Schedule 3 Non-resident, and previously non-domiciled individuals
Section 43
Part 1 Relief for new residents on foreign income and gains
Reliefs only deductible against income or gains to which they relate
1 (1) In section 845A of ITTOIA 2005 (claim for relief for qualifying new residents: qualifying foreign income), after subsection (3) insert—
(3A) But a deduction for that purpose is to be made only from qualifying foreign income.
(2) In section 41P of ITEPA 2003 (claim for relief for qualifying new residents: qualifying foreign employment income), after subsection (4) insert—
(4A) But a deduction for that purpose is to be made only from qualifying foreign employment income.
(3) In section 25 of ITA 2007 (reliefs and allowances deductible at Steps 2 and 3: supplementary), in subsection (3), at the appropriate places insert—
section 41P of ITEPA 2003 (qualifying foreign employment income)
;
section 845A of ITTOIA 2005 (qualifying foreign income)
.
(4) In Schedule D1 to TCGA 1992, in paragraph 2(2) (relief for qualifying foreign gains)—
(a) for “chargeable” substitute “qualifying foreign”, and
(b) after “individual” insert “in that tax year”.
(5) The amendments made by this paragraph have effect for the tax year 2025-26 and subsequent tax years.
QAHCs
2 (1) In the table in section 845H of ITTOIA 2005—
(a) in item 23—
(i) for “paragraph 46” substitute “paragraph 46(4) to (6)”,
(ii) after “arising” insert “to an individual who provided investment management services in connection with investment arrangements to which a QAHC is party”, and
(iii) for “a QAHC (within the meaning of that Schedule)” substitute “the QAHC as a result of an interest the individual acquired during the course of the provision of those services”, and
(b) after the row containing item 23 insert—
“QAHC” and “investment management services” have the meanings they have in that Schedule.
(2) In Schedule D1 to TCGA 1992, in paragraph 6—
(a) in the definition of “qualifying QAHC gain”—
(i) after “accruing” insert “to an individual who provided investment management services in connection with investment arrangements to which a QAHC is party”, and
(ii) for the words from “a QAHC” to the end substitute “the QAHC that were acquired during the course of the provision of those services”, and
(b) at the end insert—
“QAHC” and “investment management services” have the meanings they have in that Schedule.
(3) In paragraph 46 of Schedule 2 to FA 2022 (qualifying asset holding companies), in sub-paragraph (6A) for “item 22” substitute “item 23”.
(4) This paragraph has effect in relation to income arising and gains accruing on or after the day on which this Act is passed.
Children under 10
3 In section 845B of ITTOIA 2005 (meaning of “qualifying new resident”), in subsection (1)—
(a) omit the “and” after paragraph (b), and
(b) after paragraph (c) insert
, and
(d) the individual is at least 10 years old at the commencement of that tax year.
Residence of personal representatives
4 (1) In section 62 of TCGA 1992 (death: general provisions), in subsection (3) (residence of personal representatives), omit “or a long-term UK resident within the meaning of IHTA 1984”.
(2) The amendment made by this paragraph is to be treated as having come into force on 6 April 2025 and has effect where the deceased person died on or after that date.
Foreign gains treated as accruing when remitted to UK
5 (1) In paragraph 2 of Schedule 9 to FA 2025 (amendments of TCGA 1992 connected with end of remittance basis), in sub-paragraph (7)(b), after ““applies”” insert “, in the second place it occurs,”.
(2) Paragraph 2 of Schedule 9 to FA 2025 has effect, and is to be treated as always having had effect, with the amendment made by this paragraph (and the amendment made by that paragraph has effect accordingly).
Capital gains tax: amendments connected with end of remittance basis
6 (1) In section 8C of TMA 1970 (returns so far as relating to capital gains tax)—
(a) in subsection (1), in paragraph (a), the words from “does not” to the end become sub-paragraph (i) of that paragraph,
(b) after that sub-paragraph insert
or
(ii) where the person is not entitled to the annual exempt amount for the tax year, is nil,
,
(c) omit subsection (1)(c) (but not the “and” following it),
(d) in subsection (2), for “to (c)” substitute “and (b)”, and
(e) omit subsection (4).
(2) In section 1K of TCGA 1992 (annual exempt amount), omit subsection (6)(a).
(3) The amendments made by this paragraph have effect for the tax year 2025-26 and subsequent tax years.
Definitions
7 (1) In section 989 of ITA 2007, at the appropriate place insert—
“foreign gain claim” means a claim under paragraph 1 of Schedule D1 to TCGA 1992,
.
(2) In Schedule 4 to ITA 2007, at the appropriate places insert—
foreign employment election | section 989 (and see section 41M of ITEPA 2003)
;
foreign gain claim | section 989 (and see paragraph 1 of Schedule D1 to TCGA 1992)
;
foreign income claim | section 989 (and see section 845A of ITTOIA 2005)
;
qualifying new resident | section 989 (and see section 845B of ITTOIA 2005)
.
(3) In Part 2 of Schedule 4 to ITTOIA 2005, at the appropriate places insert—
foreign employment election | section 989 of ITA 2007 (and see section 41M of ITEPA 2003)
;
foreign gain claim | section 989 of ITA 2007 (and see paragraph 1 of Schedule D1 to TCGA 1992)
;
foreign income claim | section 989 of ITA 2007 (and see section 845A of this Act)
;
qualifying new resident | section 989 of ITA 2007 (and see section 845B of this Act)
.
(4) In Part 2 of Schedule 1 to ITEPA 2003, at the appropriate places insert—
foreign employment election | section 989 of ITA 2007 (and see section 41M of this Act)
;
qualifying new resident | section 989 of ITA 2007 (and see section 845B of ITTOIA 2005)
.
Part 2 Temporary repatriation facility
Introduction
8 Schedule 10 to FA 2025 (temporary repatriation facility) is amended as follows.
Deemed income under section 732 of ITA 2007
9 In paragraph 7—
(a) after sub-paragraph (1) insert—
(1A) For the purposes of applying those paragraphs for the purposes of sub-paragraph (1)(c)—
(a) those paragraphs have effect as if—
(i) for sub-paragraph (1)(a) (in each paragraph) there were substituted—
(a) an individual is treated as having an amount of income for any of the tax years 2025-26, 2026-27 or 2027-28 as a result of section 732 of ITA 2007 (individuals receiving a benefit as a result of relevant transactions),
,
(ii) the reference in sub-paragraph (2) (in each paragraph) to “the payment” were to the benefit by reference to which the income is treated as arising,
(iii) sub-paragraph (3)(b)(ii) (in each paragraph) were omitted, and
(iv) the references in each paragraph, and in section 87A of TCGA 1992 as applied by those paragraphs, to “capital payments” were to benefits falling within sub-paragraph (1)(c) of this paragraph, and
(b) those paragraphs are to be applied after they have been applied for the purposes of determining whether any amount of a capital payment is qualifying overseas capital.
, and
(b) in sub-paragraph (2), after “amount”, in the first place it occurs, insert “of income”.
Value of amounts of qualifying overseas capital
10 In paragraph 8 (designation of qualifying overseas capital), after sub-paragraph (2) insert—
(2A) For the purposes of designating an amount of qualifying overseas capital of an individual that—
(a) is qualifying overseas capital as a result of paragraph 2(2) or (5), or
(b) is treated as qualifying overseas capital as a result of paragraph 6(1)(b),
the value of that amount is the value of the amount when it first arose to the individual.
Designation where tax paid from other sources
11 In paragraph 8, after sub-paragraph (4) insert—
(4A) But where—
(a) an amount of relevant foreign tax has been paid, or will be paid, in respect of an amount of qualifying overseas capital (“the related qualifying overseas capital”), and
(b) it has been, or will be, paid out of funds other than the related qualifying overseas capital,
sub-paragraph (3) does not apply to the related qualifying overseas capital to the extent that the tax has been, or will be, paid out of those funds.
Income tax or capital gains tax reduction where TRF charge paid on same amount
12 In paragraph 8, after sub-paragraph (6) insert—
(6A) Sub-paragraph (6B) applies where—
(a) an amount (“the TRF amount”) is treated as designated qualifying overseas capital of an individual as a result of sub-paragraph (6),
(b) on or after 6 April 2025, an officer of Revenue and Customs, in relation to the tax year 2024-25 or an earlier tax year—
(i) amends the individual’s self-assessment while an enquiry under section 9A of TMA 1970 (enquiry into return) into the individual’s return for that tax year is in progress,
(ii) issues a partial or final closure notice under section 28A of that Act (completion of enquiry) in relation to that return, or
(iii) makes an assessment under section 29 of that Act, and
(c) the effect of the officer taking that step is that income tax or capital gains tax is charged in respect of the TRF amount.
(6B) The amount of income tax or capital gains tax due and payable under section 59B of TMA 1970 in respect of the TRF amount is to be treated as reduced (but not below nil) by the amount of the TRF charge paid in respect of the TRF amount.
(6C) Where sub-paragraph (6B) applies, the individual may not amend the return in which the designation election relating to the TRF amount was included to alter or revoke that election (if the return otherwise could have been amended) so as to cause the TRF amount not to be designated.
Capital payment derived from foreign income or gains
13 (1) In paragraph 10—
(a) in sub-paragraph (1) (income tax exemptions and relief)—
(i) the words from “the” to the end become paragraph (a),
(ii) in that paragraph, after “capital” insert “that is designated on the basis that it is qualifying overseas capital as a result of a remittance provision”, and
(iii) after that paragraph insert
, or
(b) an amount of income treated as qualifying overseas capital under paragraph 6 that—
(i) falls within sub-paragraph (1)(b) of that paragraph, and
(ii) is designated on the basis that it is qualifying overseas capital as a result of a remittance provision.
, and
(b) in sub-paragraph (2), after “paragraph 6” insert “, and that falls within sub-paragraph (1)(a) or (c) of that paragraph,”.
(2) In paragraph 12(1) (capital gains tax: main exemption), after “capital” insert “that is designated on the basis that it is qualifying overseas capital as a result of a remittance provision (other than paragraph 6(1)(b))”.
(3) In paragraph 8—
(a) in sub-paragraph (2)—
(i) omit the “and” after paragraph (a), and
(ii) after that paragraph insert—
(aa) for each amount designated, whether or not it is designated on the basis it is qualifying overseas capital as a result of a remittance provision, and
(iii) in paragraph (b), after “designated” insert “on that basis”,
(b) after sub-paragraph (2A) (as inserted by paragraph 10) insert—
(2B) In this Part and in Part 2 “remittance provision” means paragraph 2(2) or (5) or paragraph 6(1)(b).
(2C) Where—
(a) an amount is designated on the basis it is qualifying overseas capital as a result of a remittance provision, and
(b) the amount would (ignoring this sub-paragraph) also be regarded as designated under paragraph 3 or 5 (matched capital payments),
it is not to be regarded as designated under that paragraph for the purposes of paragraph 10(7) (relief for offshore income gains) or paragraph 13 (relief for matched capital payments) as a result of that designation on that basis.
(2D) Accordingly two designations of the amount are required to secure the benefit of all of the reliefs that may be available under paragraphs 10(1), 10(7),12(1) and 13—
(a) one designation of the amount on the basis it is qualifying overseas capital as a result of a remittance provision, and
(b) another not on that basis.
, and
(c) after sub-paragraph (5) insert—
(5A) Where the individual considers that an amount designated under sub-paragraph (5) could, if it were qualifying overseas capital, be designated on the basis that it is qualifying overseas capital as a result of a remittance provision, the individual may designate it on that basis.
Amounts derived from designated qualifying overseas capital
14 After paragraph 13 insert—
Amounts derived from designated qualifying overseas capital
13A (1) This paragraph applies to an amount (“amount A”) if—
(a) either—
(i) the remittance of the amount to the United Kingdom would have the effect mentioned in paragraph 2(3)(a) or (b) by reference to income or gains, or
(ii) the remittance of the amount would result in income being treated as arising to a settlement in accordance with section 648(3) (and accordingly would result in an amount falling within paragraph 6(1)(b) arising), and
(b) the remittance of an amount (“amount B”) of designated qualifying overseas capital to the United Kingdom would have one of the effects mentioned in paragraph (a)(i) or (ii) by reference to that same income or those same gains (“the reference income or gains”) if it had not been designated.
(2) Where amount A falls within sub-paragraph (1)(a)(i), so much of amount A (so far as it relates to the reference income or gains) as does not exceed amount B (so far as it relates to the reference income or gains) is to be treated—
(a) as designated qualifying overseas capital, and
(b) as designated on the basis it is qualifying overseas capital as a result of a remittance provision.
(3) Where amount A falls within sub-paragraph (1)(a)(ii), so much of the amount falling within paragraph 6(1)(b) as would result from the remittance of amount A as does not exceed amount B (so far as it relates to the reference income or gains) is to be treated—
(a) as designated qualifying overseas capital, and
(b) as designated on the basis it is qualifying overseas capital as a result of a remittance provision.
Effect on section 65(5)(b) IHTA charge etc
15 After paragraph 13A (as inserted by paragraph 14 of this Schedule) insert—
Effect of this Schedule on section 65(5) IHTA 1984 and section 260(2) of TCGA 1992
13B (1) The effects of Parts 1 and 2 of this Schedule are to be ignored for the purposes of section 65(5)(b) of IHTA 1984 (and accordingly will not prevent any amount being regarded as income of a person for the purposes of income tax for the purposes of that section).
(2) Where—
(a) the trustees of a settlement make a capital payment to an individual,
(b) the making of that payment results in the individual having qualifying overseas capital,
(c) that qualifying overseas capital is designated,
so much of the deemed disposal under section 71 of TCGA 1992 arising on the making of the payment as reflects the designated qualifying overseas capital is (despite sub-paragraph (1)) treated as a chargeable transfer within the meaning of IHTA 1984 for the purposes only of section 260(2)(a) of TCGA 1992 (gifts on which inheritance tax is chargeable etc).
Amendment of returns
16 In paragraph 9 (payment of the TRF charge through the income tax system), after sub-paragraph (7) insert—
(8) Paragraph 8(6) is not to be taken as preventing the amendment of a return so as to alter or revoke a designation of qualifying overseas capital made in that return, provided that amendment is made in accordance with section 9ZA of TMA 1970 (taxpayer permitted to amend return within 12 months of filing date).
Transfers from mixed funds
17 In section 809Q of ITA 2007, in subsection (9)—
(a) omit paragraph (a), and
(b) in paragraph (b)—
(i) for “that Part of that Schedule” substitute “Part 1 of Schedule 10 to FA 2025”, and
(ii) after “8(7)” insert “of that Schedule”.
Commencement of this Part
18 (1) Schedule 10 to FA 2025 has effect, and is to be deemed always to have had effect, with the amendments made by paragraphs 9 to 16 of this Schedule.
(2) Subsection (9) of section 809Q of ITA 2007 has effect, and is to be deemed always to have had effect, with the amendments made by paragraph 17 of this Schedule.
Part 3 Temporary non-residence
19 (1) Section 401C of ITTOIA 2005 is amended as follows.
(2) After subsection (6) insert—
(6A) Where—
(a) a company (“company A”) makes a payment (including by way of a loan) to the individual in the temporary period of non-residence,
(b) the individual is, at a relevant time, a material participator in, or is an associate of a material participator in, another company that is a close company (“company B”),
(c) at the time the payment is made, company B controls (within the meaning of sections 450 and 451 of CTA 2010) company A, and
(d) it is reasonable to suppose that the making of that payment is intended to avoid an amount being received by the individual by way of relevant distribution made, or treated as made, by company B,
company A is to be treated as making a relevant distribution of that amount to the individual in that period.
(6B) Where—
(a) a company makes a payment (including by way of a loan) to any person other than the individual at any time in the temporary period of non-residence,
(b) if the company had made a dividend to the individual at that time, it would have been a relevant distribution, and
(c) the individual receives an amount or a benefit (“the relevant receipt”) as a result of arrangements that it is reasonable to suppose are intended to secure that—
(i) the individual receives the benefit of the payment or any part of it, but
(ii) without a relevant distribution having been made, or treated as made, to the individual in that period,
the company is to be treated as making a relevant distribution to the individual in that period in the amount of the value of the relevant receipt.
(6C) For the purposes of subsection (6B)(c) “arrangements” include any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).
(3) After subsection (6C) (as inserted by sub-paragraph (2)) insert—
(6D) Where tax of a similar character to income tax is payable by the individual under the law of a territory outside the United Kingdom on a relevant distribution—
(a) credit for any such tax paid by the individual is to be allowed against income tax chargeable in respect of the relevant distribution, and
(b) the credit is to be given effect by treating the amount of the relevant distribution as reduced to such amount as would secure that so much of the credit is given as does not exceed the income tax chargeable in respect of the relevant distribution.
(4) Omit subsections (7) to (9).
(5) In subsection (12) omit the definition of “trade profits of the close company”.
20 (1) Section 408A of ITTOIA 2005 is amended as follows.
(2) In subsection (4), omit paragraphs (a) to (c).
(3) After that subsection insert—
(4A) Where—
(a) a company (“company A”) makes a payment (including by way of a loan) to the individual in the temporary period of non-residence,
(b) the individual is, at a relevant time, a material participator in, or an associate of a material participator in, another company (“company B”) that would be a close company if it were UK resident,
(c) at the time the payment was made, company B controls (within the meaning of sections 450 and 451 of CTA 2010) company A, and
(d) it is reasonable to suppose that the making of that payment is intended to avoid—
(i) an amount being received by the individual by way of dividend that falls within subsection (3)(c), or
(ii) the individual becoming entitled to such a dividend,
the individual is to be treated as having received, at that time, a dividend in that amount that falls within subsection (3)(b) and (c).
(4B) Where—
(a) a company makes a payment (including by way of a loan) to any person other than the individual in the temporary period of non-residence,
(b) if the company had made a dividend to the individual at that time, it would have been a dividend within subsection (3), and
(c) the individual receives an amount or a benefit (“the relevant receipt”) as a result of arrangements that it is reasonable to suppose are intended to secure that—
(i) the individual receives the benefit of the payment or any part of it, but
(ii) without the individual receiving, or becoming entitled to, a dividend that falls within subsection (3)(c),
the individual is to be treated as having received, in that period, a dividend in the amount of the value of the relevant receipt, that falls within subsection (3)(b) and (c).
(4C) For the purposes of subsection (4B)(c) “arrangements” include any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).
(4) After subsection (4C) (as inserted by sub-paragraph (3)) insert—
(4D) Where tax of a similar character to income tax is payable by the individual under the law of a territory outside the United Kingdom on a dividend within subsection (3)—
(a) credit for any such tax paid by the individual is to be allowed against income tax chargeable in respect of the dividend, and
(b) the credit is to be given effect by treating the amount of the dividend as reduced to such amount as would secure that so much of the credit is given as does not exceed the income tax chargeable in respect of the dividend.
(5) Omit subsections (5) to (8).
(6) For subsection (10) substitute—
(10) In this section—
(a) “associate” and “participator” have the same meanings as in Part 10 of CTA 2010 (see sections 448 and 454),
(b) a “material participator” is a participator who has a material interest in the company, as defined in section 457 of that Act,
(c) “relevant time” means—
(i) any time in the year of departure or, if the year of departure is a split year as respects the individual, the UK part of that year, or
(ii) any time in one or more of the 3 tax years preceding that year.
21 (1) Section 413A of ITTOIA 2005 is amended as follows.
(2) After subsection (6) insert—
(6A) Where—
(a) a company (“company A”) makes a payment (including by way of a loan) to the individual in the temporary period of non-residence,
(b) the individual is, at a relevant time, a material participator in, or is an associate of a material participator in, another company that is a close company (“company B”),
(c) at the time the payment was made, company B controls (within the meaning of sections 450 and 451 of CTA 2010) company A, and
(d) it is reasonable to suppose that the making of that payment is intended to avoid an amount of relevant stock dividend income being treated under this Chapter as arising to the individual in that period,
relevant stock dividend income in that amount is treated as arising to the individual in that period.
(6B) Where—
(a) a company makes a payment (including by way of a loan) to any person other than the individual at any time in the temporary period of non-residence,
(b) if the company had issued share capital in lieu of a cash dividend shares at that time that the individual is beneficially entitled to, relevant stock dividend income would have been treated under this Chapter as arising to the individual in that period, and
(c) the individual receives an amount or a benefit (“the relevant receipt”) as a result of arrangements that it is reasonable to suppose are intended to secure that—
(i) the individual receives the benefit of the payment or any part of it, but
(ii) without relevant stock dividend income in that amount being treated under this Chapter as arising to the individual in that period,
relevant stock dividend income in amount of the value of the relevant receipt is treated as arising to the individual in that period.
(6C) For the purposes of subsection (6B)(c) “arrangements” include any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).
(3) After subsection (6C) (as inserted by sub-paragraph (2)) insert—
(6D) Where tax of a similar character to income tax is payable by the individual under the law of a territory outside the United Kingdom on relevant stock dividend income—
(a) credit for any such tax paid by the individual is to be allowed against income tax chargeable in respect of the relevant stock dividend income, and
(b) the credit is to be given effect by treating the amount of the relevant stock dividend income as reduced to such amount as would secure that so much of the credit is given as does not exceed the income tax chargeable in respect of the relevant stock dividend income.
(4) Omit subsections (7) to (9).
(5) In subsection (11) omit the definition of “trade profits of the close company”.
22 (1) Section 812A of ITA 2007 is amended as follows.
(2) After subsection (4) insert—
(4A) Where—
(a) a company (“company A”) makes a payment (including by way of a loan) to the individual in the non-resident year,
(b) the individual is, at a relevant time, a material participator in, or is an associate of a material participator in, another company that is a close company (“company B”),
(c) at the time the payment was made, company B controls (within the meaning of sections 450 and 451 of CTA 2010) company A, and
(d) it is reasonable to suppose that the making of that payment is intended to avoid the amount of the payment being included in the individual’s income for the non-resident year as relevant investment income,
the amount of the payment is to be treated as relevant investment income of the individual for the non-resident year.
(4B) Where—
(a) a company makes a payment (including by way of a loan) to any person other than the individual at any time in the non-resident year,
(b) if the company had made a dividend to the individual at that time, it would be relevant investment income of the individual, and
(c) the individual receives an amount or a benefit (“the relevant receipt”) as a result of arrangements that it is reasonable to suppose are intended to secure that—
(i) the individual receives the benefit of the payment or any part of it, but
(ii) without the amount being included in the individual’s income for the non-resident year as relevant investment income,
the amount of the value of the relevant receipt is to be treated as relevant investment income of the individual for the non-resident year.
(4C) For the purposes of subsection (4B)(c) “arrangements” include any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).
(3) After subsection (4C) (as inserted by sub-paragraph (2)) insert—
(4D) Where tax of a similar character to income tax is payable by the individual under the law of a territory outside the United Kingdom on relevant investment income—
(a) credit for any such tax paid by the individual is to be allowed against income tax chargeable in respect of the relevant investment income, and
(b) the credit is to be given effect by treating the amount of the relevant investment income as reduced to such amount as would secure that so much of the credit is given as does not exceed the income tax chargeable in respect of the relevant investment income.
(4) Omit subsections (5) and (6).
(5) In subsection (8), omit paragraph (a).
(6) In subsection (11) omit the definition of “trade profits of the distributing company”.
23 (1) The amendments made by paragraphs 19(2), 20(2), (3) and (6), 21(2) and 22(2) have effect for the tax year 2026-27 and subsequent tax years in relation to payments made by companies, whenever made.
(2) The amendments made by paragraphs 19(3) to (5), 20(4) to (5), 21(3) to (5) and 22(3) to (6) have effect for the tax year 2026-27 and subsequent tax years in relation to—
(a) dividends, or other distributions, whenever made,
(b) relevant stock dividend income, whenever it is treated as having arose, and
(c) relevant investment income, whenever it arose.
Section 45
Part 1 Treaty non-residents
Introduction
1 ITEPA 2003 is amended as follows.
Notifications in respect of treaty non-resident employees
2 (1) Section 690D (employer notification for qualifying new residents) is amended as follows.
(2) At the end of the heading insert “or treaty non-residents”.
(3) In subsection (1)—
(a) in paragraph (a), for “qualifying”, in the second place it occurs, substitute “notifiable”;
(b) in paragraph (b), for “qualifying” substitute “notifiable”.
(4) After subsection (1) insert—
(1A) This section also applies in relation to an employee if—
(a) the employee is or is likely to be a treaty non-resident at any time in a tax year (“the notifiable year”), and
(b) the employee works or is likely to work outside the UK during the notifiable year.
(5) In subsection (2)—
(a) in the opening words—
(i) for “The” substitute “If this section applies in relation to the employee by virtue of subsection (1), the”;
(ii) for “qualifying” substitute “notifiable”;
(b) at the end of paragraph (b) insert “(but see subsections (5A) and (5B))”.
(6) After subsection (2) insert—
(2A) If this section applies in relation to the employee by virtue of subsection (1A), the appropriate person may give a notice to an officer of Revenue and Customs at any time during the notifiable year—
(a) that the employer is proposing to treat the treaty relieved proportion of any treaty affected payment made by the employer to the employee as not being PAYE income of the employee for the purposes of PAYE regulations, and
(b) specifying that proportion (but see subsections (5A) and (5B)).
(7) In subsection (3), after paragraph (b) insert—
(c) a “treaty affected payment” means a payment of, or on account of, an amount of employment income of the employee a proportion in respect of which UK tax is likely to be relieved under double taxation arrangements as a result of the employee being treaty non-resident in the notifiable year;
(d) the “treaty relieved proportion” is the best estimate that can reasonably be made of the overall proportion of the amount of all treaty affected payments made by the employer to the employee in respect of which UK tax is likely to be relieved under double taxation arrangements.
