net value of the set-off amount (see subsection (3)), that amount is to be reduced to the net value of the set-off amount. For provision about the treatment of the amount deducted under this step from the amount remaining after step 1, see section 104O.

  • Step 3 If the amount remaining after step 2 is greater than the company's total expenditure on workers for the accounting period (see section 104P)—

    (a)

    that amount is to be reduced to the amount of that expenditure (which may be nil), and

    (b)

    the amount deducted under paragraph (a) from the amount remaining after step 2 is to be treated for the purposes of this section as an amount of R&D expenditure credit to which the company is entitled for its next accounting period.

    If any of the set-off amount is remaining, go to step 4.

  • Step 4 The amount remaining after step 3 is to be applied in discharging any liability of the company to pay corporation tax for any other accounting period. If any of the set-off amount is remaining, go to step 5.

  • Step 5 If the company is a member of a group, it may surrender the whole or any part of the amount remaining after step 4 to any other member of the group (see section 104R). If no such surrender is made, or any of the set-off amount is otherwise remaining, go to step 6.

  • Step 6 The amount remaining after step 5 is to be applied in discharging any other liability of the company to pay a sum to the Commissioners under or by virtue of an enactment or under a contract settlement. If any of the set-off amount is remaining, go to step 7.

  • Step 7 The amount remaining after step 6 is payable to the company by an officer of Revenue and Customs. But this is subject to section 104S (restrictions on payment of R&D expenditure credit).

(3)To determine the net value of the set-off amount for the purposes of step 2 in subsection (2), deduct from the set-off amount amount A and, in the case of a ring fence trade, amount B.

  • Amount A is the amount equal to the corporation tax that would be chargeable on the set-off amount if—

    (a)

    it did not include any amount treated as an amount of R&D expenditure credit for the accounting period by virtue of step 3 in subsection (2), and

    (b)

    it was an amount of profits (or in the case of a ring fence trade, ring fence profits) of the company for the accounting period and corporation tax on such profits was chargeable at the main rate.

  • Amount B is the amount equal to the supplementary charge that would be chargeable on the set-off amount if—

    (a)

    it did not include any amount treated as an amount of R&D expenditure credit for the accounting period by virtue of step 3 in subsection (2), and

    (b)

    it was an amount of adjusted ring fence profits for the accounting period.

(4)In this section—

  • adjusted ring fence profits” has the meaning given by section 330(2) of CTA 2010,

  • the Commissioners” means the Commissioners for Her Majesty's Revenue and Customs,

  • contract settlement” means an agreement made in connection with any person's liability to make a payment to the Commissioners under or by virtue of an enactment,

  • ring fence profits” has the meaning given by section 276 of CTA 2010, and

  • ring fence trade” has the meaning given by section 277 of CTA 2010.

104OAmounts deducted by way of tax adjustment

(1)This section applies if—

(a)a company is entitled to an R&D expenditure credit for an accounting period under this Chapter, and

(b)the amount of the set-off amount remaining after step 1 in section 104N(2) is greater than the net value of the set-off amount.

(2)An amount equal to the difference between—

(a)the amount remaining after step 1 in section 104N(2), and

(b)the net value of the set-off amount,

(“the step 2 amount”) is to be applied in discharging any liability of the company to pay corporation tax for any subsequent accounting period.

This is subject to subsection (3).

(3)If the company is a member of a group, it may surrender the whole or any part of the step 2 amount to any other member of the group (the “relevant group member”).

In such a case, section 104R(3) applies to the amount surrendered as it applies to an amount of R&D expenditure credit surrendered under step 5 in section 104N(2).

(4)If any of the amount surrendered under subsection (3) is remaining after the operation of step 3 in section 104R(3), it is to be treated for the purposes of this section as if it had not been surrendered to the relevant group member.

(5)Any amounts to be applied under subsection (2) or (3) in discharging any liability of a company to pay corporation tax for an accounting period are to be so applied before any amounts that may be so applied under step 1, 4 or 5 in section 104N(2).

(6)The surrender by a company of the whole or any part of the step 2 amount to another company under this section—

(a)is not to be taken into account in determining the profits or losses of either company for corporation tax purposes, and

(b)for corporation tax purposes is not to be regarded as the making of a distribution.

(7)Any reference in this section to the set-off amount, or the net value of the set-off amount, is to be read in accordance with section 104N.

104PTotal expenditure on workers

(1)For the purposes of section 104N, the amount of a company's total expenditure on workers for an accounting period is the sum of—

(a)the relevant portion of the company's staffing costs for the period (see subsection (2)), and

(b)if the company is a member of a group and has incurred expenditure on any externally provided workers, the relevant portion of any staffing costs for the period incurred by another member of the group (the “relevant group company”) in providing any of those workers for the company (see subsection (3)).

(2)The relevant portion of the company's staffing costs for an accounting period is the amount of those costs that—

(a)are paid to, or in respect of, directors or employees who are directly and actively engaged in relevant research and development (whether they are wholly or partly so engaged), and

(b)form part of the total amount of the company's PAYE and NIC liabilities for the accounting period (see section 104Q).

(3)The relevant portion of any staffing costs for an accounting period incurred by a relevant group company in providing externally provided workers for the company is the sum of the amounts to be determined in the case of each of those workers as follows—

  • Step 1 Calculate the amount of expenditure that—

    (a)

    has been incurred by the relevant group company in providing the externally provided worker for the company,

    (b)

    has been incurred on staffing costs, and

    (c)

    forms part of the total amount of the relevant group company's PAYE and NIC liabilities for the accounting period (see section 104Q).

  • Step 2 Calculate the percentage (the “appropriate percentage”) given by—

    where—

    R is the amount of the company's qualifying expenditure on the externally provided worker that has been taken into account in calculating the amount of the company's qualifying R&D expenditure for the period, and

    T is the total amount of the company's qualifying expenditure on the externally provided worker.

  • Step 3 The amount to be determined in the case of the externally provided worker is the appropriate percentage of the amount given by step 1.

104QTotal amount of company's PAYE and NIC liabilities

(1)For the purposes of section 104P the total amount of a company's PAYE and NIC liabilities for an accounting period is the sum of—

(a)amount A, and

(b)amount B.

(2)Amount A is the total amount of income tax for which the company is required to account to an officer of Revenue and Customs under PAYE regulations for the accounting period.

(3)In calculating amount A disregard any deduction the company is authorised to make in respect of child tax credit or working tax credit.

(4)Amount B is the total amount of Class 1 national insurance contributions for which the company is required to account to an officer of Revenue and Customs for the accounting period.

(5)In calculating amount B disregard any deduction the company is authorised to make in respect of payments of statutory sick pay, statutory maternity pay, child tax credit or working tax credit.

(6)In a case where the company is required to account for any amount of income tax or Class 1 national insurance contributions for a payment period that does not fall wholly within the accounting period, the portion of that amount to be included in the total amount of the company's PAYE and NIC liabilities for the accounting period is to be determined on such basis as is just and reasonable in all the circumstances.

104RSurrender of credit to other group companies

(1)This section applies if—

(a)a company is entitled to an R&D expenditure credit under this Chapter for an accounting period (“the surrender period”), and

(b)the company surrenders the whole or any part of the credit to another member of the group (the “relevant group member”) under step 5 in section 104N(2).

(2)In this section an accounting period of a relevant group member is a “relevant accounting period” if there is a period (“the overlapping period”) that is common to the accounting period and the surrender period.

(3)The amount surrendered is to be applied in discharging any liability of the relevant group member to pay corporation tax for any relevant accounting period as follows—

  • Step 1 Take the proportion of the relevant accounting period included in the overlapping period. Apply that proportion to the amount of corporation tax payable by the relevant group member for the relevant accounting period.

  • Step 2 Take the proportion of the surrender period included in the overlapping period. Apply that proportion to the amount surrendered to the relevant group member.

  • Step 3 The amount given by step 2 is to be applied in discharging the amount given by step 1.

(4)If any of the amount surrendered is remaining after the operation of step 3 in subsection (3), it is to be treated for the purposes of section 104N as if it had not been surrendered to the relevant group member.

(5)The surrender by a company of the whole or any part of an R&D expenditure credit to another company under step 5 in section 104N(2)—

(a)is not to be taken into account in determining the profits or losses of either company for corporation tax purposes, and

(b)for corporation tax purposes is not to be regarded as the making of a distribution.

104SRestrictions on payment of R&D expenditure credit

(1)This section applies if—

(a)a company is entitled to an R&D expenditure credit for an accounting period under this Chapter, and

(b)an amount of the R&D expenditure credit is payable to the company under step 7 of section 104N(2).

(2)If at the time of claiming the credit the company was not a going concern (see section 104T)—

(a)the company is not entitled to be paid that amount, and

(b)that amount is extinguished.