(8) In subsection (4), after “qualifying payment” insert “or treaty affected payment (as applicable)”.
(9) After subsection (5) insert—
(5A) Subsection (5B) applies for the purposes of determining the proportion to be specified in a notice or notices under this section in circumstances where, if the notice or notices were to be given and acknowledged by an officer of Revenue and Customs, a notice given under both subsection (2) and subsection (2A) would have effect in relation to the employee and the notifiable year.
(5B) The proportion specified in the notice or notices must produce the result that no amount is reflected in both—
(a) the foreign proportion specified in the notice under subsection (2) as an amount that is likely to be qualifying foreign employment income, and
(b) the treaty relieved proportion specified in the notice under subsection (2A) as an amount in respect of which UK tax is likely to be relieved under double taxation arrangements.
(10) In subsection (5)(a)—
(a) after “qualifying new residents” insert “or treaty non-residents”;
(b) for “qualifying year” substitute “notifiable year”.
(11) In subsection (6)—
(a) in paragraph (a), for “qualifying” substitute “notifiable”;
(b) for paragraph (b) substitute—
(b) a subsequent notice—
(i) is given by the appropriate person in relation to the employee and the notifiable year under the same subsection, and
(ii) is acknowledged by an officer of Revenue and Customs,
(c) the appropriate person notifies (in writing or otherwise) an officer of Revenue and Customs that the notice is to cease to have effect, or
;
(c) in paragraph (c)(i), for “qualifying” substitute “notifiable”.
(12) In subsection (9)—
(a) omit the “and” at the end of paragraph (a);
(b) at the end of paragraph (b) insert—
(c) an individual is “treaty non-resident” at any time if, at that time, the individual falls to be regarded as resident in a territory outside the UK for the purposes of double relief arrangements having effect at the time, and
(d) “double taxation arrangements” means arrangements that have effect under section 2(1) of TIOPA 2010.
Consequential amendments
3 In section 690B (direction by HMRC in relation to internationally mobile employees), in subsection (6), in paragraph (b)(i)—
(a) after “new resident”, in the first place it occurs, insert “or treaty non-resident”;
(b) after “mobile tax year” insert “or treaty non-resident at any time in the mobile tax year”.
4 (1) Section 690E (direction by HMRC in relation to qualifying new residents) is amended as follows.
(2) At the end of the heading insert “or treaty non-residents”.
(3) In subsections (1)(a), (3)(a) and (6)(a), for “qualifying” substitute “notifiable”.
(4) In subsections (2)(a) and (4)(b), after “qualifying payment” insert “or treaty affected payment (as applicable)”.
Part 2 Other amendments of ITEPA 2003
5 ITEPA 2003 is amended as follows.
6 (1) Section 690 (internationally mobile employees) is amended as follows.
(2) In subsection (3), after “entire” insert “uncertain”.
(3) In subsection (4), in the opening words—
(a) after “a payment” insert “or part of a payment”;
(b) for “to the extent that” substitute “in respect of which”.
(4) In subsection (4)(a), after “the income” insert “relating to that payment or part”.
7 (1) Section 690A (employer notification for internationally mobile employees) is amended as follows.
(2) In subsection (2)(a) for “a proportion of any uncertain payment” substitute “the non-PAYE proportion of any mobile payment”.
(3) After subsection (2) insert—
(2A) For the purposes of this section and section 690B—
(a) “mobile payment” means a payment of, or on account of, an amount of employment income of the employee in respect of which—
(i) the extent to which the income is PAYE income depends or may depend on the extent to which the employee’s duties during the mobile tax year are performed in the United Kingdom, and
(ii) the reason it depends or may depend on that extent is connected to the employee being or having been internationally mobile in the mobile tax year;
(b) “non-PAYE proportion” means the best estimate that can reasonably be made of the overall proportion of the amount of all mobile payments made by the employer to the employee that would not be PAYE income if the employee were non-UK resident for the mobile tax year or the mobile tax year were a split year as respects the employee (as appropriate).
(4) In subsection (3), for “uncertain” substitute “mobile”.
(5) For subsection (4) substitute—
(4) But subsection (3) does not apply to a mobile payment—
(a) to the extent that section 690D(4) or 690E(4) (qualifying payments or treaty affected payments) also applies to the payment, or
(b) if the payment is made after the end of the mobile tax year, other than to the extent the payment is also an uncertain payment.
(6) In subsection (6)—
(a) after paragraph (a) insert—
(aa) as a result of a change in the employee’s circumstances, the proportion specified in the notice ceases to be a reasonable estimate of the non-PAYE proportion,
;
(b) in paragraph (b) after “this section” insert “in relation to the employee and the mobile tax year”;
(c) for paragraph (c) substitute—
(c) section 690D (qualifying new resident or treaty non-resident employee) begins to apply in relation to the employee and the mobile tax year and the mobile tax year is not likely to be a split year as respects the employee.
8 (1) In section 690D (employer notification for qualifying new residents)—
(a) in subsection (3)(b)—
(i) for the words from “the proportion” to the end substitute
—
(i) the best estimate that can reasonably be made of the overall proportion of the amount of all qualifying payments made by the employer to the employee that is likely to be qualifying foreign employment income,
;
(ii) at the end of that sub-paragraph insert
or
(ii) if the best estimate mentioned in sub-paragraph (i) is greater than 30%, 30%.
;
(b) in subsection (6), after paragraph (a) insert—
(aa) as a result of a change in the employee’s circumstances, the proportion specified in the notice ceases to be a reasonable estimate of the overall proportion of the amount (as applicable) of—
(i) all qualifying payments that is likely to be qualifying foreign employment income, or
(ii) all treaty affected payments in respect of which UK tax is likely to be relieved under double taxation arrangements,
.
(2) The amendment made by sub-paragraph (1)(a)(ii) does not apply to a notification relating to an employee and tax year 2026-27 or 2027-28 if section 41R of ITEPA 2003 (limit on relief) would not apply to a foreign employment relief claim made by the employee for that year, if that year was the qualifying year (see paragraph 7 of Schedule 8 to FA 2025 (limit on relief not to apply to certain foreign employment relief claims)).
9 (1) In section 690B (direction by HMRC in relation to internationally mobile employees)—
(a) in subsection (1), omit paragraph (b) and the “and” before it;
(b) in subsection (2), in paragraph (a), for the words from “a proportion” to the end substitute “the non-PAYE proportion, or”;
(c) in subsection (2), in paragraph (b) for “such” substitute “uncertain”;
(d) in subsection (4), in paragraph (b) after “uncertain payment” insert “or mobile payment (as applicable)”;
(e) after subsection (4) insert—
(4A) But a direction for determining the non-PAYE proportion does not apply in relation to a mobile payment—
(a) to the extent that section 690D(4) or 690E(4) (qualifying payments or treaty affected payments) also applies to the payment, or
(b) if the payment is made after the end of the mobile tax year, other than to the extent the payment is also an uncertain payment.
.
(2) In section 690E (direction by HMRC in relation to qualifying new residents), in subsection (1), omit paragraph (b) and the “and” before it.
10 In section 690C (employees who were internationally mobile etc. before 2025-26), in subsection (2)(b) for “spilt” substitute “split”.
section 46
Assessment of transfer pricing profits that should have been included in a return
1 (1) In TIOPA 2010, after Part 4 insert—
Part 4A Assessment of unassessed transfer pricing profits
Chapter 1 Unassessed transfer pricing profits
Introduction
217A (1) Where a company within the charge to corporation tax has unassessed transfer pricing profits for an accounting period, HMRC may assess those profits to corporation tax in accordance with this Part.
(2) Where the conditions in section 217C(1) are met, corporation tax is charged at the UTPP rate on unassessed transfer pricing profits assessed under this Part (instead of at the main rate or any other rate).
(3) The UTPP rate in relation to profits for an accounting period assessed under this Part means the sum of—
(a) the underlying corporation tax rate, and
(b) 6%.
(4) In subsection (3) “the underlying corporation tax rate”, in relation to an amount of unassessed transfer pricing profits for an accounting period, means the sum of—
(a) the rate at which corporation tax would be chargeable on those profits if the amount of those profits were added to the amount of the company’s profits for the accounting period (which may be nil) on which corporation tax would otherwise be chargeable, and
(b) the percentage given by dividing the total of any amounts that would, ignoring this Part, be assessable or chargeable on the unassessed transfer pricing profits as if they were corporation tax (reduced by any reliefs that would be specific to those amounts) by the amount of the unassessed transfer pricing profits.
(5) Section 217B sets out when a company has unassessed transfer pricing profits and what the amount of those profits are.
(6) Chapter 2 sets out the conditions for a company to be assessed at the UTPP rate under this Part.
(7) Chapter 3 sets out the process to be followed in making an assessment (including provision for a company to be assessed not at the UTPP rate).
(8) Chapter 4 contains minor definitions.
(9) In Schedule A1—
(a) Part 1 sets out when a company has unassessed transfer pricing profits as a partner of a partnership,
(b) Parts 2 and 3 set out how Chapters 2 and 3 of this Part apply in that case, and
(c) Part 4 sets out how Parts 1 to 3 of the Schedule apply to a company as a corporate member of a Lloyd’s syndicate.
Unassessed transfer pricing profits
217B (1) For the purposes of this Part, a company has unassessed transfer pricing profits for an accounting period if—
(a) the company has made a self-assessment for the period,
(b) provision has been made or imposed as between the company and another person (referred to in this Part as “the other party”) by means of a transaction or series of transactions,
(c) the profits of the company for the period are subject to a transfer pricing requirement in relation to that provision, and
(d) the transfer pricing requirement was not reflected, or is not wholly reflected, in the company’s self-assessment.
(2) The unassessed transfer pricing profits of the company for the accounting period are—
(a) to the extent that the transfer pricing requirement requires profits that are not reflected in the company’s self-assessment to be brought into account, those profits, and
(b) to the extent that the transfer pricing requirement requires losses that are reflected in the company’s self-assessment to not be brought into account, the profits that would, if they were brought into account, produce the same result as not bringing into account those losses.
(3) For the purposes of subsection (2), the references to profits or losses being brought into account are to profits or losses being brought into account in calculating the company’s profit or loss for the period for corporation tax purposes.
(4) The profits of a company are subject to a transfer pricing requirement in relation to the provision if—
(a) the company’s profits and losses are required to be calculated as if the arm’s length provision (within the meaning of Part 4) had been made or imposed instead of the provision, or
(b) an adjustment to the company’s profits and losses that result from the provision is required by virtue of any other enactment where, but for that enactment, paragraph (a) would have applied in relation to the provision.
(5) In this Part “self-assessment” means a self-assessment under paragraph 7 of Schedule 18 to FA 1998 (and where that assessment has been amended, reference to the self-assessment is to that assessment as amended).
(6) This section does not apply to a company in its capacity as a corporate partner of a partnership or a corporate member of a Lloyd’s syndicate (as to which see Schedule A1) (but this does not prevent this section from otherwise applying in circumstances where a company holds an interest in another person whose profits are treated for the purposes of corporation tax as profits of the company).
Chapter 2 Conditions for being assessed
Conditions for being assessed under this Part at the UTPP rate
217C (1) Unassessed transfer pricing profits of a company may be assessed under this Part at the UTPP rate only to the extent that—
(a) the provision to which the profits relate has an effective tax mismatch outcome for the accounting period to which the profits relate,
(b) the tax design condition is met, and
(c) the unassessed transfer pricing profits do not arise wholly from excepted loan relationship arrangements.
(2) In this section “excepted loan relationship arrangements” means—
(a) any arrangements that would produce debits or credits under Part 5 of CTA 2009 (loan relationships and deemed loan relationships) (“a loan relationship”), or
(b) a loan relationship and a relevant contract (within the meaning of Part 7 of that Act (derivative contracts)) taken together, where the relevant contract is entered into entirely as a hedge of risk in connection with the loan relationship.
Effective tax mismatch outcome
217D (1) Provision between the company and the other party has an effective tax mismatch outcome for an accounting period if the corresponding amount is less than 80% of the underlying corporation tax amount.
(2) “The underlying corporation tax amount” is the amount determined by multiplying the amount of the unassessed transfer pricing profits by the underlying corporation tax rate (within the meaning of section 217A(4)).
(3) “The corresponding amount” means the amount (which may be nil) of relevant tax—
(a) that is due and payable by the other party and that—
(i) where it has been paid, has not been refunded and would not be refunded if all reasonable steps were taken to secure that it was refunded;
(ii) otherwise, would remain due and payable if all reasonable steps were taken to minimise the amount, and
(b) charged (in any period) on profits that correspond to the unassessed transfer pricing profits.
(4) The steps mentioned in subsection (3)(a) include—
(a) claiming, or otherwise securing the benefit of, reliefs, deductions, reductions or allowances, and
(b) making elections for the purposes of the relevant tax.
(5) For the purposes of subsection (3)—
(a) an amount of relevant tax is refunded if and to the extent that—
(i) any repayment of tax, or any payment in respect of a credit for tax, is made to any person, and
(ii) that repayment or payment is directly or indirectly in respect of the whole or part of the amount of relevant tax paid by the other party;
(b) any withholding tax which is due and payable on payments made to the other party is (unless it is refunded within the meaning of paragraph (a)) to be treated as tax which is due and payable by the other party (and not the person making the payment).
(6) Where the other party is a transparent entity, the provision is to be treated as having an effective tax mismatch outcome for an accounting period unless HMRC is satisfied that it does not have such an outcome for the accounting period.
(7) For the purposes of this section, the other party is a “transparent entity” if, for the purposes of relevant tax charged under the law of the territory in which the other party is legally constituted, profits that correspond to the unassessed transfer pricing profits are treated as the income or profits of a person or persons other than the other party.
(8) Where the other party is a transparent entity—
(a) references in this section to relevant tax that is due and payable or paid by the other party include a reference to relevant tax that is due and payable or paid by any person as a result of profits which correspond to the unassessed transfer pricing profits being treated for the purposes of relevant tax charged under the law of any territory as the income or profits of that person;
(b) subsection (5)(b) applies to any such persons as it applies to the other party.
(9) In this section “relevant tax” means—
(a) income tax,
(b) corporation tax on income,
(c) any amount chargeable as if it were corporation tax or treated as if it were corporation tax (other than the CFC charge within the meaning of Part 9A of this Act), or
(d) any foreign tax.
Tax design condition
217E (1) The tax design condition is met if it is reasonable to assume that the structure of—
(a) the transaction or series of transactions by which the provision to which the unassessed transfer pricing profits relate is imposed, or
(b) any arrangements to which the transaction or series of transactions relate,
is designed to have the effect of reducing, eliminating or delaying the liability of any person to pay UK tax.
(2) In subsection (1)—
(a) “arrangements” means any scheme or arrangement of any kind (whether or not it is, or is intended to be, legally enforceable);
(b) “UK tax” means income tax, corporation tax or capital gains tax.
Chapter 3 Assessment
Preliminary notices
217F (1) A designated officer may issue a preliminary notice to a company if they consider that the company has unassessed transfer pricing profits by virtue of section 217B.
(2) A preliminary notice issued under this section must —
(a) state the accounting period to which the unassessed transfer pricing profits relate;
(b) set out the officer’s best judgement of the amount of unassessed transfer pricing profits;
(c) set out the basis on which the officer considers that the conditions mentioned in section 217C(1) are met.
(3) A preliminary notice under this section may not be issued in respect of an accounting period more than 4 years after the end of that period.
Representations by the company
217G (1) Where a preliminary notice is issued to a company, the company may make representations to a designated officer in accordance with this section
(2) Representations are only made in accordance with this section if—
(a) they are made in writing,
(b) they are made within the period of 30 days beginning with the day on which the officer issued the preliminary notice, and
(c) they are made solely on the grounds specified in subsection (3).
(3) Those grounds are—
(a) that there is an arithmetical error in the calculation of any profits stated in the preliminary notice or an error in a figure on which an assumption in the notice is based;
(b) that one or both of the conditions in section 217C(1)(a) and (c) are not met.
(4) But where the preliminary notice sets out that the basis on which the officer considers the condition mentioned in section 217C(1)(a) is met is because the other party is a transparent entity, representations are also made in accordance with this section if they are—
(a) made within the period of 60 days beginning with the day on which the officer issued the preliminary notice, and
(b) made solely on the grounds that the condition in section 217C(1)(a) is not met.
Assessment
217H (1) This section applies where—
(a) a designated officer has issued a preliminary notice to a company under section 217F in relation to the company’s unassessed transfer pricing profits for an accounting period, and
(b) a designated officer has considered any representations made by the company in accordance with section 217G.
(2) A designated officer may assess the company to corporation tax at the UTPP rate on the unassessed transfer pricing profits that the company has for the period by virtue of section 217B.
(3) But where an officer of HMRC is required by a direction under paragraph 33 of Schedule 18 to FA 1998 to give a relevant closure notice, an assessment under this section may not be made before the relevant closure notice is given.
(4) An assessment under this section must be made before—
(a) the end of the period of—
(i) in a case where the preliminary notice to which the assessment relates sets out that the basis on which the officer considers the condition mentioned in section 217C(1)(a) is met is because the other party is a transparent entity, 90 days beginning with the day on which the preliminary notice was issued, or
(ii) otherwise, 60 days beginning with the day on which the preliminary notice to which the assessment relates was issued,
(but nothing in this subsection prevents a further preliminary notice being issued), or
(b) if later, in a case where a relevant closure notice required to be given by a direction under paragraph 33 of Schedule 18 to FA 1998 has been given before the end of the period mentioned in paragraph (a), the end of the period of 30 days beginning with the day on which the closure notice was given.
(5) In this section a “relevant closure notice” means a partial or final closure notice in relation to an enquiry into the company tax return for the accounting period mentioned in subsection (1)(a).
Amendment of company tax return by company
217I (1) This section applies where a designated officer assesses a company’s unassessed transfer pricing profits for an accounting period under section 217H.
(2) At any time before the end of the period for amendments, the company may amend its company tax return for the accounting period so that its self-assessment more fully reflects the transfer pricing requirement to which the unassessed transfer pricing profits relate.
(3) In this Chapter “the period for amendments” means the period of 15 months beginning with the day after the day on which the designated officer assesses the company’s unassessed transfer pricing profits under section 217H.
(4) If, before the end of the period of 15 months referred to in subsection (3), a designated officer and the company agree (in writing) that the period for amendments is to terminate, the period ends when that agreement is made.
(5) An amendment under subsection (2) may not be made in the last 21 days of the period for amendments, unless the period for amendments ends by agreement in accordance with subsection (4).
(6) Paragraph 31(3) of Schedule 18 to FA 1998 (amendment not to take effect during enquiry) does not apply in relation to an amendment made under subsection (2).
Amendment of assessment by HMRC
217J (1) This section applies where a designated officer assesses a company’s unassessed transfer pricing profits for an accounting period under section 217H.
(2) If at any time before the end of the period for amendments a designated officer is satisfied that the total corporation tax charged at the UTPP rate on the company’s unassessed transfer pricing profits for the period is excessive, the designated officer must amend or withdraw the assessment accordingly.
(3) If at any time (whether or not before the end of the period for amendments) a designated officer is satisfied that one or more of the conditions mentioned in section 217C(1) do not apply in respect of unassessed transfer pricing profits so assessed, the designated officer must—
(a) withdraw the assessment, or
(b) amend the assessment to assess the unassessed transfer pricing profits to corporation tax not at the UTPP rate.
(4) Where an assessment is amended under subsection (2) or (3) any tax overpaid must be repaid.
(5) If a designated officer is satisfied at any time before the end of the period for amendments that the total corporation tax charged at the UTPP rate on the company’s unassessed transfer pricing profits for the period is insufficient, the designated officer may amend the assessment accordingly.
(6) An amendment under subsection (5) may not be made in the last 30 days of the period for amendments, unless the period for amendments ends by agreement in accordance with section 217I(4).
No postponement except before assessment is finalised for tax on same profits
217K (1) This section applies where—
(a) a designated officer has assessed a company’s unassessed transfer pricing profits for an accounting period under section 217H or section 217J(5), and
(b) the amount of paid relevant tax is greater than nil.
(2) The company may—
(a) first apply by notice in writing to HMRC for a determination of the amount of the corporation tax charged on the unassessed transfer pricing profits the payment of which is to be postponed until the assessment is finalised (see subsection (3));
(b) where such a determination is not agreed, refer the application for a determination to the tribunal within the period of 30 days beginning with the date of the document notifying the company of HMRC’s determination.
(3) For the purposes of this section—
(a) the amount of corporation tax charged on the unassessed transfer pricing profits the payment of which is to be postponed until the assessment is finalised is an amount equal to the amount of paid relevant tax, and
(b) the assessment is finalised when—
(i) the period of 30 days mentioned in section 217M(2) ends without notice of an appeal to the tribunal against the assessment being given,
(ii) an appeal against the assessment is finally determined otherwise than by the assessment being cancelled, or
(iii) an appeal against the assessment is withdrawn.
(4) An application under subsection (2)(a)—
(a) must be made within the period of 30 days beginning with the day after—
(i) the day on which the unassessed transfer pricing profits are assessed under section 217H or section 217J(5), or
(ii) if later, any day on which the amount of paid relevant tax ceases to be nil, and
(b) must state the amount of paid relevant tax and include documentary evidence of that amount.
(5) If, after any determination of the amount of corporation tax the payment of which should be so postponed—
(a) the company or HMRC has grounds for believing that the amount so determined has become excessive or insufficient, and
(b) the parties cannot agree on a revised determination,
the party mentioned in paragraph (a) may, at any time before the assessment is finalised, apply to the tribunal for a revised determination of that amount.
(6) Any application to the tribunal under subsection (2)(b) or subsection (5) is subject to the relevant provisions of Part 5 of TMA 1970 (see, in particular, section 48(2)(b) of that Act).
(7) If the company and HMRC reach an agreement as to the amount of corporation tax the payment of which should be postponed until the assessment is finalised, the agreement shall not have effect unless—
(a) the agreement is in writing, or
(b) the fact that the agreement has been reached, and the terms of the agreement, are confirmed by notice in writing given—
(i) by the company to HMRC, or
(ii) by HMRC to the company.
(8) The payment of corporation tax charged on the unassessed transfer pricing profits—
(a) may not be postponed other than in accordance with this section, and
(b) accordingly, any amount of the corporation tax that is not postponed in accordance with this section or ceases to be postponed in accordance with this section is due and payable in accordance with section 59D of TMA 1970 or regulations made under section 59E of that Act.
(9) In this section—
(a) “appeal” means any appeal under the Taxes Acts;
(b) “paid relevant tax” means relevant tax within the meaning of section 217D(9)—
(i) charged (in any period) on profits that correspond to the unassessed transfer pricing profits, and
(ii) that has been paid by the other party and not refunded within the meaning of section 217D(5);
(c) “tribunal” means the First-tier Tribunal or, where determined by or under Tribunal Procedure Rules, the Upper Tribunal;
(d) references to agreements between a company and HMRC, and to the giving of notices between the parties, include references to agreements, and the giving of notices, between a person acting on behalf of the company and HMRC.
(10) For the purposes of subsection (9)(b)—
(a) any withholding tax which has been paid on payments made to the other party is (unless it is refunded within the meaning of section 217D(5)) to be treated as tax which has been paid by the other party (and not by the person making the payment);
(b) where the other party is a transparent entity within the meaning of section 217D(7)—
(i) the reference to relevant tax that has been paid by the other party includes a reference to relevant tax that has been paid by any person as a result of profits that correspond to the unassessed transfer pricing profits being treated for the purposes of relevant tax charged under the law of any territory as the income or profits of that person;
(ii) paragraph (a) applies to any such persons as it applies to the other party.
Closure notices: rules relating to period for amendments
217L (1) This section applies where a designated officer assesses a company’s unassessed transfer pricing profits for an accounting period under section 217H.
(2) A relevant closure notice may not be issued under paragraph 32 of Schedule 18 to FA 1998 at any time before the end of the period for amendments.
(3) Accordingly, a tribunal direction given under paragraph 33 of Schedule 18 to FA 1998 in relation to a relevant closure notice has no effect until the period for amendments has ended.
(4) A relevant closure notice issued after the end of the period for amendments may not make any amendments to the company tax return which have the effect that its self-assessment more fully reflects the transfer pricing requirement to which the unassessed transfer pricing profits relate.
(5) In this section a “relevant closure notice” means a partial or final closure notice in relation to an enquiry into the company tax return for the accounting period mentioned in subsection (1).
Appeal against assessment
217M (1) A company may only appeal against an assessment of its unassessed transfer pricing profits under section 217H or section 217J(5) where—
(a) the company has paid (in full) the corporation tax charged on the profits assessed other than any amount the payment of which has been postponed in accordance with section 217K, and
(b) the period for amendments has ended.
(2) Notice of an appeal must be given before the end of the period of 30 days beginning with—
(a) the end of the period for amendments, or
(b) in a case where section 217I(4) applies, the day after the day on which the period for amendments ends,
(and accordingly paragraph 48(2)(b) of Schedule 18 to FA 1998 does not apply).
(3) Subsection (4) applies where, on an appeal against an assessment of a company’s unassessed transfer pricing profits, the tribunal decides that the company is overcharged by the assessment as a result of one or more of the conditions mentioned in section 217C(1) not applying in respect of unassessed transfer pricing profits so assessed.
(4) The tribunal may, in addition to any other powers exercisable by the tribunal in those circumstances, reduce the tax charged on the amount assessed to assess the unassessed transfer pricing profits to corporation tax not at the UTPP rate.
Review of assessment
217N (1) This section applies if—
(a) HMRC are required by section 49B or 49C of TMA 1970 to review the assessment of a company’s unassessed transfer pricing profits, and
(b) the review finds that one or more of the conditions mentioned in section 217C(1) do not apply in respect of unassessed transfer pricing profits so assessed.
(2) The reference in section 49E(5) of TMA 1970 (nature of review etc) to the review concluding that HMRC’s view of the matter in question is to be varied is to be read as including a reference to the review concluding that the assessment is to be amended to assess the unassessed transfer pricing profits to corporation tax not at the UTPP rate.
Settling of appeal by agreement
217P Where a company gives notice of appeal against an assessment of its unassessed transfer pricing profits, references in section 54 of TMA 1970 to the assessment being varied are to be read as including a reference to the assessment being amended to assess the unassessed transfer pricing profits to corporation tax not at the UTPP rate.
No repayment
217Q No claim may be made under section 59DA of TMA 1970 (repayment in advance of liability being established) or regulations under section 59E of that Act for the repayment of any amount of corporation tax charged on unassessed transfer pricing profits assessed under this Part at the UTPP rate.
Exclusion of reliefs, deductions and set-offs
217R No relief, deduction or set-off of any description is allowed against—
(a) a company’s unassessed transfer pricing profits assessed under this Part at the UTPP rate, or
(b) corporation tax charged at the UTPP rate on unassessed transfer pricing profits assessed under this Part.
Assessment otherwise than at UTPP rate: no deduction for excess losses
217S (1) Where an assessment under this Part is amended to assess the unassessed transfer pricing profits to corporation tax otherwise than at the UTPP rate, no deduction from the unassessed transfer pricing profits is allowed for excess losses.
(2) “Excess losses” means any losses—
(a) that are reflected in the company’s self assessment, and
(b) that the transfer pricing requirement to which the unassessed transfer pricing profits relate requires to not be brought into account in calculating the company’s profits or loss for the period for corporation tax purposes.
Chapter 4 Interpretation
Interpretation
Interpretation
217T (1) In this Part—
“designated officer” means an officer of Revenue and Customs who has been designated by the Commissioners for His Majesty's Revenue and Customs for the purposes of this Part;
“foreign tax” means a tax falling within subsection (2) of section 259B (see also subsections (3) and (3ZA) of that section);
“HMRC” means His Majesty’s Revenue and Customs.
(2) References in this Part to a power to assess include any power to otherwise determine amounts of tax that are chargeable or payable by a company (and references to assessment and any other cognate expressions are to be construed accordingly).
(2) Before Schedule 1 to TIOPA 2010 insert—
Schedule A1
Assessment of unassessed transfer pricing profits: partnerships and Lloyd’s syndicates
section 217A
Part 1 Corporate partner’s unassessed transfer pricing profits
Unassessed transfer pricing profits: corporate partners
1 (1) For the purposes of this Part of this Act, a company has unassessed transfer pricing profits as a corporate partner of a partnership in relation to a return period if—
(a) the company is or has been a partner in the partnership;
(b) a partnership return in respect of the partnership has been made and delivered in respect of the return period,
(c) provision has been made or imposed as between the partnership and another person by means of a transaction or series of transactions,
(d) the partnership’s profits and losses calculated under section 1259 of CTA 2009 for one or more relevant accounting periods are subject to a transfer pricing requirement in relation to that provision,
(e) a share of the partnership’s profit or loss calculated under section 1259 of CTA 2009 for one or more of those relevant accounting periods is brought into account in calculating the company’s profit or loss for one or more accounting periods for corporation tax purposes, and
(f) the transfer pricing requirement was not reflected, or is not wholly reflected, in the partnership’s profits and losses that were—
(i) included in the partnership return, and
(ii) calculated under section 1259 of CTA 2009.
(2) For the purposes of this Part of this Act, the unassessed transfer pricing profits of the company for an accounting period are the profits that would be brought into account in calculating the company’s profit or loss for that accounting period for corporation tax purposes, if the amount of the partnership’s profit calculated under section 1259 of CTA 2009 for each of the relevant accounting periods mentioned in sub-paragraph (1)(e) was taken to be the amount of the partnership’s unassessed transfer pricing profits for that relevant accounting period (and no other amount).
(3) For the purposes of sub-paragraph (2), the partnership’s unassessed transfer pricing profits for a relevant accounting period are—
(a) to the extent that the transfer pricing requirement requires profits that are not reflected in the partnership return to be brought into account in calculating the partnership’s profits or losses calculated under section 1259 of CTA 2009 for the relevant accounting period, those profits, and
(b) to the extent that the transfer pricing requirement requires losses that are reflected in the partnership’s return to not be brought into account in calculating the partnership’s profits or losses calculated under section 1259 of CTA 2009 for the relevant accounting period, the profits that would, if they were brought into account in that calculation, produce the same result as not bringing into account those losses.
(4) The partnership’s profits and losses calculated under section 1259 of CTA 2009 for a relevant accounting period are subject to a transfer pricing requirement in relation to the provision if—
(a) the partnership’s profits and losses calculated under section 1259 of CTA 2009 for the relevant accounting period are required to be calculated as if the arm’s length provision (within the meaning of Part 4) had been made or imposed instead of the provision, or
(b) an adjustment to the partnership’s profits and losses calculated under section 1259 of CTA 2009 for the relevant accounting period that result from the provision is required by virtue of any other enactment where, but for that enactment, paragraph (a) would have applied in relation to the provision.
(5) In this paragraph—
(a) for the purposes of sub-paragraph (1)(a), a company that is or has been a partner in the partnership includes a company that is or has been an indirect partner in the partnership for the purposes of section 12AA of TMA 1970, and
(b) accordingly, the reference in sub-paragraph (2) to the partnership’s profits or losses being brought into account in calculating the profit or loss of a company that is or has been a partner in a partnership includes those profits or losses being brought into account indirectly.
(6) In Parts 1 to 3 of this Schedule—
(a) “partnership return” means a return in pursuance of a notice under section 12AA(2) or (3) of TMA 1970 (and where the return has been amended, reference to the return is to that return as amended);
(b) “relevant corporate partner”, in relation to a partnership and a return period, means a company which has unassessed transfer pricing profits for one or more accounting periods as a corporate partner of the partnership in relation to the return period by virtue of this paragraph (and references to the relevant corporate partner’s unassessed transfer pricing profits are to be construed accordingly);
(c) “return period” means the period in respect of which a partnership return is required pursuant to the notice under section 12AA(2) or (3) of TMA 1970;
(d) “relevant accounting period”, in relation to a partnership return, means an accounting period of the firm (within the meaning of Part 17 of CTA 2009) ending within the return period.
Part 2 Conditions for being assessed
Conditions for being assessed
2 (1) In its application to the unassessed transfer pricing profits which a company has for one or more accounting periods as a corporate partner of a partnership in relation to a return period by virtue of paragraph 1, Chapter 2 of this Part of this Act has effect as if—
(a) references to the other party were to the other person mentioned in paragraph 1(1)(c);
(b) the reference in section 217D(1) to the company were a reference to the partnership;
(c) where the partnership has more than one relevant corporate partner in relation to the return period, for section 217D(2) there were substituted—
(2) “The underlying corporation tax amount” is the sum of the amounts determined in relation to each relevant corporate partner by multiplying the amount of the relevant corporate partner’s unassessed transfer pricing profits by the underlying corporation tax rate.
;
(d) the reference in section 217D(3) to relevant tax charged (in any period) on profits that correspond to the unassessed transfer pricing profits were to the relevant corporate partners’ proportion of relevant tax charged (in any period) on profits that correspond to the partnership’s unassessed transfer pricing profits within the meaning of paragraph 1(3) of this Schedule.
(2) In sub-paragraph (1)(d) “the relevant corporate partners’ proportion” means the proportion that—
(a) where the partnership has one relevant corporate partner, the relevant corporate partner’s unassessed transfer pricing profits, or
(b) where the partnership has more than one relevant corporate partner, the sum of each relevant corporate partner’s unassessed transfer pricing profits,
bears to the partnership’s unassessed transfer pricing profits within the meaning of paragraph 1(3) of this Schedule.
Part 3 Assessment
Preliminary notices
3 (1) Where a designated officer considers that a company has unassessed transfer pricing profits for one or more accounting periods as a corporate partner of a partnership in relation to a return period by virtue of paragraph 1, a designated officer may issue a preliminary notice to the representative partner.
(2) A preliminary notice issued under this paragraph must—
(a) set out the officer’s best judgement of the amount of the partnership’s unassessed transfer pricing profits (within the meaning of paragraph 1(3));
(b) state the return period to which the partnership’s unassessed transfer pricing profits relate;
(c) set out the officer’s best judgement of the amount of the unassessed transfer pricing profits of all of the relevant corporate partners;
(d) state the accounting periods to which the unassessed transfer pricing profits of all of the relevant corporate partners relate;
(e) set out the basis on which the officer considers that the conditions mentioned in section 217C(1) are met.
(3) A preliminary notice under this paragraph may not be issued in respect of a return period more than 4 years after the end of that period.
(4) In this Part of this Schedule, the “representative partner” means the partner who made and delivered the partnership return to which the unassessed transfer pricing profits relate or that partner’s successor within the meaning of TMA 1970 (see section 12AA(11) and (12) of that Act).
Representations by the partnership
4 Section 217G has effect in relation to a preliminary notice issued to the representative partner under paragraph 3 as it has effect in relation to a preliminary notice issued to a company but as if the reference in subsection (4) of that section to the other party were to the other person mentioned in paragraph 1(1)(c).
Assessment
5 (1) This paragraph applies where—
(a) a designated officer has issued a preliminary notice to the representative partner under paragraph 3 in relation to a return period of the partnership, and
(b) a designated officer has considered any representations made by the representative partner in accordance with section 217G (as applied by paragraph 4).
(2) A designated officer may assess the unassessed transfer pricing profits of all of the relevant corporate partners of the partnership in relation to the return period to corporation tax at the UTPP rate.
(3) For the purposes of sub-paragraph (2), a designated officer assesses the unassessed transfer pricing profits of all of the relevant corporate partners of the partnership by—
(a) where the partnership has one relevant corporate partner in relation to the return period, assessing the relevant corporate partner on the relevant corporate partner’s unassessed transfer pricing profits for the accounting period or periods stated in the preliminary notice;
(b) where the partnership has more than one relevant corporate partner in relation to the return period, assessing each relevant corporate partner on the relevant corporate partner’s unassessed transfer pricing for the accounting periods stated in the preliminary notice, on the same day.
(4) Notices of any assessments under this paragraph issued to a relevant corporate partner must also be issued to the representative partner.
(5) Subsections (3) to (5) of section 217H have effect in relation to an assessment under this paragraph as they have effect in relation to an assessment under section 217H but as if—
(a) the reference in subsection (4) to the other party were to the other person mentioned in paragraph 1(1)(c),
(b) references to paragraph 33 of Schedule 18 to FA 1998 were to section 28B of TMA 1970, and
(c) the reference in subsection (5) to the company tax return for the accounting period mentioned in subsection (1)(a) were to the partnership return for the return period mentioned in sub-paragraph (1)(a).
Amendment of partnership return by partnership
6 (1) This paragraph applies where a designated officer assesses the unassessed transfer pricing profits of all of the relevant corporate partners of a partnership in relation to a return period under paragraph 5.
(2) At any time before the end of the period for amendments, the representative partner may amend the partnership return for the return period so that the calculation of the partnership’s profits and losses under section 1259 of CTA 2009 more fully reflects the transfer pricing requirement to which the unassessed transfer pricing profits relate.
(3) In this Part of this Schedule “the period for amendments” means the period of 15 months beginning with the day after the day on which the designated officer assesses the unassessed transfer pricing profits of all of the relevant corporate partners under paragraph 5.
(4) If, before the end of the period of 15 months referred to in sub-paragraph (3), a designated officer and the representative partner agree (in writing) that the period for amendments is to terminate, the period ends when that agreement is made.
(5) An amendment under sub-paragraph (2) may not be made in the last 21 days of the period for amendments, unless the period for amendments ends by agreement in accordance with sub-paragraph (4).
(6) Section 12AD(3) of TMA 1970 (amendment not to take effect during enquiry) does not apply in relation to an amendment made under sub-paragraph (2).
Amendment of assessment by HMRC
7 (1) This paragraph applies where a designated officer assesses the unassessed transfer pricing profits of all of the relevant corporate partners of a partnership in relation to a return period under paragraph 5.
(2) If at any time before the end of the period for amendments a designated officer is satisfied that the total corporation tax charged on any relevant corporate partner’s unassessed transfer pricing profits for an accounting period by an assessment under paragraph 5 is excessive, the designated officer must amend or withdraw the assessment accordingly.
(3) If at any time (whether or not before the end of the period for amendments) a designated officer is satisfied that one or more of the conditions mentioned in section 217C(1) do not apply in respect of unassessed transfer pricing profits so assessed, the designated officer must—
(a) withdraw all of the assessments made under paragraph 5, or
(b) amend all of the assessments to assess the unassessed transfer pricing profits to corporation tax not at the UTPP rate.
(4) Where an assessment is amended under sub-paragraph (2) or (3) any tax overpaid must be repaid.
(5) If a designated officer is satisfied at any time before the end of the period for amendments that the total corporation tax charged on any relevant corporate partner’s unassessed transfer pricing profits for the period is insufficient, the designated officer may amend the assessment accordingly.
(6) An amendment under sub-paragraph (5) may not be made in the last 30 days of the period for amendments, unless the period for amendments ends by agreement in accordance with paragraph 6(4).
(7) Where an assessment is withdrawn or amended under this paragraph, notice of the withdrawal or amendment must be given to the representative partner.
No postponement except before assessment is finalised for tax on same profits
8 (1) Section 217K applies where a designated officer has assessed the unassessed transfer pricing profits of all of the relevant corporate partners of a partnership in relation to a return period under paragraph 5 or paragraph 7(5) as it applies where a designated officer has assessed a company’s unassessed transfer pricing profits under section 217H or section 217J(5) but as if—
(a) references to the company were to the representative partner;
(b) where the partnership has more than one relevant corporate partner in relation to the return period—
(i) in subsection (2)(a) after “determination” there were inserted “in relation to each assessment”;
(ii) references to the assessment being finalised were to all of the assessments being finalised;
(iii) the reference in subsection (3)(b)(i) to the assessment were to the assessments;
(iv) the references in subsection (3)(b)(ii) and (iii) to an appeal against the assessment were to all appeals against the assessments;
(c) references to the other party were to the other person mentioned in paragraph 1(1)(c);
(d) the reference in subsection (3)(b) to section 217M(2) were to paragraph 10(3);
(e) the reference in subsection (9)(b)to relevant tax charged (in any period) on profits that correspond to the unassessed transfer pricing profits were to the relevant corporate partner’s share of relevant tax charged (in any period) on profits that correspond to the partnership’s unassessed transfer pricing profits within the meaning of paragraph 1(3).
(2) In sub-paragraph (1)(e) “the relevant corporate partner’s share” means the share of the partnership’s profits or losses calculated under section 1259 of CTA 2009 for all of the relevant accounting periods mentioned in paragraph 1(1)(e) that is brought into account in calculating the relevant corporate partner’s profit or loss for any accounting period for corporation tax purposes.
Closure notices: rules relating to period for amendments
9 (1) This paragraph applies where a designated officer assesses the unassessed transfer pricing profits of all of the relevant corporate partners of a partnership in relation to a return period under paragraph 5.
(2) A relevant closure notice may not be issued under section 28B of TMA 1970 at any time before the end of the period for amendments.
(3) Accordingly, a tribunal direction given under section 28B of TMA 1970 in relation to a relevant closure notice has no effect until the period for amendments has ended.
(4) A relevant closure notice issued after the end of the period for amendments may not make any amendments to the partnership return which have the effect that the calculation of the partnership’s profits and losses under section 1259 of CTA 2009 more fully reflects the transfer pricing requirement to which the unassessed transfer pricing profits relate.
(5) In this paragraph a “relevant closure notice” means a partial or final closure notice in relation to an enquiry into the partnership return for the return period mentioned in sub-paragraph (1).
Appeal against assessment
10 (1) An appeal against the assessment of the unassessed transfer pricing profits of a relevant corporate partner of a partnership in relation to a return period under this Schedule may only be made—
(a) by the representative partner, and
(b) where the partnership has more than one relevant corporate partner in relation to the return period, by the representative partner appealing at the same time against the assessments of the unassessed transfer pricing profits of all of the relevant corporate partners.
(2) The representative partner in the partnership may only bring an appeal against such an assessment where—
(a) all of the relevant corporate partners have paid (in full) the corporation tax charged on the profits assessed other than any amount the payment of which has been postponed in accordance with paragraph 8, and
(b) the period for amendments has ended.
(3) Notice of an appeal must be given before the end of the period of 30 days beginning with—
(a) the end of the period for amendments, or
(b) in a case where paragraph 6(4) applies, the day after the day on which the period for amendments ends,
(and accordingly paragraph 48(2)(b) of Schedule 18 to FA 1998 does not apply).
(4) Sub-paragraphs (5) and (6) apply where, on an appeal against an assessment of a relevant corporate partner’s unassessed transfer pricing profits, the tribunal decides that the company is overcharged by the assessment as a result of one or more of the conditions mentioned in section 217C(1) not applying in respect of unassessed transfer pricing profits so assessed.
(5) The tribunal may, in addition to any other powers exercisable by the tribunal in those circumstances, reduce the tax charged on the amount assessed to assess the unassessed transfer pricing profits to corporation tax not at the UTPP rate.
(6) But where the partnership has more than one relevant corporate partner in relation to the return period the tribunal may only exercise the power in sub-paragraph (5) if the tribunal exercises the power on the appeal against the assessment of the unassessed transfer pricing profits of each relevant corporate partner.
Review of assessment
11 In its application in relation to an appeal against the assessment of the unassessed transfer pricing profits of a relevant corporate partner of a partnership in relation to a return period in respect of which the partnership has more than one relevant corporate partner, section 217N has effect as if after subsection (2) there were inserted—
(3) But the review may only conclude that the assessment is to be amended as described in subsection (2) if the review concludes that the assessment of each of the relevant corporate partner’s unassessed transfer pricing profits is to be amended in that way.
Settling of appeal by agreement
12 (1) Where the representative partner gives notice of appeal against an assessment of the unassessed transfer pricing profits of a relevant corporate partner of a partnership in relation to a return period, references in section 54 of TMA 1970 to an agreement that the assessment should be varied are to be read as including a reference to an agreement that the assessment should be amended to assess the unassessed transfer pricing profits to corporation tax not at the UTPP rate.
(2) But where the partnership has more than one relevant corporate partner in relation to the return period, an agreement that the assessment should be amended as described in sub-paragraph (1) may only be made if an agreement of that kind is made in relation to the assessment of each of the relevant corporate partner’s unassessed transfer pricing profits.
Part 4 Application to Lloyd’s syndicates
Introduction
13 (1) Parts 1 to 3 of this Schedule apply to a company as a corporate member of a syndicate as they apply to a company as a corporate partner of a partnership as if references to—
(a) partnership were to syndicate;
(b) corporate partner or corporate partners were to corporate member or corporate members;
(c) partnership return were to syndicate return;
(d) return period were to underwriting year;
(e) the representative partner were to the syndicate’s managing agent;
(f) “calculated under section 1259 of CTA 2009” were omitted.
(2) The application of Parts 1 to 3 of this Schedule to a corporate member of a syndicate is also subject to the modifications set out in paragraph 14.
(3) For the purposes of this Part of this Schedule—
(a) “corporate member”, in relation to a syndicate—
(i) means a body corporate which is a member of Lloyd’s and is or has been an underwriting member, and
(ii) where the body corporate is a partnership, includes any company that is or has been a partner in that partnership (and for these purposes, partner includes any person who is or has been an indirect partner in the partnership within the meaning of section 12AA of TMA 1970);
(b) “syndicate” and “underwriting year” have the same meanings as in Chapter 5 of Part 4 of FA 1994 (see section 230 of that Act);
(c) “managing agent” and “syndicate return” have the same meanings as in regulation 4 of the Lloyd’s Underwriters (Tax) Regulations 2005 (S.I. 2005/3338).
Modifications to Parts 1 to 3 of this Schedule
14 (1) Paragraph 1 (unassessed transfer pricing profits) has effect as if—
(a) references to relevant accounting period, one or more relevant accounting periods, one or more of those relevant accounting periods and each of the relevant accounting periods mentioned in sub-paragraph (1)(e) were to the underwriting year;
(b) the references in sub-paragraph (1)(a) and (5)(b) to partner were to corporate member;
(c) in sub-paragraph (2) after “brought into account”, in the first place it occurs, there were inserted “during the period for amendments (see paragraph 6)”;
(d) sub-paragraph (5)(a) (and the “accordingly” at the start of sub-paragraph (5)(b)) and sub-paragraphs (6)(a), (c) and (d) were omitted.
(2) Paragraph 3 (preliminary notices) has effect as if sub-paragraph (4) were omitted.
(3) Paragraph 5 (assessment) has effect as if sub-paragraph (5)(b) were omitted.
(4) Paragraph 6 (amendment of return) has effect as if—
(a) after sub-paragraph (2) there were inserted—
(2A) Where the syndicate return is amended under sub-paragraph (2), a designated officer must, by notice to each of the relevant corporate members, amend the corporate member’s company tax return so as to give effect to the amendment of the syndicate return.
;
(b) in sub-paragraph (6), the reference to section 12AD(3) of TMA 1970 were to paragraph 31(3) of Schedule 18 to FA 1998.
(5) Paragraph 8 (no postponement except before assessment is finalised for tax on same profits) has effect as if the reference in sub-paragraph (2) to all of the relevant accounting periods mentioned in paragraph 1(1)(e) were to the underwriting year.
(6) Paragraph 9 has effect as if—
(a) the reference in sub-paragraph (2) to section 28B of TMA 1970 were to paragraph 32 of Schedule 18 to FA 1998;
(b) the reference in sub-paragraph (3) to section 28B of the TMA 1970 were to paragraph 33 of Schedule 18 to FA 1998;
(c) for sub-paragraph (4) there were substituted—
(4) Where a relevant closure notice issued after the end of the period for amendments amends the syndicate return to more fully reflect the transfer pricing requirement to which the unassessed transfer pricing profits relate, the amendment may not be given effect—
(a) by amending any relevant corporate member’s tax return in a closure notice, or
(b) otherwise by an assessment to corporation tax on any of the relevant corporate members.
(3) Part 3 of FA 2015 (diverted profits tax) is repealed.
(4) In Schedule 11 to TIOPA 2010 (index of defined expressions used in Parts 2 to 8), after Part 2 insert—
Part 2A Unassessed transfer pricing profits: index of defined expressions used in Part 4A
corporate member (in Part 4 of Schedule A1) | paragraph 13(3) of Schedule A1
designated officer (in Part 4A) | section 217T
foreign tax (in Part 4A) | section 217T
HMRC (in Part 4A) | section 217T
managing agent (in Part 4 of Schedule A1) | paragraph 13(3) of Schedule A1
the other party (in Part 4A) | section 217B(1)
partnership return (in Parts 1 to 3 of Schedule A1) | paragraph 1(6) of Schedule A1
the period for amendments (in Chapter 3 of Part 4A) | section 217I(3) and (4)
relevant corporate partner (in Parts 1 to 3 of Schedule A1) | paragraph 1(6) of Schedule A1
representative partner (in Part 3 of Schedule A1) | paragraph 3(4) of Schedule A1
return period (in Parts 1 to 3 of Schedule A1) | paragraph 1(6) of Schedule A1
relevant accounting period (in Parts 1 to 3 of Schedule A1) | paragraph 1(6) of Schedule A1
self-assessment (in Part 4A) | section 217B(5)
syndicate (in Part 4 of Schedule A1) | paragraph 13(3) of Schedule A1
syndicate return (in Part 4 of Schedule A1) | paragraph 13(3) of Schedule A1
underwriting year (in Part 4 of Schedule A1) | paragraph 13(3) of Schedule A1
(5) In section 48 of TMA 1970 (application to appeals and other proceedings), in subsection (2)(b) after “section 55 below” insert “or section 217K of TIOPA 2010”.
(6) In section 49E of TMA 1970 (nature of review etc), after subsection (5A) insert—
(5B) See section 217N of TIOPA 2010 concerning the application of this section in the case of an assessment of a company’s unassessed transfer pricing profits under Part 4A of that Act.
Consequential amendments
2 In section A1 of CTA 2009, in subsection (2), after paragraph (g) insert—
(ga) Part 4A of that Act (assessment of unassessed transfer pricing profits),
.
3 (1) In section 206(3) of FA 2013 (taxes to which the general anti-abuse rule applies) omit paragraph (da).
(2) In paragraph 7 of Schedule 6 to FA 2010 (enactments to which definition of “charity” in Part 1 of that Schedule applies)—
(a) after paragraph (h) insert “and”, and
(b) omit paragraph (j) (and the “and” before it).
(3) In Schedule 23 to FA 2011 (data-gathering powers), in paragraph 45(1) (taxes to which powers apply), omit paragraph (ca).
(4) In section 1139 of CTA 2010 (definition of “tax advantage” for the purposes of provisions of the Corporation Tax Acts which apply this section), in subsection (2)—
(a) after paragraph (da) insert “or”, and
(b) omit paragraph (f) (and the “or” before it).