(3)But if the company becomes a going concern on or before the last day on which an amendment of the company's tax return for the accounting period could be made under paragraph 15 of Schedule 18 to FA 1998, the company is entitled to be paid that amount.

(4)If the company's tax return for the accounting period is enquired into by an officer of Revenue and Customs—

(a)no payment of that amount need be made before the officer's enquiries are completed (see paragraph 32 of Schedule 18 to FA 1998), but

(b)the officer may make a payment on a provisional basis of such amount as the officer thinks fit.

(5)No payment of that amount need be made if the company has outstanding PAYE and NIC liabilities for the period.

(6)A company has outstanding PAYE and NIC liabilities for an accounting period if it has not paid to an officer of Revenue and Customs any amount that it is required to pay—

(a)under PAYE regulations, or

(b)in respect of Class 1 national insurance contributions,

for payment periods ending in the accounting period.

104T“Going concern”

(1)For the purposes of section 104S(2) and (3) a company is a going concern if—

(a)its latest published accounts were prepared on a going concern basis, and

(b)nothing in those accounts indicates that they were only prepared on that basis because of an expectation that the company would receive R&D expenditure credits under this Chapter.

This is subject to subsection (2).

(2)A company is not a going concern at any time if it is in administration or liquidation at that time.

(3)For the purposes of this section a company is in administration if—

(a)it is in administration under Part 2 of the Insolvency Act 1986 or Part 3 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or

(b)a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company.

(4)For the purposes of this section a company is in liquidation if—

(a)it is in liquidation within the meaning of section 247 of that Act or Article 6 of that Order, or

(b)a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company.

(5)Section 436(2) of the Companies Act 2006 (meaning of “publication” of documents) has effect for the purposes of this section.

Insurance companiesE+W+S+N.I.
104UInsurance companies treated as large companies

(1)This section applies if an insurance company—

(a)carries on life assurance business in an accounting period, and

(b)is a small or medium-sized enterprise in the period.

(2)For the purposes of this Chapter the company is to be treated as if it were not such an enterprise in the period (and accordingly is to be treated as a large company for the purposes of this Chapter).

(3)Section 1119 (meaning of “small or medium-sized enterprise”), as it has effect for the purposes of this Chapter (see section 104Y), is to be read subject to this section.

104VEntitlement to credit: I minus E basis

(1)This section applies if—

(a)for an accounting period, an insurance company is charged to tax in respect of its basic life assurance and general annuity business in accordance with the I-E rules, and

(b)the calculation of the company's charge to tax for the period in respect of that business does not involve the calculation of any BLAGAB trade profit or loss of the company.

(2)Section 104A has effect as if—

(a)the reference in subsection (1) to calculating the profits of a trade were a reference to calculating the I-E profit of the basic life assurance and general annuity business carried on by the company, and

(b)the reference in subsection (2) to qualifying R&D expenditure allowable as a deduction in calculating the profits of a trade for an accounting period were a reference to any such expenditure that would be allowable as such a deduction if the company were to calculate its BLAGAB trade profit or loss for the period.

(3)Any receipt to be brought into account by virtue of this section is to be treated for the purposes of section 92 of FA 2012 (certain BLAGAB trading receipts to count as deemed I-E receipts) as if it had been taken into account in calculating the company's BLAGAB trade profit or loss for the period.

(4)In this section “BLAGAB trade profit” and “BLAGAB trade loss” have the meaning given by section 136 of FA 2012.

Group companiesE+W+S+N.I.
104WR&D expenditure of group companies

(1)This section applies if—

(a)a company (“A”) incurs expenditure on making a payment to another company (“B”) in respect of activities contracted out by A to B,

(b)the activities would, if carried out by A, be research and development of A (taken together with A's other activities), and

(c)A and B are members of the same group at the time the payment is made.

(2)If the activities are undertaken by B itself, they are to be treated for the purposes of this Chapter (so far as it would not otherwise be the case) as research and development undertaken by B itself.

(3)If B makes a payment to a third party (“C”), any of the activities—

(a)contracted out by B to C, and

(b)undertaken by C itself,

are to be treated for the purposes of this Chapter (so far as it would not otherwise be the case) as research and development contracted out by B to C.

Anti-avoidanceE+W+S+N.I.
104XArtificially inflated claims for credit

(1)To the extent that a transaction is attributable to arrangements entered into wholly or mainly for a disqualifying purpose, it is to be disregarded for the purpose of determining for an accounting period R&D expenditure credits to which a company is entitled under this Chapter.