(5) In Schedule 56 to FA 2009 (penalty for failure to make payments on time)—
(a) in the Table at the end of paragraph 1, omit the entry relating to diverted profits tax;
(b) in paragraph 3 (amount of penalty: occasional amounts and amounts in respect of periods of 6 months or more), omit sub-paragraph (1)(aa).
(6) In Schedule 36 to FA 2008 (information and inspection powers), in paragraph 63(1) (taxes to which powers apply), omit paragraph (ca).
(7) In Schedule 41 to FA 2008 (penalties: failure to notify etc)—
(a) in the Table in paragraph 1, omit the entry relating to diverted profits tax;
(b) in paragraph 7 (meaning of “potential lost revenue”), omit sub-paragraph (4A).
(8) In section 178 of FA 1989 (setting rates of interest), in subsection (2), omit paragraph (v).
(9) In section 1 of the Provisional Collection of Taxes Act 1968 (temporary statutory effect of House of Commons resolutions affecting income tax, purchase tax or customs or excise duties), in subsection (1) omit “diverted profits tax,”.
Section 47
Part 1 Amendments of Part 4 of TIOPA 2010
Introduction
1 Part 4 of TIOPA 2010 (transfer pricing) is amended as follows.
Transfer pricing notice where participation condition not otherwise met
2 (1) After section 148 insert—
Participation condition treated as met: transfer pricing notice
148A (1) Subsection (3) applies where—
(a) the basic pre-condition would be met, if the participation condition in section 148 were met,
(b) as a result of the application of sections 157 to 161, the participation condition is not met, and
(c) either (ignoring those sections, which give particular meanings to the following words for the purposes of section 148)—
(i) one of the affected persons was, at the time of the making or imposition of the actual provision, directly or indirectly participating in the management, control or capital of the other, or
(ii) the same person or persons was or were, at that time, directly or indirectly participating in the management, control or capital of each of the affected persons.
(2) Whether a person was directly or indirectly participating in the management, control or capital of another person is, for the purposes of subsection (1)(c), to be determined having regard to all of the circumstances.
(3) The Commissioners for His Majesty's Revenue and Customs may give the potentially advantaged person a notice under this section.
(4) The effect of the notice is that the participation condition is to be treated as met for the purposes of applying this Part in relation to the chargeable period in which it is given and subsequent chargeable periods.
(5) Where the Commissioners consider that a particular case is analogous to a case that would meet the participation condition only as a result of section 161 (actual provision relates, to any extent, to financing arrangements)—
(a) the Commissioners must state that in the notice, and
(b) subsections (1)(d), (2)(b), (3), (4)(b) and (5) of section 147 have effect in relation to that case as if reference to “the actual provision” were to the actual provision so far as relating to the financing arrangements concerned.
(6) A notice under subsection (3) is referred to in Chapter 3 as a transfer pricing notice.
(7) Sections 169 to 171 in that Chapter make general provision about the giving of, and effect of, transfer pricing notices.
(8) But neither section 169(3) (no transfer pricing notice before notice of enquiry given) nor section 171 (tax returns where transfer pricing notice given) applies to a transfer pricing notice under this section.
(2) In section 157 (direct participation), in subsection (1)(a), after “Part” insert “(other than for the purposes of section 148A(1)(c))”.
(3) In section 164(1)(a) (Part to be interpreted in accordance with OECD principles), after “148” insert “, 148A”.
(4) In section 170 (appeals against transfer pricing notices)—
(a) in subsection (1), before paragraph (a) insert—
(za) in the case of a transfer pricing notice given under section 148A(3), that the condition in section 148A(1)(c) is not met,
,
(b) after subsection (1) insert—
(1A) A person to whom a transfer pricing notice is given under section 148A(3) may appeal against a decision of the Commissioners for His Majesty's Revenue and Customs to consider the case to which the notice relates analogous to a case that would meet the participation condition only as a result of section 161 (actual provision relates, to any extent, to financing arrangements).
, and
(c) in subsection (2), for “Any such appeal” substitute “An appeal under this section”.
Intangible fixed assets
3 In section 151 (“arm’s length provision”), after subsection (2) insert—
(3) For the purposes of determining the arm’s length provision in relation to the actual provision involving—
(a) the transfer of intangible fixed assets for consideration other than money, or
(b) the grant of a licence or any other right in respect of intangible fixed assets for consideration other than money,
assume that the transfer or grant at arm’s length would be for consideration of a sum of money.
(4) For the purposes of subsection (3) “intangible fixed assets” has the meaning it has in Part 8 of CTA 2009.
Guarantees
4 (1) Omit section 152.
(2) Omit section 153.
(3) Before section 154 insert—
Certain guarantees not capable of being arm’s length
153A Where—
(a) the actual provision includes provision for the borrowing of an amount,
(b) the amount would not have been lent between independent enterprises but for a guarantee, and
(c) such a guarantee was provided by a person with whom the borrower has a participatory relationship,
provision for the guarantee (to the extent it relates to the borrowing of that amount) is never to be regarded as arm’s length provision for the purposes of this Part.
(4) After section 153A (as inserted by sub-paragraph (3)) insert—
Election for deemed guarantee
153B (1) This section applies where the actual provision includes provision for the borrowing of an amount.
(2) A UK resident company (“the deemed guarantor”) with whom the borrower has a qualifying participatory relationship may elect to be treated, in relation to that borrowing—
(a) for the purposes of this Part (as it applies to the deemed guarantor, the borrower and any other person), and
(b) while the deemed guarantor is UK resident and has that relationship,
as having provided a guarantee in respect of so much of the borrowing as is excessive.
(3) Borrowing is excessive to the extent that it—
(a) would not have been lent between independent enterprises but for a guarantee, and
(b) was not the subject of such a guarantee.
(4) The election—
(a) applies at all times when the condition in subsection (2)(b) is met, from the beginning of the day on which the first chargeable period of the borrower for which the election is made commences, and
(b) is irrevocable (so continues indefinitely).
(5) The election—
(a) must specify the first chargeable period of the borrower for which the election is made,
(b) may not be made more than 4 years after the end of that period.
(6) Where the borrower is the subject of a discovery assessment in relation to a chargeable period of the borrower, the deemed guarantor may make an election for that period to be the first chargeable period of the borrower for which the election is made (despite subsection (5)(b)) at any time within the period of one year beginning with the making of that discovery assessment.
(7) Nothing in this section is to be taken as permitting the amendment of a return, or the making of any claim or election, in consequence of an election made under this section after the time for which that amendment, claim or other election could otherwise be made.
(8) Where the lender makes a claim under section 174 or a guarantor makes a claim under section 192 in relation to the provision for the borrowing before the election made under this section, the election only applies to so much of the excessive borrowing as is not taken account of in the calculation of that person’s profits and losses as a result of the claim.
(9) For the purposes of this section—
(a) a participatory relationship is “qualifying” if the participatory relationship does not arise only as a result of any of sections 148A (participation condition treated as met following transfer pricing notice) or 159 to 161 (indirect participation);
(b) “discovery assessment” means—
(i) an assessment under section 29(1) of TMA 1970, or
(ii) a discovery assessment or discovery determination under Schedule 18 to FA 1998 (company tax returns).
(10) See also Chapter 5 for provision about claims by a guarantor (which includes a person making an election under subsection (2)).
(5) In section 154 (interpretation of sections 152 and 153)—
(a) in the heading, for “152 and 153” substitute “153A and 153B”,
(b) omit subsections (1) to (3),
(c) in subsection (4)(b), for “issuing company”, in both places it occurs, substitute “borrower”,
(d) after subsection (4) insert—
(4A) But any implicit support is not to be regarded as a guarantee.
,
(e) for subsection (5) substitute—
(5) A person has a participatory relationship with another person at any time if provision relating to financing arrangements made or imposed between them at that time would meet the participation condition in section 148.
(f) after subsection (5) insert—
(5A) “Borrowing” includes the issuing of a security.
(5B) “Implicit support” means any incidental benefit, in relation to borrowing by a company, that it is reasonable to assume would arise to the company as a result of it having a participatory relationship with one or more other companies.
, and
(g) omit subsections (6) and (7).
(6) In section 164(1)(a) (Part to be interpreted in accordance with OECD principles), after “148A” (as inserted by paragraph 2(3)) insert “, 154(5B)”.
(7) In section 174 (claim by the affected person who is not potentially advantaged), in subsection (3), for “claim not allowed in some cases where actual provision relates to a security issued by one of the affected persons” substitute “application of section 174 where guarantee disallowed”.
(8) For section 175 substitute—
Application of section 174 where guarantee disallowed
175 (1) Subsection (2) applies where—
(a) the actual provision includes provision for the borrowing of an amount,
(b) that amount would not have been lent between independent enterprises but for a guarantee,
(c) such a guarantee was provided by a person with whom the borrower has a participatory relationship, and
(d) the participation condition, in relation to the actual provision for the borrowing—
(i) would not be satisfied but for section 161 (indirect participation), or
(ii) is satisfied as a result of a notice given under section 148A(3), and the Commissioners for His Majesty's Revenue and Customs consider that the case is analogous to a case that would meet the participation condition only as a result of section 161.
(2) For the purposes of section 174(2), the amount is to be treated as if it had been lent to the guarantor on equivalent terms to the terms on which it was lent to the borrower.
(3) Section 154 (interpretation of section 153A and 153B) applies for the purposes of this section as it applies for the purposes of sections 153A and 153B.
(9) In consequence of the amendment made by sub-paragraph (8)—
(a) in section 158, in subsection (2), for “148(2)(a) and (3)(a) and 175(2)(a)” substitute “148(2) and (3) and 175”,
(b) in section 159, in subsection (1)(a), for “175(2)” substitute “175”, and
(c) in section 160, in subsection (1)(a), for “175(2)” substitute “175”.
Position of guarantor of affected person's liabilities under a security issued by the person
5 In the italic heading before section 191, for the words from “liabilities” to the end substitute “borrowing liabilities”.
6 (1) Section 191 (when sections 192 to 194 apply) is amended as follows.
(2) In subsection (1)—
(a) in paragraph (a)—
(i) for “issuing company” substitute “borrower”, and
(ii) for the words from “is” to the end substitute “has borrowing liabilities”,
(b) in paragraph (c)—
(i) for “issuing company” substitute “borrower”, and
(ii) for “under the security” substitute “in respect of the borrowing”, and
(c) for paragraph (d) substitute—
(d) the reduction is a result of provision for the guarantee not being regarded as arm’s length in accordance with section 153A (certain guarantees not capable of being arm’s length).
(3) Omit subsections (2) to (4).
(4) In subsection (5)—
(a) in the definition of “the issuing company”, for “issuing company” substitute “borrower”,
(b) omit the definition of “the security”, and
(c) at the appropriate places insert—
“borrowing”, “guarantee” and “implicit support” have the meanings they have in sections 153A and 153B (see section 154);
“the borrowing transaction” means the transaction mentioned in subsection (1)(a);
.
7 (1) Section 192 is amended as follows.
(2) In the heading, for “issuing company” substitute “borrower”.
(3) In subsection (1)—
(a) in the words before paragraph (a)—
(i) for “section 191(1)(c)” substitute “subsection (1)(c) of section 191 (so far as it meets the condition in subsection (1)(d) of that section)”, and
(ii) for “issuing company” substitute “borrower”,
(b) omit paragraph (a),
(c) for paragraph (b) substitute—
(b) was the person that owed the borrowing liabilities under the borrowing transaction, and
, and
(d) in paragraph (c), for “issuing company” substitute “borrower”.
(4) In subsection (3) for “issuing company's liabilities under the security” substitute “borrower’s liabilities under the borrowing transaction”.
(5) Omit subsection (6).
8 In section 192A (provision for cases within Part 6A), in subsection (1)—
(a) in paragraph (a), for “issuing company under the security” substitute “borrower in respect of the borrowing transaction”, and
(b) in paragraph (d), for “issuing company” substitute “borrower”.
9 In section 193 (interaction between claims under sections 184 and 192(1))—
(a) in subsection (1)—
(i) in paragraph (a), for “issuing company” substitute “borrower”,
(ii) for paragraph (b) substitute—
(b) another person (“the lender”)
, and
(iii) in the words after paragraph (b), for “security” substitute “borrowing transaction”,
(b) in subsection (2) in paragraph (b), for “lending company” substitute “lender”,
(c) in subsection (3) for “lending company’s” substitute “lender’s”, and
(d) in subsection (4)—
(i) in paragraph (a), for “lending company” substitute “lender”, and
(ii) in paragraph (b), for “lending company’s” substitute “lender’s”.
10 (1) Section 194 (claims under section 192(1)) is amended as follows.
(2) In subsection (1), in paragraph (c), for “issuing company” substitute “borrower”.
(3) In subsection (2) for “issuing company” substitute “borrower”.
(4) In subsection (3), in paragraph (a), for “issuing company” substitute “borrower”.
Other references to securities
11 (1) In the italic heading before section 181, for “a security” substitute “borrowing”.
(2) In section 181 (section 182 claims)—
(a) in the heading, for “a security” substitute “borrowing”,
(b) in subsection (1)—
(i) omit paragraph (a), and
(ii) in paragraph (b), for “a security issued by one of those companies” substitute “borrowing”, and
(c) for subsection (4) and (5) substitute—
(4) For the purposes of this section “borrowing” has the meaning it has in sections 153A and 153B (see section 154).
(3) In section 197 (qualifying conditions for purposes of section 198)—
(a) in subsection (2)—
(i) omit “(“the issuing company”) is a company that”, and
(ii) for “liabilities under a security issued by it” substitute “borrowing liabilities”,
(b) in subsection (4)—
(i) for “issuing company” substitute “borrower”, and
(ii) for “under the security” substitute “in respect of the borrowing”,
(c) in subsection (5), for “153” substitute “section 153A”,
(d) in subsection (6) for “issuing company” substitute “borrower”,
(e) in subsection (7)(a), for “153” substitute “section 153A”, and
(f) for subsections (8) to (10) substitute—
(8) For the purposes of this Chapter, “borrowing” and “guarantee” have the meanings they have in sections 153A and 153B (see section 154).
(4) In section 198 (balancing payments by guarantor to issuer: no charge to, or relief from, tax)—
(a) in the heading, for “issuer” substitute “borrower”,
(b) in subsection (1)—
(i) for “guarantor companies” substitute “guarantors”, and
(ii) after “197(4)” insert “that are result of the application of section 153A,
(c) in subsection (2)(a)—
(i) for “the purposes of corporation tax” substitute “tax purposes”, and
(ii) for “issuing company” substitute “borrower”,
(d) in subsection (2)(b) omit “Corporation”,
(e) in subsection (3) omit the definition of “the issuing company”.
(5) In section 199 (pre-conditions for making election under section 200)—
(a) in subsection (5), for “a security (the “relevant security”)” substitute “borrowing (“the relevant borrowing”)”, and
(b) omit subsections (7) and (8).
(6) In section 200 (election to pay tax rather than make balancing payments)—
(a) in subsection (1)—
(i) for “section 152”, in both places it occurs, substitute “section 153A”, and
(ii) for “security”, in both places it occurs, substitute “borrowing”, and
(b) in subsection (3), for “security” substitute “borrowing”.
(7) In section 201 (pre-conditions for making election under section 202)—
(a) in subsection (5)(a)—
(i) for “the issuing of a security (“the relevant security”)” substitute “borrowing (“the relevant borrowing”)”,
(ii) omit “(“the issuing company”)”,
(b) omit subsections (7) to (9).
(8) In section 202 (election, in guarantee case, to pay tax rather than make balancing payments)—
(a) in subsection (1)—
(i) for “section 153”, in both places it occurs, substitute “section 153A”, and
(ii) for “security”, in both places it occurs, substitute “borrowing”, and
(b) in subsection (3), for “security” substitute “borrowing”.
(9) In section 203 (elections under section 200 or 202—
(a) in subsection (2) for “security is issued” substitute “borrowing first occurs”,
(b) in subsection (4), for “security is issued” substitute “borrowing first occurs”,
(c) in subsection (8) for “security” substitute “borrowing”, and
(d) in subsection (9)—
(i) for “security was issued” substitute “borrowing first occurred”,
(ii) for “been issued” substitute “first borrowed”.
Commencement of paragraphs 4 to 11
12 The amendments made by paragraphs 4 to 11 have effect—
(a) in relation to chargeable periods ending on or after 1 January 2026 but that commence before the end of the period of two years beginning with that date, in relation to borrowing occurring on, or after, 1 January 2026, and
(b) for all purposes—
(i) in relation to chargeable periods commencing on or after the end of that period, or
(ii) where a person has elected that the amendments should apply in relation to it in relation to any earlier chargeable period of the person ending on or after 1 January 2026, in relation to that period.
Financing cases
13 (1) For section 161 substitute—
Indirect participation: involvement in financing arrangements
161 (1) At any time this subsection applies, a person (“P”), with a qualifying interest in a body corporate or firm (“A”) is to be regarded as indirectly participating in the management, control or capital of A for the purposes of applying any of—
(a) section 148(2) or (3) (participation condition),
(b) section 175 (application of section 174 where guarantee disallowed), or
(c) section 219(2) (in Part 5),
in relation to provision comprising financing arrangements for A to which P and one or more other persons with a qualifying interest in A are party.
(2) Subsection (1) applies at any time if—
(a) one or more of those other persons act together (within the meaning given by subsection (4)) with P in relation to A, or have acted together in relation to A within the previous 6 months, and
(b) if all of the rights and powers of P and each of the persons mentioned in paragraph (a) were held by one person (“H”), that person would be taken to have control of A.
(3) In determining whether H would be taken to have control of A, the rights and powers of any person (and not just H) are to be taken to include those that would be attributed to that person by section 159(2) were it being decided under section 159(2) whether that person is indirectly participating in the management, control or capital of A.
(4) A person (“Q”) with a qualifying interest in another person (“B”), and another person (“U”) with such an interest, are to be regarded as acting together in relation to B if at any time while they both hold such an interest—
(a) Q and U are connected (within the meaning of section 163),
(b) for the purposes of influencing the conduct of B’s affairs—
(i) Q is able to secure that U acts in accordance with Q's wishes,
(ii) U can reasonably be expected to act, or typically acts, in accordance with Q's wishes,
(iii) U is able to secure that Q acts in accordance with U's wishes, or
(iv) Q can reasonably be expected to act, or typically acts, in accordance with U's wishes, or
(c) Q and U are party to any financing arrangements for B to which Q and U are party that—
(i) it is reasonable to suppose is designed to affect the value of any of U's or Q’s rights or interests in relation to B, or
(ii) relates to the exercise of any of U's or Q’s rights in relation to B.
(5) But for the purposes of subsection (4), ignore any rights or powers of Q that only arise as a result of loan made by Q and that are conferred in relation to property of U by the terms of any security relating to the loan.
(6) A person (“R”) has a qualifying interest in a company (“C”) if it is reasonable to suppose that—
(a) R possesses, or is entitled to acquire, any amount of the share capital or issued share capital of C,
(b) R possesses, or is entitled to acquire, any amount of the voting power in C, or
(c) if the whole of C's share capital were disposed of, R would receive (directly or indirectly and whether at the time of disposal or later) any amount of the proceeds of the disposal, other than as a result only of the terms of a normal commercial loan under which R is the creditor of C.
(7) A person (“R”) has an qualifying interest in a firm (“F”) if it is reasonable to suppose that, other than as a result only of the terms of a normal commercial loan under which R is the creditor of F—
(a) if the whole of the income of the firm were distributed, R would receive (directly or indirectly and whether at the time of the distribution or later) any amount of the distributed amount, or
(b) in the event of a winding-up of the firm or in any other circumstances, R would receive (directly or indirectly and whether or not at the time of the winding-up or other circumstances or later) any amount of F's assets which would then be available for distribution.
(8) In this section—
“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions, whether or not legally enforceable;
“financing arrangements” means arrangements made for providing or guaranteeing, or otherwise in connection with, any debt, capital or other form of finance;
“normal commercial loan” means a loan which is a normal commercial loan for the purposes of section 158(1)(b) or 159(4)(b) of CTA 2010.
(2) Omit section 162.
(3) In section 158 (indirect participation defined by sections 159 to 162)—
(a) in the heading, for “162” substitute “161”, and
(b) omit subsection (3).
(4) In section 163 (meaning of “connected”)—
(a) in the heading, for “section 159” substitute “sections 159 and 161”, and
(b) in subsection (1), for “section 159” substitute “sections 159 and 161”.
(5) In section 219 (in Part 5), in subsection (4), for “, 161(1) and 162(1)” substitute “and 161(1)”.
Agreements for common management etc
14 (1) Before section 163 insert—
Agreements for common management
162A (1) Where a person (“A”) and another person (“B”) are the subject of common management arrangements, each of A and B is to be treated, for the purposes of this Chapter, as having control of the other.
(2) Common management arrangements means arrangements that—
(a) result in the management of A and B by the same person or group of persons, and
(b) include a mechanism that it is reasonable to suppose is intended to secure that the economic interests of shareholders in A and B being aligned.
(3) In this section “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions, whether or not legally enforceable.
(2) In section 157 (direct participation), after subsection (2) insert—
(3) See also section 162A, which provides for circumstance in which a person will be regarded as having control of another.
Participation condition: anti avoidance
15 After section 162A (as inserted by paragraph 14) insert—
Arrangements to avoid participation condition
162B (1) Any arrangements that would result in the participation condition not being met are to be disregarded if the main purpose, or one of the main purposes, of the arrangements is to secure that the participation condition is not met.
(2) In this section “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions, whether or not legally enforceable.
UK to UK exemption
16 (1) Before section 165 (at the beginning of Chapter 3) insert—
UK to UK Exemption
164A (1) Section 147(3) and (5) do not apply in calculating, for a chargeable period of a potentially advantaged person, the profits and losses of that person in relation to actual provision that is qualifying UK to UK provision in relation to that person for that period.
(2) Actual provision is qualifying UK to UK provision in relation to a potentially advantaged person for a chargeable period of that person (“the relevant period”) if—
(a) the potentially advantaged person and the other affected person (whether or not also a potentially advantaged person) are both companies and are UK resident throughout the relevant period,
(b) the provision is relevant to the calculation of the profits and losses of both companies, and throughout the relevant period, any profits (if there are any) arising are chargeable to corporation tax,
(c) each company is charged to corporation tax on such profits at the same rate as the other company is charged on such profits,
(d) there is no time in the relevant period at which the reference currency used by one company in relation to the provision or a part of the provision differs from the reference currency used by the other in relation to the provision or that part,
(e) the actual provision does not comprise or include, a contract to which section 589 of CTA 2009 (contracts not derivative contracts because of underlying subject matter) applies in relation to one or other of the affected persons (but not both),
(f) no exemption adjustments under section 18A(1) of CTA 2009 (exemption for profits or losses of foreign permanent establishments) are made in respect of profits or losses arising from the relevant activities of the potentially advantaged person or the other affected person in calculating the taxable profits of that person,
(g) the actual provision is not patent box provision in relation to the relevant period, and
(h) neither the potentially advantaged person nor the other affected person is an excluded company at any time in the relevant period.
(3) For the purposes of subsection (2)(d) the “reference currency” used by a company in relation to provision, or part of a provision, means the currency by reference to which the profits of the company, so far as they relate to the provision or part, are calculated for corporation tax purposes.
(4) Actual provision is patent box provision in relation to the relevant period if—
(a) it results in at least one of the affected persons having relevant IP income (within the meaning of Part 8A of CTA 2010) for an accounting period of that person falling (wholly or partially) within the relevant period, and
(b) an election under section 357A of that Act applies to that company for that accounting period.
(5) A company is an excluded company at any time if—
(a) it carries on a ring fence trade (within the meaning of Part 8 of CTA 2010) at that time,
(b) it has previously carried on (and has ceased carrying on) a ring fence trade, it has incurred general decommissioning expenditure (within the meaning given by section 163 of CAA 2001) and the time falls within the post-cessation period (within the meaning given by section 165(2) of that Act),
(c) it carries on oil contractor activities (within the meaning of Part 8ZA of CTA 2010) as part of a trade at that time,
(d) it carries on basic life assurance and general annuity business (within the meaning of Part 2 of FA 2012) at that time,
(e) it is a tonnage tax company (within the meaning of Schedule 22 to FA 2000) at that time,
(f) it is a banking company (within the meaning of Part 7A of CTA 2010) in relation to the accounting period of the company in which that time falls,
(g) it is, at that time, a company incorporated in the United Kingdom to which section 236 of FISMA 2000 applies (open-ended investment companies),
(h) it is a unit trust scheme in respect of which an order under section 243 of FISMA 2000 (authorised unit trust schemes) is in force at that time (see also section 617 of CTA 2010 which treats the trustees of such a scheme as a UK resident company for the purposes of the Tax Acts),
(i) it is an investment trust (see section 1158 of CTA 2010) with respect to the accounting period of the company in which that time falls,
(j) it is, or is a member of, a UK REIT (within the meaning of Part 12 of CTA 2010) at that time,
(k) section 83(1) of FA 2005 (application of accounting standards to securitisation companies) applies to the company in relation to a period of account in which that time falls,
(l) it is, at that time, a securitisation company within the meaning of the Taxation of Securitisation Companies Regulations 2006 to which those regulations apply,
(m) it is, at that time, an insurance securitisation company within the meaning of the Taxation of Insurance Securitisation Companies Regulations 2007,
(n) it is, at that time, a qualifying transformer vehicle within the meaning of the Risk Transformation (Tax) Regulations 2017 (see regulation 3),
(o) it is a QAHC (within the meaning of Schedule 2 to FA 2022) at that time,
(p) it is, or is a member of, a generating undertaking (within the meaning of Part 5 of F(No.2)A 2023) to whom generation receipts or allowable costs are attributed, in accordance with that Part, for the qualifying period in which that time falls, or
(q) it is a residential property developer (within the meaning of Part 2 of FA 2022) that has residential property developer profits (within the meaning of that Part) for the accounting period of the company in which that time falls.
(6) Subsection (1) does not apply to qualifying UK to UK provision in relation to a potentially advantaged person for a chargeable period of that person if the person elects—
(a) that subsection (1) does not apply (in relation to the person) in respect of that provision, or
(b) that subsection (1) does not apply to the person for that period.
(7) An election under subsection (6) may not be revoked.
(8) Subsection (1) also does not apply to qualifying UK to UK provision in relation to a potentially advantaged person for a chargeable period of that person if the Commissioners for His Majesty's Revenue and Customs give the person a notice that states—
(a) that subsection (1) does not apply (in relation to the person) in respect of that provision for that period, or
(b) that subsection (1) does not apply to the person for that period.
(9) The Commissioners may only give a notice under subsection (8) if they consider that it is expedient to give the notice for the purposes of avoiding any loss of tax that would, or may, otherwise result from the application of subsection (1).
(10) For the purposes of subsection (9), and section 170(1)(zb), the question of whether there is or may be a loss of tax is to be determined having regard to the positions of both of the affected persons.
(11) A notice under subsection (8) is referred to in this Chapter as a transfer pricing notice.
(12) See sections 169 to 171 for further provision about the giving of, and effect of, transfer pricing notices.
(2) In section 170 (appeals against transfer pricing notices) in subsection (1), after paragraph (za) (as inserted by paragraph 2(4)(a) of this Schedule) insert—
(zb) in the case of a transfer pricing notice given under section 164A(8), that there would be no loss of tax resulting from—
(i) in the case of a notice under section 164A(8)(a), the application of section 164A(1) in relation to the chargeable period and provision to which the notice relates, or
(ii) in the case of a notice under section 164A(8)(b), the application of section 164A(1) in relation to that period and any qualifying UK to UK provision for which the person is the potentially advantaged person, or
(3) In consequence of the amendment made by sub-paragraph (1), in section 371SD (CFC corporation tax assumptions as to residence), after subsection (5) insert—
(5A) The assumption in subsection (1) is to be ignored for the purposes of applying section 164A (and accordingly the CFC will not get the benefit of the transfer pricing exemption for qualifying provision between UK resident companies).
Losses
17 In section 156 (“losses”), in subsection (1), in the words before paragraph (a) after “with” insert “the Tax Acts including (for example)”.
Interpretation in accordance with OECD principles
18 In Section 164 (part to be interpreted in accordance with OECD principles)—
(a) in subsection (1), for paragraph (b) substitute—
(b) the effect that would be given under double taxation arrangements that incorporate the OECD model in accordance with the transfer pricing guidelines.
(b) for subsections (3) and (4) substitute—
(3) In this section “the OECD model” means the rules contained in Article 9 of the Model Tax Convention on Income and on Capital approved by the OECD Council on 18 November 2025, as interpreted in accordance with, or supplemented by, the OECD’s commentary on that Article, also approved on that date.
(4) In this section “the transfer pricing guidelines” means the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022 published by the OECD on 20th January 2022 as interpreted in accordance with, or supplemented by, such documents as may be published by the OECD from time to time as are relevant to the application of those guidelines.
(4A) The reference to the Model Tax Convention approved on 18 November 2025, the OECD commentary approved on that date or the OECD Transfer Pricing Guidelines published on 20th January 2022, is to that document as it may be amended or replaced from time to time.
(4B) And each of those documents, and any other document referred to in subsection (4), is to be read in accordance with any reservation, declaration or election made by the United Kingdom in relation to that document.
(4C) The Treasury may by regulations make provision—
(a) for subsection (4A) not to apply in relation to any specified amendment or replacement of the OECD model or the OECD Transfer Pricing Guidelines,
(b) providing that the reference in subsection (4) to other documents is not to include any specified document, and
(c) about the effect of any provision of any document referred to in subsection (4) that has been published, amended or replaced on or after 26 November 2025 where that provision is elective (however expressed).
Compensating adjustments
19 (1) In section 174 (claim by the affected person who is not potentially advantaged)—
(a) in the heading, at the end insert “etc”,
(b) after subsection (1) insert—
(1A) Subsection (2) also applies in any case where—
(a) one of the affected persons is a non-UK resident company with a permanent establishment in the United Kingdom,
(b) the taxable profits of that company are calculated, as a result of section 21 of CTA 2009, as if the arm’s length provision (to some extent) had been made or imposed between the permanent establishment and the other affected person, and
(c) if the actual provision (to the extent corresponding to the arm’s length provision treated as made or imposed between the permanent establishment and the other person) had been made or imposed between the permanent establishment and the other person, that provision—
(i) would confer a potential advantage on the non-UK resident company in relation to United Kingdom taxation, and
(ii) would not confer a potential advantage on the other person in relation to United Kingdom taxation.
(1B) For the purposes of applying that subsection in such a case—
(a) the permanent establishment is to be regarded as “the advantaged person”,
(b) the other affected person is to be regarded as the “disadvantaged person”,
(c) the reference to the arm’s length provision is to that provision to the extent it is treated as having been made or imposed between the permanent establishment and the other affected person for the purpose of calculating the profits of the non-UK resident company, and
(d) the reference to the actual provision is to that provision to the extent that it as corresponds to the arm’s length provision treated as having been made or imposed between the permanent establishment and the other affected person for that purpose.
(2) In section 176 (claims under section 174: advantaged person must have made return), in subsection (3)(a), after “Part” insert “or Chapter 4 of Part 2 of CTA 2009”.
(3) Part 4 of TIOPA 2010 has effect, and is to be deemed always to have had effect, with the amendment made by this paragraph.
Removal of requirement for Commissioners’ sanction
20 (1) Omit sections 208 to 211 and the italic heading before section 208 (determinations requiring Commissioners’ sanction).
(2) The amendment made by this paragraph has effect in relation to any transfer-pricing determination made on or after the day on which this Act comes into force.
Part 2 Other amendments
Chapter 1 Loan relationships etc
Loan relationships where provision falls within Part 4 of TIOPA 2010
21 (1) Section 445 of CTA 2009 (disapplication of independent terms assumption) is amended as follows.
(2) For subsection (1) substitute—
(1) Section 444 does not apply in relation to credits or debits of a company if—
(a) as a result of Part 4 of TIOPA 2010 (transfer pricing), the profits and losses of the company are to be calculated for tax purposes as if the arm's length provision to which those credits or debits would relate had been made or imposed instead of the actual provision to which they relate, or
(b) those profits would be so calculated if the actual provision —
(i) conferred a potential advantage in relation to United Kingdom taxation (within the meaning of that Part) on the company, and
(ii) differed from the arm’s length provision.
(3) Omit subsections (3) and (3A).
Disallowed debits allowed where corresponding credit previously taken into account
22 (1) In section 446 of CTA 2009 (bringing into account adjustments made under Part 4 of TIOPA 2010: loan relationships), for subsection (8) substitute—
(8) Where a company makes a claim under this subsection, any qualifying credit of the company which (ignoring this subsection) would be brought into account for the purposes of this Part is not to be brought into account.
(9) But subsection (8) does not apply—
(a) if the corresponding profits of the company are less than the corresponding arm’s length profits, or
(b) to the extent that its application would result in the corresponding profits being less than the corresponding arm’s length profits.
(10) A credit of a company is a “qualifying credit” to the extent it corresponds to an amount which, as a result of Part 4 of TIOPA 2010, has not previously been brought into account as a debit.
(11) Where a company makes a claim under this subsection, neither subsection (3) nor (5) of section 147 of TIOPA 2010 applies to prevent the bringing into account of a qualifying debit which (ignoring this subsection) would not be brought in account for the purposes of this Part as a result of the application of either subsection.
(12) But subsection (11) does not apply—
(a) if the corresponding profits of the company are less than the corresponding arm’s length profits, or
(b) to the extent that its application would result in the corresponding profits being less than the corresponding arm’s length profits.
(13) A debit of a company is a “qualifying debit” to the extent it corresponds to a matched credit.
(14) The relevant amount of a credit of a company is a “matched credit” if—
(a) the credit was previously brought into account,
(b) the credit relates to actual provision made or imposed between the company and another person to which neither subsection (3) or (5) of section 147 of that Act applied in relation to the company,
(c) the only reason neither subsection applied in relation to the company and the actual provision was because the actual provision did not confer a potential advantage on the company (see section 155 of that Act), and
(d) if the profits of the company were calculated as if the arm's length provision had been made or imposed instead of the actual provision, the credit would not have been brought into account to some extent.
(15) The “relevant amount” of a credit means so much of the credit as would not have been brought into account if the arm's length provision had been made or imposed instead of the actual provision to which the credit relates.
(16) For the purposes of subsections (9) and (12), the corresponding profits of the company means the sum of the profits and losses of the company—
(a) for each accounting period for which there was actual provision made or imposed between the company and another person (“the other affected person”) to which the qualifying credit or qualifying debit relates,
(b) that arose from—
(i) each such provision where the profits and losses of the company were not (as a result of Part 4 of TIOPA 2010) required to be calculated as if the arm’s length provision had been made or imposed instead of that provision, and
(ii) the arm’s length provision in relation to each such provision where the profits and losses of the company are to be calculated as if that arm’s length provision had been made or imposed instead (as a result of that Part), and
(c) ignoring the effect (if any) of Part 10 of TIOPA 2010 (corporate interest restriction).
(17) For the purposes of those subsections, the corresponding arm’s length profits means the corresponding profits calculated as if the arm’s length provision had been made or imposed instead of the actual provision referred to in subsection (16)(a) in each case.
(18) In this section “actual provision”, “arm’s length provision” and “potential advantage” are to be construed in accordance with Part 4 of TIOPA 2010 (transfer pricing).
(19) A claim under subsection (8) or (11) must be made—
(a) within the period of two years after the end of the accounting period to which the claim relates, or
(b) within such further period as an officer of Revenue and Customs may allow.
(20) A claim may not be made under either of those subsections if—
(a) the profits and losses of other affected person were required, for any chargeable period of that person, to be calculated as if the arm’s length provision had been made or imposed instead of the actual provision relating to the qualifying credit or qualifying debit, and
(b) those profits and losses were not so calculated for that chargeable period.
(2) In section 693 of CTA 2009 (bringing into account adjustments made under Part 4 of TIOPA 2010: derivative contracts), for subsection (6) substitute—
(6) Where a company makes a claim under this subsection, any qualifying credit which (ignoring this subsection) would be brought into account for the purposes of this Part is not to be brought into account.
(7) But subsection (6) does not apply—
(a) if the corresponding profits of the company are less than the corresponding arm’s length profits, or
(b) to the extent that its application would result in the corresponding profits being less than the corresponding arm’s length profits.
(8) A credit of a company is a “qualifying credit” to the extent it corresponds to an amount which, as a result of Part 4 of TIOPA 2010, has not previously been brought into account as a debit.
(9) Where a company makes a claim under this subsection, neither subsection (3) nor (5) of section 147 of TIOPA 2010 applies to prevent the bringing into account of a qualifying debit which (ignoring this subsection) would not be brought in account for the purposes of this Part as a result of the application of either subsection.
(10) But subsection (9) does not apply—
(a) if the corresponding profits of the company are less than the corresponding arm’s length profits, or
(b) to the extent that bringing the qualifying debit into account would have that result.
(11) A debit of a company is a “qualifying debit” to the extent it corresponds to a matched credit.
(12) The relevant amount of a credit of a company is a “matched credit” if—
(a) the credit was previously brought into account,
(b) the credit relates to actual provision made or imposed between the company and another person to which neither subsection (3) or (5) of section 147 of that Act applied in relation to the company,
(c) the only reason neither subsection applied in relation to the company and the actual provision was because the actual provision did not confer a potential advantage on the company (see section 155 of that Act), and
(d) if the profits of the company were calculated as if the arm's length provision had been made or imposed instead of the actual provision, the credit would not have been brought into account to some extent.
(13) The “relevant amount” of a credit means so much of the credit as would not have been brought into account if the arm's length provision had been made or imposed instead of the actual provision to which the credit relates.
(14) For the purposes of subsections (7) and (10), the corresponding profits of the company means the sum of the profits and losses of the company—
(a) for each accounting period for which there was actual provision made or imposed between the company and another person (“the other affected person”) to which the qualifying credit or qualifying debit relates,
(b) that arose from—
(i) each such provision where the profits and losses of the company were not (as a result of Part 4 of TIOPA 2010) required to be calculated as if the arm’s length provision had been made or imposed instead of that provision, and
(ii) the arm’s length provision in relation to each such provision where the profits and losses of the company are to be calculated as if that arm’s length provision had been made or imposed instead (as a result of that Part), and
(c) ignoring the effect (if any) of Part 10 of TIOPA 2010 (corporate interest restriction).
(15) For the purposes of those subsections, the corresponding arm’s length profits means the corresponding profits calculated as if the arm’s length provision had been made or imposed instead of the actual provision referred to in subsection (14)(a) in each case.
(16) In this section “actual provision”, “arm’s length provision” and “potential advantage” are to be construed in accordance with Part 4 of TIOPA 2010 (transfer pricing).
(17) A claim under subsection (6) or (9) must be made—
(a) within the period of two years after the end of the accounting period to which the claim relates, or
(b) within such further period as an officer of Revenue and Customs may allow.
(18) A claim may not be made under either of those subsections if—
(a) the profits and losses of other affected person were required, for any chargeable period of that person, to be calculated as if the arm’s length provision had been made or imposed instead of the actual provision relating to the qualifying credit or qualifying debit, and
(b) those profits and losses were not so calculated for that chargeable period.
Credits and debits treated as relating to capital expenditure
23 (1) In section 320 of CTA 2009 (loan relationships: credits and debits treated as relating to capital expenditure), after subsection (3) insert—
(3A) Subsection (2) does not apply in relation to an amount so far as—
(a) the amount is treated in the company’s accounts as an amount recognised in determining the carrying value of an interest in an entity,
(b) the fair value of the loan relationship when it was entered into differs from the transaction price, and
(c) the amount represents that difference.
(2) In section 604 of that Act (derivative contracts: credits and debits treated as relating to capital expenditure), after subsection (3) insert—
(3A) Subsection (2) does not apply in relation to an amount so far as—
(a) the amount is treated in the company’s accounts as an amount recognised in determining the carrying value of an interest in an entity,
(b) the fair value of the derivative contract when it was entered into differs from the transaction price, and
(c) the amount represents that difference.
Chapter 2 Intangible fixed assets
Proceeds of realisation
24 (1) Section 739 (meaning of “proceeds of realisation”) of CTA 2009 is amended as follows.
(2) After subsection (1A) insert—
(1B) Subsection (1A) does not apply to a realisation by a company if—
(a) either—
(i) as a result of Part 4 of TIOPA 2010 (transfer pricing), the profits and losses of the company are to be calculated for tax purposes as if the arm's length provision in relation to the realisation had been made or imposed instead of the actual provision in relation to it, or
(ii) those profits would be so calculated if the actual provision conferred a potential advantage in relation to United Kingdom taxation (within the meaning of that Part) on the company and differed from the arm’s length provision, and
(b) the realisation is a cross-border realisation.
See also section 151(3) of that Part for provision about applying the arm’s length provision in relation to intangible fixed assets.
(3) After subsection (2) insert—
(3) But where subsection (1A) applies in relation to an amount recognised for accounting purposes, that amount is not to be adjusted as a result of any adjustment required by Part 4 of TIOPA 2010.
(4) For the purposes of subsection (1B)—
(a) a realisation is a cross-border realisation if, at the time of the realisation, the other party to the realisation transaction is—
(i) a UK resident company, but only if it has a qualifying permanent establishment in a territory outside the United Kingdom,
(ii) a non-UK resident company, other than a non-UK resident company that has a permanent establishment in the United Kingdom with a relevant connection to the transaction,
(iii) a non-UK resident individual, other than an individual that carries on a trade, profession or vocation in the United Kingdom through a branch or agency where the transaction is for the purposes of that trade, profession or vocation, or
(iv) a partnership, but only if all of its members are non-UK resident or it has a qualifying permanent establishment in a territory outside the United Kingdom.
(b) where the other party has a permanent establishment in a territory outside the United Kingdom, that permanent establishment is “qualifying” if—
(i) exemption adjustments under section 18A(1) of CTA 2009 (exemption for profits or losses of foreign permanent establishments) would be made in calculating the taxable profits of the other party, and
(ii) those adjustments would include adjustments in respect of the realisation transaction,
(c) a permanent establishment of the other party in the United Kingdom has a relevant connection to the realisation transaction if the transaction is, in accordance with Chapter 4 of Part 2, attributable to that permanent establishment,
(d) “branch or agency”—
(i) means any factorship, agency, receivership, branch or management, but
(ii) does not include any person within any of the exemptions under sections 835G to 835K of ITA 2007 (persons who are not UK representatives).
(e) “actual provision” and “arm’s length provision” are to be construed in accordance with Part 4 of TIOPA 2010 (transfer pricing).
Transfers of intangible fixed assets
25 (1) Section 845 of CTA 2009 (transfer between company and related party treated as at market value) is amended as follows.
(2) In subsection (4) omit paragraph (a).
(3) After that subsection insert—
(4ZA) But the basic rule does not apply in relation to a transfer if—
(a) the transfer is a cross-border transfer, and
(b) the transfer is subject to transfer pricing.
(4ZB) See also section 846 for a different rule where—
(a) the basic rule doesn’t apply as a result of subsection (4ZA), and
(b) the profits and losses of the company or the related person are not required, under Part 4 of TIOPA 2010, to be calculated as if the arm’s length provision had been made instead of the provision comprising the transfer or of which the transfer forms part.
(4ZC) Where, as a result of section 846 or Part 4 of TIOPA 2010, the profits and losses of the company or the related person are to be calculated as if the arm’s length provision had been made instead of the actual provision for the transfer, the transfer is treated for all purposes of the Taxes Acts as being for the price it would have under that arm’s length provision (as respects both the company and the related party).
(4ZD) For the purposes of subsection (4ZA)(a) a transfer is a cross-border transfer if, at the time of the transfer, the related party is—
(a) a UK resident company, but only if it has a qualifying permanent establishment in a territory outside the United Kingdom,
(b) a non-UK resident company, other than a non-UK resident company that has a permanent establishment in the United Kingdom with a relevant connection to the transferred asset,
(c) a non-UK resident individual, other than an individual that carries on a trade, profession or vocation in the United Kingdom through a branch or agency that has a relevant connection to the transferred asset, or
(d) a partnership, but only if all of its members are non-UK resident or it has a qualifying permanent establishment in a territory outside the United Kingdom.
(4ZE) Where the related party has a permanent establishment in a territory outside the United Kingdom, that permanent establishment is “qualifying” if—
(a) exemption adjustments under section 18A(1) of CTA 2009 (exemption for profits or losses of foreign permanent establishments) would be made in calculating the taxable profits of the related party, and
(b) those adjustments include adjustments in respect of the transferred asset.
(4ZF) A permanent establishment of the related party in the United Kingdom has a relevant connection to the transferred asset if the asset is, in accordance with Chapter 4 of Part 2, attributable to that permanent establishment.
(4ZG) A branch or agency of the related party has a relevant connection to the transferred asset if—
(a) where the related party is the transferor, it was used or held for the purposes of the branch or agency immediately before the transfer, or
(b) where the related party is the transferee, it was acquired for use by, to be held by or for the purposes of, the branch or agency.
(4) After subsection (5) insert—
(6) In this section “branch or agency”—
(a) means any factorship, agency, receivership, branch or management, but
(b) does not include any person within any of the exemptions under sections 835G to 835K of ITA 2007 (persons who are not UK representatives).
(7) For the purposes of this section and section 846—
“provision” and “arm’s length provision” are to be construed in accordance with Part 4 of TIOPA 2010 (transfer pricing);
a transfer is “subject to transfer pricing” if—
as a result of Part 4 of TIOPA 2010 (transfer pricing), the profits and losses of the company or the related party are to be calculated for tax purposes as if the arm's length provision to which those credits or debits would relate had been made or imposed instead of the actual provision to which they relate, or
those profits would be so calculated if the actual provision —
conferred a potential advantage in relation to United Kingdom taxation (within the meaning of that Part) on the company, and
differed from the arm’s length provision.
(5) For section 846 of CTA 2009 substitute—
Transfers where provision subject to transfer pricing but section 147(3) or (5) does not apply
846 (1) This section applies to a person who is a company or related party to whom, or from whom, a transfer of an intangible fixed asset is made if—
(a) the basic rule in section 845 would apply in relation to that person and that transfer but does not as a result of subsection (4ZA) of that section (provision subject to transfer pricing), and
(b) the profits and losses of that person are not required, under section 147(3) or (5) of TIOPA 2010, to be calculated as if the arm’s length provision had been made instead of the provision comprising the transfer or of which the transfer forms part.
(2) Section 147(3) of that Act applies to that person in relation to the provision comprising the transfer, or of which the transfer forms part, as if—
(a) the reference to the “potentially advantaged person” were to that person, and
(b) the reference to the “actual provision” were to the provision comprising the transfer or of which the transfer forms part.
See also section 151(3) of that Act for provision about applying the arm’s length provision in relation to intangible fixed assets.
Grant of licence or other right treated as at market value
26 (1) Section 849AB of CTA 2009 (grant of licence or other right treated as at market value) is amended as follows.
(2) After subsection (1) insert—
(1A) But this section does not apply in relation to a person (either the company or the related party) if—
(a) either—
(i) the profits and losses of the person are to be calculated for tax purposes as if the arm's length provision in relation to the grant had been made or imposed instead of the actual provision in relation to the grant as a result of Part 4 of TIOPA 2010 (transfer pricing), or
(ii) they would be so calculated if the actual provision conferred a potential advantage in relation to United Kingdom taxation (within the meaning of that Part) on the person, and
(b) the grant is a cross-border grant.
(1B) A grant is a cross-border grant if, at the time of the grant, the related party is—
(a) a UK resident company, but only if it has a qualifying permanent establishment in a territory outside the United Kingdom,
(b) a non-UK resident company, other than a non-UK resident company that has a permanent establishment in the United Kingdom with a relevant connection to the licence or other right that is the subject of the grant,
(c) a non-UK resident individual, other than an individual that carries on a trade, profession or vocation in the United Kingdom through a branch or agency that has a relevant connection to the licence or other right that is the subject of the grant, or
(d) a partnership, but only if all of its members are non-UK resident or it has a qualifying permanent establishment in a territory outside the United Kingdom.
(1C) Where the related party has a permanent establishment in a territory outside the United Kingdom, that permanent establishment is “qualifying” if—
(a) exemption adjustments under section 18A(1) of CTA 2009 (exemption for profits or losses of foreign permanent establishments) would be made in calculating the taxable profits of the related party, and
(b) those adjustments would include adjustments in respect of the licence or other right that is the subject of the grant.
(1D) A permanent establishment of the related party in the United Kingdom has a relevant connection to the licence or other right that is the subject of the grant if the licence or other right is, in accordance with Chapter 4 of Part 2, attributable to that permanent establishment.
(1E) A branch or agency of the related party has a relevant connection to the licence or other right that is the subject of the grant if—
(a) where the related party is the grantor, if the asset from which the licence or other right is derived was used or held for the purposes of the branch or agency immediately before the grant, or
(b) where the related party is the grantee, the licence or other right was acquired for use by, to be held by or for the purposes of, the branch or agency.
(1F) In this section “branch or agency”—
(a) means any factorship, agency, receivership, branch or management, but
(b) does not include any person within any of the exemptions under sections 835G to 835K of ITA 2007 (persons who are not UK representatives).
(3) In subsection (6) omit paragraph (a).
(4) In subsection (12), at the appropriate place insert—
“actual provision” and “arm’s length provision” are to be construed in accordance with Part 4 of TIOPA 2010 (transfer pricing),
.
(5) Omit section 849AC of CTA 2009.
Deemed market value acquisition: adjustment where nil accounting value
27 (1) Section 857 of CTA 2009 (deemed market value acquisition: adjustment where nil accounting value) is amended as follows.
(2) In the heading—
(a) after “value”, in the first place it occurs, insert “or arm’s length”, and
(b) after “nil” insert “or negligible”.
(3) In subsection (1)—
(a) in paragraph (a), after “value” insert “or by reference to the arm’s length provision”, and
(b) in paragraph (b), after “nil” insert “, or a negligible value,”.
(4) In subsection (2), in the words after paragraph (c), after “value”, in the second place it occurs, insert “or (as the case may be) by reference to the arm’s length provision”.
Commencement of Chapter
28 (1) The amendments made by this Chapter have effect in relation to transfers and grants made on or after 1 January 2026.
(2) But they do not have effect in relation to a transfer or grant made on or after that date if the transfer or grant is made pursuant to an obligation, under a contract, that was unconditional before that date.
(3) An obligation is “unconditional” if it may not be varied or extinguished by the exercise of a right (whether under the contract or otherwise).
Chapter 3 Exchange gains and losses etc
Treatment of exchange gains and losses under Part 4 of TIOPA 2010
29 (1) In section 147(6) of TIOPA 2010—
(a) after paragraph (b) insert—
(bza) section 173A,
, and
(b) omit paragraphs (e) and (f) (exclusion of exchange gains and losses from loan relationships and derivative contracts).
(2) After section 173 of that Act insert—
Exchange gains and losses arising as a result of qualifying loan relationships and derivative contracts
173A (1) Neither subsection (3) nor (5) of section 147 applies in relation to exchange gains and losses to the extent they arise, or would arise if either subsection applied, in relation to a qualifying financial instrument of a company.