(2)Arrangements are entered into wholly or mainly for a “disqualifying purpose” if their main object, or one of their main objects, is to enable a company to obtain—

(a)an R&D expenditure credit under this Chapter to which it would not otherwise be entitled, or

(b)an R&D expenditure credit under this Chapter of a greater amount than that to which it would otherwise be entitled.

(3)In this section “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.

InterpretationE+W+S+N.I.
104YInterpretation

(1)In this Chapter the following terms have the same meaning as they have in Part 13 (additional relief for expenditure on R&D)—

  • “large company” (see section 1122),

  • “payment period” (see section 1141),

  • “qualifying body” (see section 1142),

  • “relevant research and development” (see section 1042),

  • “research and development” (see section 1041),

  • “small or medium-sized enterprise” (see section 1119).

(2)The following sections apply for the purposes of this Chapter as they apply for the purposes of Part 13—

  • sections 1123 and 1124 (staffing costs),

  • sections 1125 and 1126 (software or consumable items),

  • sections 1127 to 1132 (qualifying expenditure on externally provided workers),

  • sections 1133 to 1136 (sub-contractor payments),

  • section 1138 (“subsidised expenditure”),

  • section 1140 (relevant payments to the subjects of a clinical trial).

(3)For the purposes of this Chapter two companies are members of the same group if they are members of the same group of companies for the purposes of Part 5 of CTA 2010 (group relief).

2(1)Part 13 of CTA 2009 (additional relief for expenditure on research and development) is amended as follows.E+W+S+N.I.

(2)After section 1040 (and before the cross-heading “Interpretation”) insert—

1040AR&D expenditure credits

(1)For provision enabling a company carrying on a trade to make a claim for an amount in respect of expenditure on research and development (an “R&D expenditure credit”) to be brought into account as a receipt in calculating the profits of the trade for an accounting period, see Chapter 6A of Part 3.

(2)For provision prohibiting a company from making a claim for an R&D expenditure credit and for relief under this Part in respect of the same expenditure, see section 104B.

(3)In section 1138 (meaning of “subsidised expenditure”), in subsection (3), omit the “and” at the end of paragraph (a) and after paragraph (b) insert—

(c)R&D expenditure credits under Chapter 6A of Part 3.

3In Schedule 4 to CTA 2009 (index of defined expressions), at the appropriate place insert—E+W+S+N.I.

capped R&D expenditure (in Chapter 6A of Part 3)section 104I;
large company (in Chapter 6A of Part 3)section 1122 (as applied by section 104Y);
payment period (in Chapter 6A of Part 3)section 1141 (as applied by section 104Y);
qualifying body (in Chapter 6A of Part 3)section 1142 (as applied by section 104Y);
qualifying expenditure on sub-contracted R&D (in Chapter 6A of Part 3)section 104C;
qualifying R&D expenditure (in Chapter 6A of Part 3)section 104A;
relevant payment to the subject of a clinical trial (in Chapter 6A of Part 3)section 1140 (as applied by section 104Y);
relevant research and development (in Chapter 6A of Part 3)section 1042 (as applied by section 104Y);
research and development (in Chapter 6A of Part 3)section 1041 (as applied by section 104Y);
small or medium-sized enterprise (in Chapter 6A of Part 3)section 1119 (as applied by section 104Y);
software or consumable items (in Chapter 6A of Part 3)section 1125 (as applied by section 104Y);
staffing costs (in Chapter 6A of Part 3)section 1123 (as applied by section 104Y);
subsidised qualifying expenditure (in Chapter 6A of Part 3)section 104F.

PART 2E+W+S+N.I.Consequential amendments

FA 1998E+W+S+N.I.

4Schedule 18 to FA 1998 (company tax returns, assessments and related matters) is amended as follows.E+W+S+N.I.

5In paragraph 10(2) (other claims and elections to be included in return), after “first-year tax credits” insert “ , R&D expenditure credits ”.E+W+S+N.I.

6(1)Paragraph 52 (recovery of excessive repayments etc) is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (2), after paragraph (b) insert—

(bza)R&D expenditure credit under Chapter 6A of Part 3 of the Corporation Tax Act 2009,.

(3)In sub-paragraph (5)—

(a)after paragraph (a) insert—

(aa)an amount of R&D expenditure credit paid to a company for an accounting period,;

(b)after “paragraph (a),” insert “ (aa), ”.

7(1)Part 9A (claims for R&D tax relief) is amended as follows.E+W+S+N.I.

(2)