(2) Accordingly, for the purposes of determining whether actual provision confers a potential advantage on a person, ignore the effect of so much of any exchange gain or loss as arises, or would have arisen, in relation to a qualifying financial instrument.
(3) In this section a qualifying financial instrument of a company means a financial instrument that is, or forms part of, actual provision to the extent—
(a) it is matched with another financial instrument of the company,
(b) it forms part of a currency tax offset arrangement,
(c) an exchange gain or loss arising to the company in relation to the financial instrument would be—
(i) prescribed an exchange gain or loss under regulation 3(1) or (5), 4(1) or (4A) or 5A(1) of the Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004,
(ii) an excluded amount for the purposes of sections 598(1)(a) and 606(4) of CTA 2009 as a result of regulation 5ZA(1) of those regulations, or
(iii) an excluded amount for the purposes of section 598(1)(a) of CTA 2009 as a result of regulation 7A of those regulations,
(d) the financial instrument gives rise to regulation 7 fair value profits or losses within the meaning of regulation 7 of those regulations, or
(e) the financial instrument is wholly denominated in the reference currency used by the company in relation to the actual provision, or the part of the actual provision, to which the financial instrument relates.
(4) A financial instrument of a company is matched with another financial instrument of the company to the extent that one is intended by the company to act to eliminate or substantially reduce the currency risk of the other.
(5) A financial instrument of a company forms part of a currency tax offset arrangement to the extent that—
(a) the company (“the first company”) has an exchange gain or loss arising in relation to the instrument and that would (ignoring this Part) be brought into account,
(b) that gain or loss is offset by a corresponding exchange loss or gain arising to another company in relation to that financial instrument or another financial instrument and that would (ignoring this Part) be brought into account by that other company, and
(c) the companies intended that the gain or loss referred to in paragraph (a) would be offset by the loss or gain referred to in paragraph (b).
(6) In this section—
“currency risk” means a risk which can be attributed to fluctuations in exchange rates between currencies over a period of time;
“financial instrument” means—
a loan relationship, or
a derivative contract;
“reference currency”, in relation to a company and actual provision or part of actual provision, means the currency by reference to which the profits of the company, so far as they relate to the provision or part, are calculated for corporation tax purposes.
Amendments of CTA 2009
30 (1) Sections 447, 449 to 451 and 694 of CTA 2009 are repealed (treatment of exchange gains and losses subject to Part 4 of TIOPA 2010).
(2) In section 445 of CTA 2009 (disapplication of section 444 where Part 4 of TIOPA 2010 applies), in subsection (2), omit paragraph (b) (and the “and” before it).
(3) In section 452 of that Act (exchange gains and losses where loan not on arm's length terms)—
(a) in subsection (1) for subsection (a) substitute—
(a) a company would be treated as having a debtor relationship, or would be treated as borrowing more under an existing debtor relationship, in relation to an accounting period if—
(i) an election were made under section 153B(2) of TIOPA 2010 in relation to that period,
(ii) a claim were made under section 192(1) of that Act in relation to that period, or
(iii) such an election and such a claim were made in relation to that period, and
,
(b) in subsection (2), for “claim” substitute “election, claim or election and claim”,
(c) in subsection (3)—
(i) in the words before paragraph (a), for the words from “a claim” to the end substitute “one or more elections or claims made under section 153B(2) or 192(1) of TIOPA 2010 or assumed to have been made as a result of subsection (2)—”, and
(ii) in paragraph (a), after “relationship” insert “, or is treated as borrowing more under an existing debtor relationship”,
(d) in subsection (4)—
(i) omit “under section 447”,
(ii) for “issuing company” substitute “borrower”, and
(iii) after “relationship”, in the second place it occurs, insert “as a result of Part 4 of TIOPA 2010”,
(e) in subsection (5)—
(i) omit “under section 447”,
(ii) for “issuing company” substitute “borrower”, and
(iii) after “relationship”, in the second place it occurs, insert “as a result of Part 4 of TIOPA 2010”, and
(f) in subsection (5A) for “issuing company” substitute “borrower”.
(4) In consequence of the amendments made by this paragraph—
(a) in section 440(2) of CTA 2009, in paragraph (c), for “447 to” substitute “448 and”,
(b) in section 444(6) of that Act, for “447 to” substitute “448 and”,
(c) in section 164(2) of TIOPA 2010—
(i) after “trades),” insert “and”, and
(ii) omit from “section 447(5)” to the end, and
(d) in section 174(4) of that Act—
(i) after “relief),” insert “and”, and
(ii) omit from “section 447(5)” to the end.
Designated currency elections
31 In section 9A of CTA 2010, after subsection (2) insert—
(2A) For the purposes of determining whether an election under this section takes effect, ignore the effect (if any) of Part 4 of TIOPA 2010 (transfer pricing).
Part 3 Commencement
32 (1) The amendments made by this Schedule have effect in relation to chargeable periods commencing on or after 1 January 2026.
(2) But sub-paragraph (1) does not apply to the amendments made by—
(a) paragraphs 4 to 11,
(b) paragraphs 19 and 20, and
(c) paragraphs 24 to 27.
(3) And for the purposes of sub-paragraph (1) as it applies in relation to paragraphs 29 and 30, an accounting period beginning before and ending on or after 1 January 2026 is to be treated as if so much of the period as falls before that date, and so much of the period as falls on or after that date, were separate accounting periods (and see further sections 307 and 595 of CTA 2009).
Section 49
Part 1 Amendments to CTA 2009
Introduction
1 CTA 2009 (charge to corporation tax: basic provisions) is amended as follows.
References to Model Tax Convention
2 In section 18S (other interpretation), in the definition of “the OECD model”—
(a) for “published by the Organisation for Economic Co-operation and Development in July 2010 (“the OECD”)” substitute “approved by the OECD Council on 18 November 2025”, and
(b) for “or” to the end substitute “as it may be amended or replaced from time to time”.
Attribution of profits
3 In section 19 (chargeable profits)—
(a) in subsection (2)(b), for “32” substitute “24”;
(b) in subsection (5), for “32” substitute “24”.
4 In section 20 (profits attributable to permanent establishment: introduction), for subsections (1) and (2) substitute—
(1A) Sections 21 and 24—
(a) apply for the purpose of determining the amount of profits of a non-UK resident company that are attributable to a permanent establishment of the company in the United Kingdom, and
(b) contain provision about the separate enterprise principle.
(1B) So far as provisions in those sections are in substantially the same terms as Article 7(2) of the Model Tax Convention on Income and on Capital approved by the OECD Council on 18 November 2025 they are to be read and given effect, so far as possible, in a way that is consistent with—
(a) the 2010 Report on the Attribution of Profits to Permanent Establishments published by the OECD on 22 July 2010,
(b) the OECD’s commentary on Article 7(2) approved by the OECD Council on 18 November 2025,
(c) the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022, published by the OECD on 20 January 2022, and
(d) the Additional Guidance on the Attribution of Profits to Permanent Establishments published by the OECD in March 2018.
(1C) Any reference in subsection (1B) to a document published by the OECD, or approved by the OECD Council, is to that document as it may be amended or replaced from time to time.
(1D) And any such document is to be read in accordance with any reservation, declaration or election made by the United Kingdom in relation to that document.
(1E) The Treasury may by regulations make provision—
(a) for subsection (1C) not to apply in relation to any specified amendment or replacement of a document referred to in subsection (1B),
(b) about the effect of any provision of a document referred to in subsection (1B) that has been amended or replaced on or after 26 November 2025 where that provision is elective (however expressed), and
(c) amending subsection (1B) to add a reference to a further document published by the OECD.
“Specified” means specified in regulations.
5 (1) Section 21 (the separate enterprise principle) is amended as follows.
(2) In subsection (1)—
(a) for “would have made” substitute “might be expected to make”, and
(b) for the words from “distinct” to the end substitute “separate and independent enterprise engaged in the same or similar activities under the same or similar conditions, taking into account the functions performed, assets used and risks assumed by the non-UK resident company through the permanent establishment and through the other parts of the non-UK resident company”.
(3) Omit subsection (3).
6 Omit—
(a) section 22 (transactions treated as being at arm’s length);
(b) section 23 (provision of goods or services for permanent establishment).
7 In section 24 (application to insurance companies)—
(a) in subsection (2), in the words after paragraph (b), for the words from “distinct” to the end substitute “separate and independent enterprise acting as mentioned in that subsection”;
(b) omit subsections (4), (5) and (6).
8 Omit—
(a) section 25 (non-UK resident banks: introduction);
(b) section 26 (transfer of financial assets);
(c) section 27 (loans: attribution of financial assets and profits arising);
(d) section 28 (borrowing: permanent establishment acting as agent or intermediary);
(e) section 29 (allowable deductions);
(f) section 30 (restriction on deductions: costs);
(g) section 31 (restriction on deductions: payments in respect of intangible assets);
(h) section 32 (restriction on deductions: interest or other financing costs).
Exclusion of income tax charge
9 (1) In section 3 (exclusion of charge to income tax), in subsection (1)(b) for “for an exemption.” substitute “is not as a result of—
(i) an exemption, or
(ii) the application of sections 1142 to 1144 of CTA 2010 (circumstances in which a company is not regarded as having a permanent establishment).
(2) In consequence of the amendment made by sub-paragraph (1), in ITA 2007—
(a) in section 816 (meaning of disregarded company income)—
(i) in subsection (1), omit paragraphs (c) and (d), and
(ii) omit subsection (2) to (4), and
(b) in section 817 (the independent broker conditions)—
(i) in subsection (1), for the words from “Kingdom” to the end substitute “Kingdom if conditions A to D are met.”, and
(ii) omit subsection (6).
Part 2 Amendments to CTA 2010
Introduction
10 CTA 2010 is amended as follows.
General interpretation
11 Before section 1141 (but after the heading “General”) insert—
Introduction
1140A (1) This Chapter applies for the purpose of determining when a company has a permanent establishment in a territory for the purposes of the Corporation Tax Acts.
(2) So far as provisions in this Chapter are in substantially the same terms as Article 5 of the Model Tax Convention on Income and on Capital approved by the OECD Council on 18 November 2025 they are to be read and given effect, so far as possible, in a way that is consistent with the OECD’s commentary on that Article, also approved by the OECD Council on that date.
(3) Any reference in subsection (2) to a document approved by the OECD Council is to that document as it may be amended or replaced from time to time.
(4) And any such document is to be read in accordance with any reservation, declaration or election made by the United Kingdom in relation to that document.
(5) The Treasury may by regulations make provision—
(a) for subsection (3) not to apply in relation to any specified amendment or replacement of a document referred to in subsection (2),
(b) about the effect of any provision of a document referred to in subsection (2) that has been amended or replaced on or after 26 November 2025 where that provision is elective (however expressed), and
(c) amending subsection (2) to add a reference to a further document published by the OECD.
“Specified” means specified in regulations.
Dependent agents
12 In section 1141 (permanent establishment of companies), in subsection (1), for paragraph (b) substitute—
(b) a person acting on behalf of the company in the territory habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts, that are routinely concluded without material modification by the company, and the contracts are—
(i) for the transfer of the ownership of, or for the granting of the right to use, property owned by the company or that the company has the right to use, or
(ii) for the provision of services by the company.
Independent agents
13 (1) Section 1142 (agent of independent status) is amended as follows.
(2) After subsection (1) insert—
(1A) A person is not to be regarded for the purposes of subsection (1) as an agent of independent status in relation to a company where the person—
(a) is closely related to the company, and
(b) acts exclusively or almost exclusively on behalf of—
(i) the company, or
(ii) the company and other companies to which the person is closely related.
(1B) In subsection (1A), “closely related” has the meaning that it has in section 1143 (see subsection (2CA) of that section).
(3) In subsection (2)—
(a) for “apply for the purpose of supplementing subsection (1)” substitute “modify the application of this section”;
(b) at the end of paragraph (a) insert “or”;
(c) omit paragraph (c) (and the “or” at the end of paragraph (b)).
Meaning of “closely related”
14 In section 1143 (preparatory or auxiliary activities), for subsection (2D) substitute—
(2CA) For the purposes of this section, one person (“A”) is closely related to another person (“B”) if, based on all the relevant facts and circumstances, A has control of B or A and B are under the control of the same persons, including if the 50% investment condition is met in relation to A and B.
Independent investment manager conditions not sole means of showing independent status
15 In section 1146 (the independent investment manager conditions), in subsection (2)—
(a) after “transaction,” insert “the circumstances in which”, and
(b) for “if”, in the first place it occurs, to the end substitute “include where each of the following conditions (the independent investment manager conditions) are met.”
Removal of the 20% rule
16 (1) In section 1146, omit subsection (6).
(2) In consequence of the amendment made by sub-paragraph (1)—
(a) omit section 1147 (investment managers: the 20% rule),
(b) omit section 1148 (interpretation of section 1147), and
(c) omit section 1149 (application of 20% rule to collective investment schemes).
New definition of “investment transaction”
17 (1) For section 1150 (meaning of investment manager and investment transaction) substitute—
Meaning of “investment manager” and “investment transaction”
1150 (1) The following definitions apply for the purposes of this Chapter.
(2) An “investment manager” means a person who provides investment management services (which may include or comprise the provision of investment advice).
(3) An “investment transaction” means any transaction other than a transaction with an excluded subject matter.
(4) The following are excluded subject matters—
(a) land in the United Kingdom, and
(b) any commodity or other physical asset.
(5) But a transaction is to be treated as not having an excluded subject matter if—
(a) it is a derivative contract whose subject matter is a commodity but which does not result in the physical delivery of the commodity, or
(b) it is a derivative contract whose subject matter is an excluded subject matter only because it operates by reference to a qualifying index, provided that index is not maintained by a person who is connected to any of the parties to the transaction.
(6) For the purposes of subsection (5) a “qualifying index” means an index relating to an excluded subject matter that—
(a) is publicly available, and
(b) is an index of a substantial number of assets.
(2) In section 1171 (orders and regulations), in subsection (2)(g) omit sub-paragraph (ii).
(3) In Schedule 4 (index of defined expressions)—
(a) in the entry for “investment manager (in Chapter 5 of Part 8B)” for “1150(1)” substitute “1150”,
(b) in the entry for “investment manager (in Chapter 2 of Part 24)” for “1150(1)” substitute “1150”, and
(c) in the entry for “investment transaction (in Chapter 5 of Part 8B)” for “1150(1)” substitute “1150”.
Removal of disregard of certain chargeable profits attributable to permanent establishment represented by investment manager
18 (1) Omit section 1152 (investment managers: disregard of certain chargeable profits).
(2) In consequence of the amendment made by sub-paragraph (1), in section 20 of CTA 2009 (profits attributable to permanent establishment: introduction), omit subsection (3).
Lloyd’s agents
19 In section 1142 (agent of independent status), in subsection (2)—
(a) in the words before paragraph (a) for “1151” substitute “1150”,
(b) in paragraph (a), at the end insert “or”, and
(c) omit paragraph (c) (and the “or” at the end of paragraph (b)).
20 Omit section 1151 (Lloyd’s agents).
Northern Ireland regional establishments
21 (1) In section 357LD (the independent investment manager conditions)—
(a) in subsection (2)—
(i) after “transaction,” insert “the circumstances in which”, and
(ii) for “if (and only if)” substitute “include where”, and
(b) omit subsection (6).
(2) Omit sections 357LE to 357LG (20% rule).
(3) In section 357LH (meaning of investment manager and investment transaction), for “1150(1)” substitute “1150”.
(4) Omit section 357LJ (disregard of certain chargeable profits).
Part 3 Amendments to ITA 2007
Introduction
22 ITA 2007 is amended as follows.
Investment managers (removal of the 20% rule)
23 (1) In section 818 (the independent investment manager conditions) omit subsection (5).
(2) In section 835M (the independent investment manager conditions) omit subsection (5).
(3) Omit sections 819 and 835N (investment managers: the 20% rule).
(4) In consequence of the amendments made by sub-paragraph (3)—
(a) omit sections 820 to 824,
(b) omit sections 835O to 835Q, and
(c) in Schedule 4 (index of defined expressions), in the table omit both entries relating to relevant disregarded income.
Meaning of investment transaction
24 (1) In section 827 (meaning of investment manager and investment transaction)—
(a) in subsection (1), after “services” insert “(which may include or comprise the provision of investment advice)”, and
(b) for subsections (2) and (3) substitute—
(2) An “investment transaction” means any transaction other than a transaction with an excluded subject matter.
(3) The following are excluded subject matters—
(a) land in the United Kingdom, and
(b) any commodity or other physical asset.
(4) But a transaction is to be treated as not having an excluded subject matter if—
(a) it is a derivative contract whose subject matter is a commodity but which does not result in the physical delivery of the commodity, or
(b) it is a derivative contract whose subject matter is an excluded subject matter only because it operates by reference to a qualifying index, provided that index is not maintained by a person who is connected to any of the parties to the transaction.
(5) For the purposes of subsection (4) a “qualifying index” means an index relating to an excluded subject matter that—
(a) is publicly available, and
(b) is an index of a substantial number of assets.
(2) In section 835S (interpretation of Chapter 2B of Part 14)—
(a) in subsection (3), for “has the same meaning” substitute “and “investment transaction” have the same meanings”, and
(b) omit subsection (4).
Lloyd’s agents
25 In section 814 (meaning of “disregarded transaction income”) omit subsection (6).
26 In section 835E (branch or agency treated as UK representative), in subsection (5) for “835K” substitute “835J”.
27 Omit section 835K (Lloyd’s agents).
Part 4 Amendments to TCGA 1992
28 (1) TCGA 1992 is amended as follows.
(2) In section 2B (territorial scope of charge to corporation tax on chargeable gains), in subsection (3)—
(a) in paragraph (a) omit “that have a relevant connection to the company’s UK permanent establishment (see section 2C)”;
(b) in paragraph (b), for “that permanent establishment” substitute “a UK permanent establishment (see section 2C)”;
(c) in paragraph (c), for “to 32” substitute “and 24”.
(3) In section 2C (non-UK resident company with UK permanent establishment) omit subsection (2).
Part 5 Consequential amendments
FA 2011
29 In FA 2011, in Schedule 19 (the bank levy), in paragraph 26—
(a) in sub-paragraph (2)—
(i) for “would have” substitute “might be expected to have”, and
(ii) for the words from “distinct” to the end substitute “separate and independent enterprise engaged in the same or similar activities under the same or similar conditions, taking into account the functions performed, assets used and risks assumed by the relevant foreign bank through the permanent establishment and through the other parts of the relevant foreign bank.”;
(b) in sub-paragraph (3), for “to 28” substitute “and 24”.
Part 6 Commencement
30 The amendments made by this Schedule have effect in relation to chargeable periods beginning on or after 1 January 2026.
Section 50
Introduction
1 F(No.2)A 2023 (multinational top-up tax) is amended in accordance with paragraphs 2 to 31 and 33 to 51 of this Schedule.
Application of the income inclusion rule to cases involving permanent establishments
2 In section 128 (responsible members), in each of subsections (4) and (6)—
(a) omit the “and” at the end of paragraph (a);
(b) at the end insert
, and
(c) every permanent establishment of a member of the group it has an ownership interest in other than a permanent establishment located in the territory it is located in.
3 (1) Section 237 (intermediate and partially-owned parent members) is amended as follows.
(2) For subsection (1)(b) substitute—
(b) it has—
(i) a direct or indirect ownership interest in another member of the group, or
(ii) a permanent establishment, and
.
(3) For subsection (2)(b) substitute—
(b) it has—
(i) a direct or indirect ownership interest in another member of the group, or
(ii) a permanent establishment.
Elective qualifying domestic top-up taxes
4 In section 128 (responsible members), after subsection (7) insert—
(7A) If for an accounting period—
(a) the application in relation to an entity located in a territory of a tax equivalent to the IIR provisions of multinational top-up tax depends on the making by any person of an election or claim, and
(b) the tax does not apply in relation to the entity because such an election or claim is or is not made,
subsection (7)(b)(i) has effect in relation to the entity as though the tax were not in force in the territory for the period.
5 In Schedule 16A (qualifying domestic top-up tax safe harbour election), in paragraph 1, at the end insert—
(5) If for an accounting period—
(a) the application of a qualifying domestic top-up tax in relation to the members of a multinational group located in a territory depends on the making by any person of an election or claim, and
(b) the tax does not apply in relation to those members because such an election or claim is or is not made,
sub-paragraph (3)(a) has effect in relation to the group as though the tax did not apply in the territory for the period.
Other provision about permanent establishments
6 In section 135 (underlying profits of permanent establishments), in subsection (1)—
(a) in paragraph (a), after “financial accounts” insert “prepared in accordance with acceptable accounting standards”;
(b) in paragraph (b), for “in accordance with section 159” substitute “on the same principles as those set out in section 159(1), (2) or (3) (as the case may be)”.
7 In section 159 (permanent establishment income and expense attribution), at the end insert—
(5) See also section 135(1)(b) (by virtue of which equivalent adjustments to those set out in subsections (1) to (3) will already be reflected in the underlying profits accounts of a permanent establishment that does not have separate financial accounts from the main entity prepared in accordance with acceptable accounting standards).
8 (1) Section 232 (permanent establishments) is amended as follows.
(2) In the heading, omit “treated as entities”.
(3) In subsection (1)—
(a) in the words before paragraph (a), omit “that”;
(b) in paragraph (a), for “is located” substitute “that is situated”;
(c) omit the “and” at the end of paragraph (a) and after that paragraph insert—
(aa) any profits in relation to which are reflected in the financial statements of the main entity, and
;
(d) in paragraph (b), at the beginning insert “that”;
(4) In subsection (2)—
(a) in paragraphs (b) and (c), for “is in” substitute “is situated in”;
(b) in paragraph (d), for paragraph (ii) substitute—
(ii) the income attributable to the place of business’s operations is exempted from tax by the territory of the main entity or, where the main entity is a flow-through entity, by the territory in which the reference entity (within the meaning of section 168) is located.
(5) After subsection (2) insert—
(2A) For the purposes of subsection (1)(a)—
(a) section 240(2) (flow-through entities treated as stateless) is to be disregarded, and
(b) a flow-through entity that would otherwise be a stateless entity under section 240(2) is instead treated as located in the territory in which it is created.
(6) At the end insert—
(6) See also section 232ZA (modifications that apply where legal main entity is distinct from main entity).
9 After section 232 insert—
Legal main entity distinct from main entity
232ZA (1) Where a permanent establishment has a legal main entity that is distinct from the main entity, this Part applies with the following modifications in relation to the permanent establishment.
(2) In section 127 (excluded entities), in subsection (5)(a) (definition of qualifying non-profit subsidiary), the reference to the main entity is to be read as a reference to the main entity and each legal main entity.
(3) In section 135 (underlying profits of permament establishments)—
(a) in subsection (1)(b) (underlying profits of permanent establishment that does not have separate financial accounts), the reference to the main entity is to be read as a reference to whichever of the main entity and the legal main entities is relevant to the attribution exercise under section 159;
(b) in subsection (3) (permanent establishments within section 232(2)(d)), the references to the main entity are to be read as references to the main entity or any legal main entity;
(c) in subsection (4) (no double counting between permanent establishment and main entity), the reference to the main entity is to be read as a reference to the main entity or any legal main entity.
(4) In section 159 (permanent establishment income and expense attribution), the references to the main entity are to be read as references to whichever of the main entity and the legal main entities is relevant to the attribution exercise under the subsection in question.
(5) In section 198 (eligible payroll costs etc: permanent establishments), in subsection (5) (double counting), the references to the main entity are to be read as references to any of the main entity and the legal main entities.
(6) In section 236 (investment funds and investment entities), in subsection (1)(f)(ii) (regulatory regime condition), the reference to the main entity is to be read as a reference to a legal main entity.
(7) In section 253 (disqualified and qualified refundable imputation taxes), in subsection (2)(a)(ii), the reference to the main entity is to be read as a reference to a legal main entity.
(8) For the purposes of this section a “legal main entity” in relation to a permanent establishment means—
(a) in the case of a permanent establishment within section 232(2)(a), an entity of which it is regarded as being a permanent establishment in accordance with an applicable tax treaty;
(b) in the case of a permanent establishment within section 232(2)(b), an entity of which it is regarded as being a permanent establishment under the domestic law of the territory in which the permanent establishment is situated;
(c) in the case of a permanent establishment within section 232(2)(c), an entity of which it would be regarded as being a permanent establishment in accordance with Article 7 of the OECD tax model;
(d) in the case of a permanent establishment within section 232(2)(d), any reference entity (within the meaning of section 168) by reference to which the condition in section 232(2)(d)(ii) is satisfied.
Intragroup accounting discrepancies
10 After section 150 insert—
Instruments held intragroup: issuer’s accounting treatment to prevail
150A If—
(a) a member of a multinational group (“the holder”) holds an interest (of any description) in another member of the group (“the issuer”), and
(b) the interest is accounted for as equity in the underlying profits accounts of one of the members and as debt in the underlying profits accounts of the other,
the underlying profits of the holder are to be adjusted to what they would be if the interest were accounted for in the holder’s underlying profits accounts in the same way as it is accounted for in the issuer’s.
Tax-transparent investment entities: double counting
11 In section 168 (underlying profits of transparent entities), after subsection (10) insert—
(10ZA) Where M is treated as a flow-through entity by virtue of an election made in relation to R and M under section 213 (investment entity tax transparency election), the underlying profits of R are to be adjusted so as to exclude any gain, profit or loss—
(a) that arises from changes in the fair value of, or from the impairment of, R’s interest in M, and
(b) that is not an excluded equity gain or loss (taking into account any election under section 165),
but the amount excluded under this subsection is not to exceed the amount of M’s underlying profits that is allocated to R under subsection (3).
Adjustments for ultimate parent that is a flow-through entity
12 (1) Section 170 (adjustments for ultimate parent that is a flow-through entity) is amended as follows.
(2) In subsection (1), in the words after paragraph (b), for “its profits” substitute “those profits”.
(3) In subsection (2)—
(a) in the words before paragraph (a), for “profits” substitute “those profits”;
(b) in paragraph (a), for “the ultimate parent’s profits” substitute “those profits”.
(4) For subsection (2A) substitute—
(2A) For the purposes of this section—
(a) each holder of a direct ownership interest in the ultimate parent is treated as entitled as a result of that interest to a proportion of the ultimate parent’s adjusted profits (that is to say, its adjusted profits ignoring this section), and
(b) the proportion of those adjusted profits to which each holder is treated as entitled is the proportion of those profits to which it would have been entitled had the actual amount of profits accruing to the ultimate parent been equal to its adjusted profits.
(5) In subsection (3), in the words before paragraph (a), for “of the group” substitute “mentioned in subsection (1)(b)”.
(6) After subsection (5) insert—
(5A) Subsections (5B) and (5C) apply where—
(a) the holder of the ownership interest is not subject to tax on an amount of the ultimate parent’s profits for a taxable period that ends within 12 months of the accounting period mentioned in subsection (1)(b), and
(b) the holder would be subject to tax on the amount for a taxable period ending within that 12-month period but for a difference which will be eliminated over time between—
(i) the time when any income, expense, gain or loss is recognised in the ultimate parent’s financial statements, and
(ii) the time when that income, expense, gain or loss is reflected in the profits of the ultimate parent on which the holder is subject to tax (“the holder’s taxable profits”).
(5B) Condition A has effect, for each accounting period up to and including the period in which that timing difference is eliminated, as if the income, expense, gain or loss were instead reflected in the holder’s taxable profits in the taxable period in which it is recognised in the ultimate parent’s financial statements.
(5C) In a period for which, under subsection (5B), the holder’s taxable profits of a particular type are treated for the purposes of condition A as greater or less than what they actually are, it is to be assumed—
(a) that any excess is subject to tax at the same nominal rate at which the holder’s taxable profits of that type are actually subject to tax,
(b) that the holder pays tax on any excess at that rate,
(c) that any shortfall is not subject to tax, and
(d) that the holder pays no tax on any shortfall.
Qualifying current tax expense
13 (1) Section 174 (amount of covered tax balance) is amended as follows.
(2) In subsection (5), in the definition of “qualifying current tax expense”, for “underlying profits” substitute “partially adjusted profits”.
(3) At the end insert—
(6) For the purposes of the definition of “qualifying current tax expense” in subsection (5), the member’s “partially adjusted profits” are its underlying profits with the adjustments contained in the following sections applied—
section 137A (use of substituted values);
section 139 (profits adjusted to be profits before consolidation adjustments to eliminate intragroup transactions);
section 140 (profits adjusted to be profits before certain purchase accounting adjustments).
14 In section 176 (amounts to be reflected in qualifying current tax expense), in subsection (2)(i), at the end insert “in accordance with this Part”.
15 (1) Section 182 (total deferred tax adjustment amount) is amended as follows.
(2) In subsection (1), from the words from “underlying profits” to the end substitute “partially adjusted profits, but with that deferred tax expense adjusted as follows”.
(3) After subsection (2) insert—
(2A) The deferred tax expense is to be adjusted to include (so far as it would not already) any amount of deferred tax expense in respect of covered taxes within section 176(2)(g) or (h) (amounts reflected in other comprehensive income etc).
(4) In subsection (8), at the appropriate place insert—
“partially adjusted profits”, in relation to a member of a multinational group, means its underlying profits with the adjustments contained in the following sections applied—
section 137A (use of substituted values);
section 139 (profits adjusted to be profits before consolidation adjustments to eliminate intragroup transactions);
section 140 (profits adjusted to be profits before certain purchase accounting adjustments).
Intragroup transactions
16 In section 175 (amounts excluded from qualifying current tax expense), at the end insert—
(3) The reference in subsection (2)(a) to income or gains that are not included in the member’s adjusted profits does not include any income or gains that are not included in its adjusted profits solely because of an election under section 164 (intra-group transactions).
17 In section 182 (total deferred tax adjustment amount), in subsection (2)(a), at the end insert “(other than items that are not reflected solely because of an election under section 164 (intra-group transactions))”.
Tax equity partnerships: calculation of excess return for clawback
18 In section 176G (clawback of earlier qualifying flow-through tax benefits), for subsection (4) substitute—
(4) For the purposes of this section an investor has an “excess return” from an arrangement in an accounting period (“the current period”) if the total relevant return exceeds the amount of capital investment provided by the investor to the arrangement at its commencement.
The amount of the excess return is the amount of the excess.
(5) In subsection (4) “the total relevant return” means the sum of—
(a) the amounts of the qualifying flow-through tax benefits provided to the investor under the arrangement that have been excluded under section 176D(1) in the current period or any earlier accounting period,
(b) the amounts of any distributions made to the investor under the arrangement in the current period or any earlier accounting period,
(c) the amounts received by the investor for the sale of any part of its investment in the arrangement in the current period or any earlier accounting period, and
(d) the amounts of any qualifying refundable tax credits and marketable transferable tax credits made available to be used by the investor under the arrangement in the current period or any earlier accounting period,
less the amount of any excess return that the investor had from the arrangement in any earlier accounting period.
Cross-border allocation of deferred tax assets and liabilities
19 In section 181B (cross-border allocation of deferred tax assets and liabilities), in subsection (5), at the end insert “(and accordingly no allocation of deferred tax assets or liabilities is to be made under this Chapter in cases to which the deferred taxes methodology applies).”
Deferred tax assets and liabilities: exclusions
20 (1) Section 185 (inclusion of existing deferred tax assets and liabilities on entry into regime) is amended as follows.
(2) In subsection (1), for “that is reflected” substitute “that are reflected”.
(3) In subsection (6)—
(a) in the words before paragraph (a) omit “qualifying”;
(b) for paragraph (a) substitute—
(a) before the commencement of the first accounting period for which Pillar Two rules apply to the member and as a result of a transaction carried out after 30 November 2021, and
(4) After subsection (7) insert—
(7A) Subsection (7D) applies to a deferred tax asset of a member of a multinational group that arises before the commencement of the first accounting period for which Pillar Two rules apply to the member and as a result of the occurrence of either of the following after 30 November 2021—
(a) the making available of a tax credit, or other tax relief, by virtue of the exercise of a discretion in relation to a member of the group by a national, regional or local government or by a governmental entity;
(b) the making (or modifying) of an election or of another choice by a member of the group where the effect of the election or choice is to change the tax treatment of an earlier transaction retrospectively.
(7B) Subsection (7D) also applies to a deferred tax asset or a deferred tax liability of a member of a multinational group that arises—
(a) after 30 November 2021 and before the commencement of the first accounting period for which Pillar Two rules apply to the member,
(b) because of a difference between the value (or base cost) of an asset or liability for the purposes of a corporate income tax and its value for accounting purposes, and
(c) in circumstances where the corporate income tax mentioned in paragraph (b) was introduced on or after 1 December 2021 in a territory that did not previously have a corporate income tax.
(7C) Subsection (7D) also applies to a deferred tax asset of a member of a multinational group that arises before the commencement of the first accounting period for which Pillar Two rules apply to the member if—
(a) where the member is located in a territory which did not have a corporate income tax before 1 December 2021 and in which one is introduced on or after that date, the deferred tax asset is attributable to a loss occurring before the fifth accounting period before the accounting period in which that corporate income tax came into force, or
(b) the deferred tax asset arises in relation to non-economic expenses or losses (within the meaning of the Pillar Two rules) incurred after 30 November 2021.
(7D) A deferred tax asset or deferred tax liability to which this subsection applies is to be ignored in determining the member’s deferred tax expense.
(5) In subsection (8), omit “qualifying”.
21 (1) Schedule 16 (transitional provision) is amended as follows.
(2) In paragraph 2 (intra-group transfers before entry into regime), in sub-paragraph (3)—
(a) omit the “and” after paragraph (a);
(b) at the end insert
, and
(c) a deferred tax asset is ignored if it is a deferred tax asset arising as described in section 185(7A) or (7B).
(3) In paragraph 5 (general transitional safe harbour election: qualifying income tax expense)—
(a) in sub-paragraph (1)—
(i) omit the “and” after paragraph (a);
(ii) at the end insert
, and
(c) any amount that relates to a deferred tax asset arising as described in section 185(7A) or (7B) or that relates to a relevant pre-entry deferred tax liability.
(4) At the end insert—
Part 4 Pre-entry deferred tax assets and liabilities
Straddle periods
14 (1) This paragraph applies in relation to an accounting period of a member of a multinational group if—
(a) 21 July 2025 falls during the period (but is not the first day of the period),
(b) the member has a relevant pre-entry deferred tax asset or a relevant pre-entry deferred tax liability, and
(c) the asset or liability is reversed (to any extent) in the period.
(2) Despite section 185(7D) and paragraphs 2(3)(c) and 5(1)(c) of this Schedule, an amount in respect of the reversal may be reflected in—
(a) the member’s deferred tax expense for the purposes of this Part of this Act, or
(b) the member’s qualifying income tax expense for the purposes of Part 2 of this Schedule.
(3) The amount that may be reflected in respect of the reversal is the pre-commencement proportion of the amount that could be so reflected if section 185(7D) or paragraph 2(3)(c) or 5(1)(c) of this Schedule (as the case may be) did not apply to the asset or liability.
(4) In this paragraph “the pre-commencement proportion” means—
(a) the number of days in the accounting period before 21 July 2025, divided by
(b) the total number of days in the accounting period.
Grace period
15 (1) This paragraph applies for an accounting period in relation to a relevant pre-entry deferred tax asset of a member of a multinational group if—
(a) the accounting period falls within the applicable grace period,
(b) the relevant pre-entry deferred tax asset is a deferred tax asset that arises as described in section 185(7A) or (7B), and
(c) the action that results in the asset arising (that is to say, the action referred to in section 185(7A)(a) or (b) or (7B)) takes place on or before 18 November 2024.
(2) If any relevant pre-entry deferred tax asset falling within a particular category is reversed, an amount in respect of that reversal may, despite section 185(7D) and paragraphs 2(3)(c) and 5(1)(c) of this Schedule, be reflected in—
(a) the member’s deferred tax expense for the purposes of this Part of this Act, or
(b) the member’s qualifying income tax expense for the purposes of Part 2 of this Schedule,
so far as it does not exceed the available grace period amount in relation to the category.
(3) But an amount may not be reflected in respect of the reversal of a deferred tax asset so far as the reversal takes place as a result of (and would not have taken place but for) a change after 18 November 2024 to—
(a) any law or election in effect in relation to the deferred tax asset,
(b) the accounting methodology applicable to the deferred tax asset, or
(c) the way in which a discretion of the kind mentioned in section 185(7A)(a) (government discretions) is exercised.
(4) Take the following steps to find the “available grace period amount” (if any) in relation to a category of deferred tax asset for an accounting period.
Step 1
Determine, in relation to each deferred tax asset of the member falling within the category, the carrying value of the asset as at the time when it was first reflected in the underlying profits of the member.
For that purpose, determine the carrying value of the asset on the basis of the lower of—
the nominal tax rate that applied in relation to it at that time, and
a tax rate of 15%.
Step 2
Find the sum of the values determined at Step 1.
Step 3
Multiply the result of Step 2 by 20%.
Step 4
Deduct any amount—
that has been taken into account in determining the deferred tax expense of the member—
in relation to assets falling within the category, and
in an accounting period that falls within the applicable grace period, or
that would have been so taken into account in such a period had the Pillar Two rules applied to the member in question for that period.
(5) For the purposes of this paragraph each of following is a “category” of relevant pre-entry deferred tax asset—
(a) assets falling within section 185(7A)(a);
(b) assets falling within section 185(7A)(b);
(c) assets falling within section 185(7B).
(6) For the purposes of this paragraph an accounting period “falls within the applicable grace period”—
(a) in relation to the categories of asset mentioned in sub-paragraph (5)(a) and (b), if—
(i) it begins on or after 1 January 2024 and before 1 January 2026, and
(ii) it ends before 1 July 2027;
(b) in relation to the category of asset mentioned in sub-paragraph (5)(c), if—
(i) it begins on or after 1 January 2025 and before 1 January 2027, and
(ii) it ends before 1 July 2028.
(7) This paragraph is subject to paragraph 14 (and accordingly, that paragraph is to be applied in precedence to this in determining for the purposes of Step 4 in sub-paragraph (4) whether an amount has been taken into account in an accounting period in relation to a deferred tax asset).
General
16 (1) In this Schedule, in relation to a member of a multinational group—
“relevant pre-entry deferred tax asset” means a deferred tax asset that arises as described in section 185(7A), (7B) or (7C);
“relevant pre-entry deferred tax liability” means a deferred tax liability that arises as described in section 185(7B).
(2) For the purposes of those definitions the references in section 185(7A) to (7C) to an accounting period for which Pillar Two rules apply to a member include an accounting period for which the Pillar Two rules would have applied to the member but for a transitional safe harbour election.
22 (1) Schedule 16A (safe harbours) is amended as follows.
(2) In paragraph 3 (disqualifying conditions)—
(a) in sub-paragraph (1), for “Conditions A to D” substitute “The following conditions”;
(b) at the end insert—
(7) Condition E is that—
(a) a member of the group located in the territory has a relevant pre-entry deferred tax asset or relevant pre-entry deferred tax liability, and
(b) the qualifying domestic top-up tax applying in the territory either—
(i) does not make provision corresponding to section 185(7A) to (7D) (exclusion for deferred tax assets arising as a result of government arrangements etc) in relation to relevant pre-entry deferred tax assets and relevant pre-entry deferred tax liabilities, or
(ii) makes such corresponding provision in a way that is inconsistent with the Pillar Two commentary in relation to relevant pre-entry deferred tax assets or relevant pre-entry deferred tax liabilities.
(8) In subsection (7) “relevant pre-entry deferred tax asset” and “relevant pre-entry deferred tax liability” have the same meaning as in Schedule 16, but for that purpose the words “or (7C)” in the definition of “relevant pre-entry deferred tax asset” are to be disregarded.
(3) In paragraph 4(1)—
(a) omit paragraph (a);
(b) in paragraph (b)—
(i) for “after sub-paragraph (6), there were inserted” substitute “at the end there were inserted the following disqualifying condition”;
(ii) the inserted sub-paragraph (7) becomes an inserted unnumbered sub-paragraph.
(4) In paragraph 5(1)(b)—
(a) omit sub-paragraph (i);
(b) in sub-paragraph (ii)—
(i) for “after sub-paragraph (6), there were inserted” substitute “at the end there were inserted the following disqualifying condition”;
(ii) the inserted sub-paragraph (7) becomes an inserted unnumbered sub-paragraph.
Post-filing adjustments of covered taxes
23 (1) Section 217 (post-filing adjustments of covered taxes) is amended as follows.
(2) In subsections (2)(a) and (b) and (3), for “that liability” substitute “the relevant aggregate liability”.
(3) In subsection (4), for “that increase or decrease” substitute “the increase or decrease referred to in subsection (1),”.
(4) In subsection (5)(a), (b) and (c), after “the decrease” insert “referred to in subsection (3)”.
(5) In subsection (8)(a), for “the aggregate covered tax balance of the standard members of the group in the territory of the member for the prior period” substitute “the relevant aggregate liability”.
(6) At the end insert—
(9) In this section “the relevant aggregate liability”, in relation to the member referred to in subsection (1), means the aggregate liability to covered taxes of the standard members of the group in the territory of the member for the prior period.
Securitisation companies
24 In section 229C (UTPR: allocation of untaxed amounts to members), in subsection (3)—
(a) omit the “or” after paragraph (a);
(b) at the end insert
, or
(c) a securitisation company within the meaning of the Taxation of Securitisation Companies Regulations 2006 (S.I. 2006/3296).
25 In Part 1 of Schedule 16A (qualifying domestic top-up tax safe harbour election), in paragraph 3, after subsection (8) (as inserted by paragraph 22 above) insert—
(9) Condition F is that the qualifying domestic top-up tax applying in the territory is not charged in respect of a member of the group located in the territory because of an exemption (however framed) or special regime relating to persons concerned in securitisation transactions.
Location of stateless entities
26 In section 239 (location of entities)—
(a) in subsection (7), omit paragraph (a);
(b) at the end insert—
(8) As regards stateless entities see also section 132(3)(b) (stateless member of group treated as located in its own nominal territory).
27 In Schedule 16A, in paragraph 7, at the end insert—
(6) For the purposes of this paragraph, “territory” does not include the nominal territory of a stateless member of a multinational group (see section 132(3)(b)).
Qualifying undertaxed profits tax
28 In section 241 (Pillar Two territories), omit subsection (4).
29 In section 256 (qualifying domestic top-up tax), omit subsection (5).
30 (1) Section 257 (qualifying undertaxed profits tax) is amended as follows.
(2) After subsection (1) insert—
(1A) Regulations under subsection (1)(b) may provide for the specification of a tax to be made by notice published by the Commissioners for His Majesty’s Revenue and Customs in accordance with the regulations.
(3) In subsection (2), for “A tax may only be specified in regulations if the Treasury consider” substitute “A person may only specify a tax by virtue of this section if the person considers”.
31 In Schedule 16A (safe harbours), in paragraph 2 (accredited qualifying domestic top-up tax), omit sub-paragraphs (2) and (3).
32 (1) For the purposes of Part 3 of F(No.2)A 2023, a tax is to be treated as a qualifying undertaxed profits tax for any accounting period that ends before the first regulations under section 257 of that Act have been made if—
(a) it is a Qualified UTPR for that accounting period for the purposes of the Pillar Two rules, or
(b) it is reasonable to conclude that it is likely to be a Qualified UTPR for that accounting period for the purposes of the Pillar Two rules.
(2) In sub-paragraph (1) “Pillar Two rules” has the same meaning as in Part 3 of F(No.2)A 2023 (see section 255 of that Act).
Definition of “ownership interest”
33 In section 242 (ownership interests and controlling interests), in subsection (2), for paragraph (b) substitute—
(b) that interest is accounted for as equity in—
(i) where B is a member of a consolidated group, the consolidated financial statements of the ultimate parent of the group (ignoring any requirement to consolidate the assets, liabilities, income, expenses and cash flows of B in those statements), or
(ii) otherwise, B’s financial statements.
REITs: domestic top-up tax
34 In section 267 (DTT excluded entities), after subsection (1) insert—
(1A) A UK REIT is a DTT excluded entity (so far as would not already be the case by virtue of subsection (1)(b) or (c)).
Domestic top-up tax: exchange rates
35 In section 270 (domestic top-up tax: amount charged), at the end insert—
(4) The exchange rate to be used for a conversion to sterling required by Step 2 in subsection (A1) or Step 3 in subsection (1) is—
(a) the average exchange rate published by the European Central Bank for the accounting period in question;
(b) where no such rate is published by the European Central Bank, the average exchange rate published by the Bank of England for the accounting period in question;
(c) where no such rate is published by either the European Central Bank or the Bank of England, such rate as appears, on a just and reasonable basis, to reflect the average exchange rate for the accounting period in question.
Domestic top-up tax: covered tax to include group relief payments
36 Section 272 (domestic top-up tax: determining top-up amounts of entity that is a member of a group) is amended as follows.
37 In subsection (8)—
(a) after paragraph (a) insert—
(aa) section 138 (profits adjusted to be before tax) has effect as if at the end of subsection (2) there were inserted—
(g) a group relief payment so far as excluded (and for that purpose “group relief payment” and “excluded” have the meaning given in section 173(3)).
;
(ab) section 173 (covered taxes) has effect, subject to paragraph (f) below, as if (in addition to the modification made by subsection (4)(a))—
(i) in subsection (1), the “and” after paragraph (c) were omitted and after paragraph (d) there were inserted
, and
(e) a group relief payment so far as it is not excluded.
;
(ii) at the end there were inserted—
(3) For the purposes of subsection (1)(e)—
(a) “group relief payment” means a payment—
(i) in relation to which section 183 or 188FA of CTA 2010 applies to the member, and
(ii) that relates to group relief which the member claims under section 130 or 188CB of that Act by virtue of the group condition being met (see sections 132 and 188CE of that Act);
(b) a group relief payment is “excluded” so far as it exceeds 15% of the agreed loss amounts (within the meaning of section 183 or 188FA of that Act, as the case may be) to which the group relief payment relates.
(4) It follows from subsection (1)(e) that a group relief payment, so far as not excluded, operates to reduce the covered tax balance of the recipient.
;
(b) at the end insert—
(f) section 239(4)(a) (location of entities: tie-breaker by reference to covered taxes) has effect without the modification made by paragraph (ab).
Domestic top-up tax: allocation of CFC mobile income
38 In section 272 (domestic top-up tax: determining top-up amounts of group member), in subsection (8), for paragraph (d) substitute—
(d) section 179 (controlled foreign companies) has effect as if for subsection (2) there were substituted—
(2) But the amount of qualifying current tax expense in respect of mobile income allocated to F is not to exceed 15% of the adjusted profits of F.
Simplified calculations for non-material members
39 In Schedule 16A (safe harbours), at the end insert—
Part 3 Simplified calculations for non-material members of group
Election in respect of non-material members
8 (1) The filing member of a multinational group may for an accounting period make an election under this paragraph in respect of one or more members of the group in a territory.
(2) An election may be made only if for the accounting period in question—
(a) the specified members are non-material members of the group,
(b) the accounting conditions are met, and
(c) any of the following is met—
(i) the routine profits test;
(ii) the de minimis test;
(iii) the effective tax rate test.
(3) Where an election is made, the total top-up amount for the accounting period for the territory is assumed to be nil for the purpose of determining the liability of any member of the group to multinational top-up tax.
(4) Paragraph 2 of Schedule 15 (annual elections) applies to an election under this paragraph.
“Non-material member”
9 For the purposes of paragraph 8(2)(a), a member of a multinational group is a “non-material member” of the group for an accounting period if for the period in question—
(a) the member’s assets, liabilities, income, expenses and cash flows are not included in the consolidated financial statements of the ultimate parent on a line-by-line basis,
(b) their non-inclusion in those statements is solely on the grounds of size or materiality, and
(c) an external auditor has agreed (without qualification) to their non-inclusion in those statements on those grounds,
or if for the period in question the member is a permanent establishment of a member that meets the conditions in paragraphs (a) to (c).
Accounting conditions
10 (1) For the purposes of paragraph 8(2)(b), “the accounting conditions” for an accounting period are—
(a) that consolidated financial statements falling within section 249(1)(a) or (c) have been prepared by the ultimate parent of the group,
(b) that those consolidated financial statements have been externally audited, and
(c) that financial statements have been prepared in accordance with an acceptable accounting standard or an authorised accounting standard in respect of any specified member whose revenue exceeds 50 million euros.
(2) The reference in sub-paragraph (1)(c) to the revenue of a specified member is to its revenue as it would be determined under the country-by-country reporting rules.
Routine profits test
11 (1) For the purposes of paragraph 8(2)(c), “the routine profits test” is met for an accounting period if, on the assumption in sub-paragraph (2), the result of Step 4 in section 194 would be nil or less for the period for the relevant territory.
(2) The assumption is that for the period in question the adjusted profits of each specified member are equal to the revenue of that member as it would be determined under the country-by-country reporting rules.
De minimis test
12 (1) For the purposes of paragraph 8(2)(c), “the de minimis test” is met for an accounting period if, on the assumption in sub-paragraph (2), an election under section 199 (de minimis exclusion) could be made for the period for the relevant territory.
(2) The assumption is that for the period in question—
(a) the revenue of each specified member, and
(b) the adjusted profits of each specified member,
is or are equal to the revenue of that member as it would be determined under the country-by-country reporting rules.
Effective tax rate test
13 (1) For the purposes of paragraph 8(2)(c), “the effective tax rate test” is met for an accounting period if, on the assumption in sub-paragraph (2), the effective tax rate of the standard members of the group in the relevant territory for the period would be 15% or more.
(2) The assumption is that for the period in question—
(a) the adjusted profits of each specified member are equal to the revenue of the member as it would be determined under the country-by-country reporting rules, and
(b) the covered tax balance of each specified member is equal to the member’s income tax expense as it would be determined under the country-by-country reporting rules.
Interpretation etc
14 In this Part of this Schedule, in relation to an election under paragraph 8—
“the country-by-country reporting rules” means—
where legislation implementing the OECD’s guidance on country-by-country reporting has effect in the relevant territory, that legislation;
otherwise, that guidance;
“the relevant territory” means the territory in which the specified members are located;
“the specified members” means the members of the group in respect of which the election is made.
15 Nothing in this Part of this Schedule requires a country-by-country report actually to be filed in respect of a multinational group in order for an election under paragraph 8 to be made.
Minor amendments
40 In section 131 (whether de-merged groups meet the revenue threshold), in subsection (3)(b), at the end insert “, or would do ignoring any transitional safe harbour election”.
41 In section 132 (effective tax rate), in subsection (1), in Step 7, at the end insert “and rounded to the nearest fourth decimal place (if it would otherwise have more than four).”
42 In section 144 (adjustments for asymmetric foreign currency income and losses), in subsection (4)(b), for “income” substitute “gain”.
43 In section 197A (operating leases), in subsections (2) and (3), for “operating lease” substitute “property”.
44 In section 210 (transfer of assets or liabilities from a member of a multinational group), in subsection (2), for “transferee” (in each place it occurs) substitute “transferor”.
45 In section 247 (timing of transfers of interests), in subsection (1), in the words after paragraph (b), for “earlier time when the transfer is effective” substitute “other time”.
46 (1) Section 267 (DTT excluded entities) is amended as follows.
(2) In subsection (3C)—
(a) in the words before paragraph (a), for “An investment entity that” substitute “Where an investment entity”;
(b) in paragraph (a), at the beginning insert “that entity”;
(c) in paragraph (b), for “272(8)(e)” substitute “272(3A)”.
(3) In subsection (3D)(c)—
(a) omit “(8)(e)”;
(b) at the end insert “and the section 193A(2) contained in subsection (3A) of that section”.
47 In section 272 (determining top-up amounts of entity that is a member of a group)—
(a) in subsection (8)(da), for “in section 182(2)(e),” substitute “section 182 (total deferred tax adjustment amount) has effect as if in subsection (2)(e),”;
(b) in subsection (10)(a), for “(8)(e)” substitute “(3A)”.
48 In section 273 (domestic top-up tax: determining top-up amounts of entity that is not a member of a group), in the section 132 contained in subsection (2)—
(a) in each of Steps 1 to 3, for “member” substitute “entity”;
(b) in Step 6, at the end insert “and rounded to the nearest fourth decimal place (if it would otherwise have more than four).”
49 In Schedule 14 (administration of multinational top-up tax)—
(a) in the italic heading before paragraph 50, after “Multiple” insert “tax-geared”;
(b) in paragraph 50—
(i) in sub-paragraph (1), for “in”, in the second place it occurs, substitute “whose amount falls to be determined by reference to the tax payable in relation to”;
(ii) in sub-paragraph (2), after “penalties” insert “, so far as determined by reference to any particular part of the tax,”;
(iii) in that sub-paragraph, after “penalty”, in the second place it occurs, insert “(so far as so determined)”.
50 In Schedule 15 (elections) in each of paragraphs 1(1) and 2(1), for the words before paragraph (a) substitute “For the elections to which this paragraph applies, see—”.
51 In Schedule 16 (multinational top-up tax: transitional provision), after paragraph 2 insert—
Transitional extension to deadline for elections
2A (1) Schedule 15 (multinational top-up tax: elections) has effect in its application to a pre-2026 election as if in paragraphs 1(2)(b) and 2(2)(b) of that Schedule for “no later than” there were substituted “before the end of the period of 12 months beginning with the day after”.
(2) In sub-paragraph (1), a “pre-2026 election” means an election which specifies an accounting period ending before 31 December 2025 as—
(a) in the case of an election to which paragraph 1 of Schedule 15 applies, the first accounting period for which the election is to have effect, or
(b) in the case of an election to which paragraph 2 of Schedule 15 applies, the accounting period for which the election is to have effect.
52 (1) In FA 1989, in section 178 (setting of rates of interest), subsection (2) is amended as follows.
(2) In paragraph (x)—
(a) for “51” substitute “33A”;
(b) after “Finance” insert “(No.2)”;
(3) In paragraph (y), for “51” substitute “33A”.
Commencement
53 (1) The amendments made by paragraphs 4 and 5 (elective qualifying domestic top-up taxes) and paragraphs 28 to 31 (qualifying undertaxed profits tax) have effect in relation to accounting periods beginning on or after 31 December 2025.
(2) The amendments made by paragraphs 20 to 22 (deferred tax assets and liabilities: exclusions) have effect in relation to accounting periods ending on or after 21 July 2025.
(3) Paragraph 32 (qualifying undertaxed profits tax: periods before regulations come into force) is treated as having come into force on 2 December 2025.
(4) The amendment made by paragraph 51 has effect in relation to accounting periods beginning on or after 31 December 2023.
(5) The amendments made by the other provisions of this Schedule have effect in relation to—
(a) where a retrospection election has been made in relation to a multinational group, a group, or a qualifying entity that is not a member of a group, accounting periods of that multinational group, group or entity beginning on or after 31 December 2023, or
(b) otherwise, accounting periods beginning on or after 31 December 2025.
(6) A retrospection election—
(a) is to be made—
(i) in the case of a multinational group or group, by the filing member, or
(ii) in the case of a qualifying entity that is not a member of a group, by that entity,
(b) must be made on or before the day on which the self-assessment return or below-threshold notification for the first accounting period of the multinational group, group or entity beginning on or after 31 December 2023 is made, and
(c) may not be revoked.
(7) But sub-paragraph (8) applies where any member, or former member, of a multinational group or group is, or would be on either or both of the relevant assumptions—
(a) a person chargeable to domestic top-up tax that has top-up amounts or additional top-up amounts for any accounting period beginning before 31 December 2025 as a result of the person’s membership of the multinational group or group, or
(b) a qualifying entity that has top-up amounts or additional top-up amounts for any accounting period beginning before 31 December 2025 as a result of the entity’s membership of the multinational group or group in respect of which a person is chargeable to domestic top-up tax.
(8) Where this sub-paragraph applies, a retrospection election may not be made without the written consent of each such person.
(9) For the purposes of sub-paragraph (7), “the relevant assumptions” are—
(a) that the retrospection election had been made, and
(b) that no election under section 271 of F(No.2)A 2023 had been made.
(10) Where—
(a) the filing member of a multinational group is not a responsible member of that multinational group, or
(b) there is more than one responsible member of that multinational group,
a retrospection election may not be made without the written consent of each responsible member.
(11) Sub-paragraph (12) applies where—
(a) the filing member of a multinational group or group has made a retrospection election,
(b) at the time the election was made it was reasonable for the filing member to consider that the consent of a person was not required,
(c) that consent was not given,
(d) the filing member becomes aware that the consent of that person was, or may have been, required, and
(e) the written consent of that person is given within the period of 60 days beginning with the day on which the condition in paragraph (d) is first met.
(12) The consent of that person is to be treated as having been given before the election was made.
(13) References in this paragraph to a “group”, other than in the expression “multinational group”, are to a group for the purposes of Part 4 of F(No.2)A 2023 (domestic top-up tax).
Section 56
Income tax
1 Chapter 8 of Part 13 of ITA 2007 (tainted charity donations) is amended as follows.
2 In section 809ZH (overview), in subsection (2), for “section 257A” substitute “sections 257A and 257B”.
3 In section 809ZI (relievable charity donations), in subsection (3)(b), for “section 257A” substitute “sections 257A and 257B”.
4 (1) Section 809ZJ (tainted donations) is amended as follows.
(2) In subsection (1)—
(a) the words from “is a tainted donation” to the end become paragraph (a);
(b) after that paragraph insert
, and
(b) becomes a tainted donation at the earliest time when all those conditions are met.
(3) In subsection (2)(b), at the end of sub-paragraph (i) (but before the “and” that follows it) insert “as at the later of the time when the donation is made and the time when the arrangements are entered into”.
(4) In subsection (4), in the words before paragraph (a), for the words from “a time” to “the following times” substitute “any time after the earliest of the following times”.
(5) In subsection (8), in the definition of “qualifying charity-owned company”, for “potentially advantaged person” (in both places it occurs) substitute “linked person”.
(6) In subsection (10), for “advantages” substitute “assistance”.
5 Omit section 809ZK (circumstances in which financial advantage deemed to be obtained).
6 (1) Section 809ZL (certain financial advantages to be ignored) is amended as follows.
(2) In the heading, for “advantages” substitute “assistance”.
(3) In subsection (1)—
(a) for “a financial advantage” substitute “financial assistance”;
(b) for “(2)” substitute “(2A)”.
(4) Omit subsection (2).
(5) Before subsection (3) insert—
(2A) Financial assistance is within this subsection if it constitutes a payment made by a charity, on arm’s length terms, in respect of—
(a) work carried out by a person for or on behalf of the charity, or
(b) expenses incurred by a person in the course of such work.
(6) In each of subsections (3), (4) and (5), for “A financial advantage” substitute “Financial assistance”.
(7) In subsections (4)(b) and (5)(b), for “the advantage” substitute “the assistance”.
(8) In subsection (6), at the appropriate place insert—
“financial assistance” has the same meaning as in section 809ZJ;
.
7 (1) Section 809ZM (removal of income tax relief in respect of tainted donations etc) is amended as follows.
(2) In the heading, for “in respect of tainted donations etc” substitute “where donation becomes tainted in same tax year”.
(3) For subsection (1) substitute—
(1) This section applies where—
(a) a person makes a relievable charity donation, and
(b) the donation becomes a tainted donation in the same tax year in which it is made.
(4) Omit subsection (3).
(5) In subsection (4), omit the definitions of “associated donation”, “qualifying charity-owned company”, “relevant housing provider” and “the relevant arrangements”.
8 After section 809ZM insert—
Clawback of income tax relief where donation becomes tainted in later tax year
809ZMA (1) This section applies where—
(a) a person makes a relievable charity donation in a tax year (“the donation year”),
(b) the donation becomes a tainted donation in a later tax year (“the tainting year”), and
(c) if the donation had become a tainted donation in the donation year, the person’s liability to income tax for the donation year would have been greater than it in fact was for that year.
(2) Income tax is charged under this section, for the tainting year, of an amount equal to the difference between—
(a) the amount of income tax for which the person who made the donation would have been liable for the donation year had the donation become a tainted donation in that year, and
(b) the amount of income tax for which that person was in fact liable for the donation year.
(3) The person liable for tax charged under this section is the person who made the donation.
(4) Section 101 of FA 2009 (late payment interest) has effect in relation to tax charged under this section as though the tax had become due and payable on 1 February in the tax year following the donation year.
Removal or clawback of income tax relief for associated donations
809ZMB (1) This section applies where—
(a) a person makes a relievable charity donation that becomes a tainted donation, and
(b) a person makes an associated donation in relation to the tainted donation.
(2) If the donation mentioned in subsection (1)(a) becomes a tainted donation before the end of the tax year in which the associated donation is made, any income tax relief that would otherwise be available in respect of the associated donation is not available.
(3) Section 809ZM(5) to (8) (treatment of donation where entitlement to relief is withdrawn) applies to the withdrawal of relief under subsection (2) as it applies to the withdrawal of relief under that section.
(4) Subsection (5) applies where—
(a) the donation mentioned in subsection (1)(a) becomes a tainted donation after the end of the tax year in which the associated donation is made, and
(b) if the donation mentioned in subsection (1)(a) had become a tainted donation before the end of that tax year, the liability to income tax for that tax year of the person who made the associated donation would have been greater than it in fact was for that tax year.
(5) Income tax is charged under this section, for the tax year in which the donation mentioned in subsection (1)(a) becomes a tainted donation, of an amount equal to the difference between—
(a) the amount of income tax for which the person who made the associated donation would have been liable for the tax year in which the associated donation was made had the tainted donation become a tainted donation before the end of that tax year, and
(b) the amount of income tax for which that person was in fact liable for the tax year in which the associated donation was made.
(6) The person liable for tax charged under subsection (5) is the person who made the associated donation.
(7) Subsection (5) does not apply in relation to an associated donation if the person who would be liable for tax charged under that subsection—
(a) is already liable for tax charged under that subsection by reference to the tax year in which the associated donation was made, or
(b) is liable for tax charged under section 809ZMA(2) by reference to that tax year,
and for that purpose the tax year “by reference to which” tax is charged is the earlier tax year for which the person’s liability falls to be considered under (as the case may be) subsection (5)(a) and (b) or section 809ZMA(2)(a) and (b).
(8) Section 101 of FA 2009 (late payment interest) has effect in relation to tax charged under subsection (5) as though the tax had become due and payable on 1 February in the tax year following the one in which the associated donation was made.
(9) In this section—
“associated donation”, in relation to a tainted donation, means a relievable charity donation made—
in accordance with the arrangements by reference to which Conditions A and B in section 809ZJ are met, and
by a person other than—
a qualifying charity-owned company in relation to that relievable charity donation, or
a relevant housing provider linked (within the meaning of section 809ZJ(7)) with the charity to which that donation is made;
“income tax relief” has the same meaning as in section 809ZM;
“qualifying charity-owned company” has the meaning given by section 809ZJ(8) (except that paragraph (b) of that definition does not apply);
“relevant housing provider” has the meaning given by section 809ZJ(8).
9 (1) Section 809ZN (income tax charge where gift aid is withdrawn) is amended as follows.
(2) In subsection (1)—
(a) in paragraph (a), for “tainted donation” substitute “relievable charity donation”;
(b) after paragraph (a) insert—
(aa) the donation becomes a tainted donation (whether in that tax year or a later tax year),
.
(3) After subsection (2) insert—
(2A) Tax charged under this section is charged for the tax year in which the donation mentioned in subsection (1)(a) becomes a tainted donation.
(4) In subsection (4), for paragraph (c) substitute—
(c) each linked person (as defined in section 809ZJ(3)) by reference to whom Condition B in section 809ZJ(5) is met in relation to the tainted donation,
.
(5) In subsection (5)—
(a) in paragraph (a), for “the relevant arrangements relating to” substitute “the arrangements by reference to which Conditions A and B in section 809ZJ are met in relation to”;
(b) for paragraph (b) substitute—
(b) was aware or ought reasonably to have been aware, at the time it entered into those arrangements, that Condition B in section 809ZJ was or would be met by reference to the arrangements.
(6) In subsection (7)—
(a) in the definition of “associated donation”, for “809ZM” substitute “809ZMB”;
(b) omit the definition of “the relevant arrangements”.
10 (1) Section 809ZO (income tax charge where payment of trust income to charity) is amended as follows.
(2) In subsection (1)—
(a) in paragraph (a), for “tainted donation” substitute “relievable charity donation”;
(b) after paragraph (a) insert—
(aa) the donation becomes a tainted donation (whether in that tax year or a later tax year),
(3) After subsection (2) insert—
(2A) Tax charged under this section is charged for the tax year in which the donation mentioned in subsection (1)(a) becomes a tainted donation.
(4) In subsection (4), for paragraph (d) substitute—
(d) each linked person (as defined in section 809ZJ(3)) by reference to whom Condition B in section 809ZJ(5) is met in relation to the tainted donation,
.
(5) In subsection (5)—
(a) in paragraph (a), for “the relevant arrangements relating to” substitute “the arrangements by reference to which Conditions A and B in section 809ZJ are met in relation to”;
(b) for paragraph (b) substitute—
(b) the charity was aware or ought reasonably to have been aware, at the time it entered into those arrangements, that Condition B in section 809ZJ was or would be met by reference to the arrangements.
(6) In subsection (7)—
(a) in the definition of “associated donation”, for “809ZM” substitute “809ZMB”;
(b) omit the definition of “the relevant arrangements”.
Corporation tax on income
11 Part 21C of CTA 2010 (tainted charity donations) is amended as follows.
12 In section 939A (overview), in subsection (2), for “section 257A” substitute “sections 257A and 257B”.
13 In section 939B (relievable charity donations), in subsection (3)(b), for “section 257A” substitute “sections 257A and 257B”.
14 (1) Section 939C (tainted donations) is amended as follows.
(2) In subsection (1)—
(a) the words from “is a tainted donation” to the end become paragraph (a);
(b) after that paragraph insert
, and
(b) becomes a tainted donation at the earliest time when all those conditions are met.
(3) In subsection (2)(b), at the end of sub-paragraph (i) (but before the “and” that follows it) insert “as at the later of the time when the donation is made and the time when the arrangements are entered into”.
(4) In subsection (4), in the words before paragraph (a), for the words from “a time” to “the following times” substitute “any time after the earliest of the following times”.
(5) In subsection (8), in the definition of “qualifying charity-owned company”, for “potentially advantaged person” (in both places it occurs) substitute “linked person”.
(6) In subsection (10), for “advantages” substitute “assistance”.
15 Omit section 939D (circumstances in which financial advantage deemed to be obtained).
16 (1) Section 939E (certain financial advantages to be ignored) is amended as follows.
(2) In the heading, for “advantages” substitute “assistance”.
(3) In subsection (1)—
(a) for “a financial advantage” substitute “financial assistance”;
(b) for “(2)” substitute “(2A)”.
(4) Omit subsection (2).
(5) Before subsection (3) insert—
(2A) Financial assistance is within this subsection if it constitutes a payment made by a charity, on arm’s length terms, in respect of—
(a) work carried out by a person for or on behalf of the charity, or
(b) expenses incurred by a person in the course of such work.
(6) In each of subsections (3), (4) and (5), for “A financial advantage” substitute “Financial assistance”.
(7) In subsections (4)(b) and (5)(b), for “the advantage” substitute “the assistance”.
(8) In subsection (6), at the appropriate place insert—
“financial assistance” has the same meaning as in section 939C;
.
17 (1) Section 939F (removal of corporation tax relief in respect of tainted donations etc) is amended as follows.
(2) In the heading, for “in respect of tainted donations etc” substitute “where donation becomes tainted in same accounting period”.
(3) For subsection (1) substitute—
(1) This section applies where—
(a) a company makes a relievable charity donation, and
(b) the donation becomes a tainted donation in the same accounting period in which it is made.
(4) Omit subsection (3).
(5) In subsection (4), omit the definitions of “associated donation”, “qualifying charity-owned company”, “relevant housing provider” and “the relevant arrangements”.
18 After section 939F (but beneath the same italic heading) insert—
Clawback of corporation tax relief where donation becomes tainted in later accounting period
939FA (1) This section applies where—
(a) a company makes a relievable charity donation in an accounting period (“the donation period”),
(b) the donation becomes a tainted donation in a later accounting period (“the tainting period”), and
(c) if the donation had become a tainted donation in the donation period, the company’s liability to corporation tax for the donation period would have been greater than it in fact was for that period.
(2) The company’s liability to corporation tax for the tainting period is increased by an amount equal to the difference between—
(a) the amount of corporation tax for which it would have been liable for the donation period had the donation become a tainted donation in that period, and
(b) the amount of corporation tax for which it was in fact liable for the donation period.
(3) Section 87A of TMA 1970 (interest on overdue corporation tax etc) has effect in relation to tax for which a company is liable by virtue of subsection (2) as though the tax had become due and payable on the day following the expiry of 9 months from the end of the donation period.
Removal or clawback of corporation tax relief for associated donations
939FB (1) This section applies where—
(a) a person makes a relievable charity donation that becomes a tainted donation, and
(b) a company makes an associated donation in relation to the tainted donation.
(2) If the donation mentioned in subsection (1)(a) becomes a tainted donation before the end of the accounting period of the company in which the associated donation is made, any corporation tax relief that would otherwise be available in respect of the associated donation is not available.
(3) Subsection (4) applies where—
(a) the donation mentioned in subsection (1)(a) becomes a tainted donation after the end of the accounting period of the company in which the associated donation is made, and
(b) if the donation mentioned in subsection (1)(a) had become a tainted donation before the end of that accounting period, the company’s liability to corporation tax for that accounting period would have been greater than it in fact was for that period.
(4) The liability of the company to corporation tax for the accounting period in which the donation mentioned in subsection (1)(a) becomes a tainted donation is increased by an amount equal to the difference between—
(a) the amount of corporation tax for which it would have been liable for the accounting period in which the associated donation was made, had the tainted donation become a tainted donation before the end of that period, and
(b) the amount of corporation tax for which it was in fact liable for the accounting period in which the associated donation was made.
(5) Subsection (4) does not apply in relation to an associated donation if the company—
(a) is already liable for tax by virtue of that subsection by reference to the accounting period in which the associated donation was made, or
(b) is liable for tax by virtue of section 939FA(2) by reference to that accounting period,
and for that purpose the accounting period “by reference to which” the company is liable for tax is the earlier accounting period for which the company’s liability falls to be considered under (as the case may be) subsection (4)(a) and (b) or section 939FA(2)(a) and (b).
(6) Section 87A of TMA 1970 (interest on overdue corporation tax etc) has effect in relation to tax for which a company is liable by virtue of subsection (4) as though the tax had become due and payable on the day following the expiry of 9 months from the end of the accounting period in which the associated donation was made.
(7) In this section—
“associated donation”, in relation to a tainted donation, means a relievable charity donation made—
in accordance with the arrangements by reference to which Conditions A and B in section 939C are met, and
by a person other than—
a qualifying charity-owned company in relation to that relievable charity donation, or
a relevant housing provider linked (within the meaning of section 939C(7)) with the charity to which that donation is made;
“corporation tax relief” has the same meaning as in section 939F;
“qualifying charity-owned company” has the meaning given by section 939C(8) (except that paragraph (b) of that definition does not apply);
“relevant housing provider” has the meaning given by section 939C(8).
Capital gains tax and corporation tax on chargeable gains
19 In TCGA 1992, for section 257A (tainted charity donations) substitute—
Tainted charity donations
257A (1) Section 257 does not apply in relation to a relievable charity donation that becomes a tainted donation in the same tax year in which it is made.
(2) Subsection (3) applies if—
(a) a person makes a relievable charity donation in a tax year (“the donation year”),
(b) the donation becomes a tainted donation in a later tax year (“the tainting year”), and
(c) if the donation had become a tainted donation in the donation year, the liability to tax for the donation year of the person who made the donation would have been greater than it in fact was for the donation year.
(3) The liability to tax for the tainting year of the person that made the donation is increased by an amount equal to the difference between—
(a) the amount of tax for which the person would have been liable for the donation year had the donation become a tainted donation in the donation year, and
(b) the amount of tax for which the person was in fact liable for the donation year.
(4) Section 101 of FA 2009 (interest on CGT etc) has effect in relation to capital gains tax for which a person is liable by virtue of subsection (3) as though the tax had become due and payable on 1 February in the tax year following the donation year.
(5) Section 87A of TMA 1970 (interest on overdue corporation tax etc) has effect in relation to corporation tax for which a company is liable by virtue of subsection (3) as though the tax had become due and payable on the day following the expiry of 9 months from the end of the accounting period of the company in which the donation mentioned in subsection (2)(a) was made.
(6) In this section—
“relievable charity donation” means a relievable charity donation within the meaning of Chapter 8 of Part 13 of ITA 2007 or Part 21C of CTA 2010;
“tainted donation” means a tainted donation within the meaning of Chapter 8 of Part 13 of ITA 2007 or Part 21C of CTA 2010;
“tax” means—
in relation to a company, corporation tax on chargeable gains;
otherwise, capital gains tax;
and a reference to a donation “becoming” a tainted donation is to be read with section 809ZJ(1)(b) of ITA 2007 and 939C(1)(b) of CTA 2010.
(7) In relation to any donation made by a company, references in this section to a tax year are to be read as references to an accounting period.
Associated donations in relation to tainted charity donations
257B (1) This section applies where—
(a) a person makes a relievable charity donation that becomes a tainted donation, and
(b) a person makes an associated donation in relation to the tainted donation.
(2) If the donation mentioned in subsection (1)(a) becomes a tainted donation before the end of the tax year in which the associated donation is made, section 257 does not apply in relation to the associated donation.
(3) Subsection (4) applies where—
(a) the donation mentioned in subsection (1)(a) becomes a tainted donation after the end of the tax year in which the associated donation is made, and
(b) if the donation had become a tainted donation before the end of that tax year, the liability to tax for that tax year of the person who made the associated donation would have been greater than it in fact was for that tax year.
(4) The liability to tax of the person who made the associated donation, for the tax year in which the donation mentioned in subsection (1)(a) becomes a tainted donation, is increased by an amount equal to the difference between—
(a) the amount of tax for which the person would have been liable for the tax year in which the associated donation was made had the donation mentioned in subsection (1)(a) become a tainted donation before the end of that tax year, and
(b) the amount of tax for which the person was in fact liable for the tax year in which the associated donation was made.
(5) Subsection (4) does not apply in relation to an associated donation if the person who makes the associated donation—
(a) is already liable for tax by virtue of that subsection by reference to the tax year in which the associated donation was made, or
(b) is liable for tax by virtue of section 257A(3) by reference to that tax year,
and for that purpose the tax year “by reference to which” a person is liable for tax is the earlier tax year for which the person’s liability falls to be considered under (as the case may be) subsection (4)(a) and (b) or section 257A(3)(a) and (b).
(6) Section 101 of FA 2009 (interest on CGT etc) has effect in relation to capital gains tax for which a person is liable by virtue of subsection (4) as though the tax had become due and payable on 1 February in the tax year following the tax year in which the associated donation was made.
(7) Section 87A of TMA 1970 (interest on overdue corporation tax etc) has effect in relation to corporation tax for which a company is liable by virtue of subsection (4) as though the tax had become due and payable on the day following the expiry of 9 months from the end of the accounting period of the company in which the associated donation was made.
(8) In this section—
“associated donation” means an associated donation within the meaning of section 809ZMB of ITA 2007 or section 939FB of CTA 2010;
“relievable charity donation” means a relievable charity donation within the meaning of Chapter 8 of Part 13 of ITA 2007 or Part 21C of CTA 2010;
“tainted donation” means a tainted donation within the meaning of Chapter 8 of Part 13 of ITA 2007 or Part 21C of CTA 2010;
“tax” means—
in relation to a company, corporation tax on chargeable gains;
otherwise, capital gains tax;
and a reference to a donation “becoming” a tainted donation is to be read with section 809ZJ(1)(b) of ITA 2007 and 939C(1)(b) of CTA 2010.
(9) Where the associated donation mentioned in subsection (1)(b) is made by a company, references in this section to a tax year are to be read as references to an accounting period of the company.
Consequential amendments
20 In CAA 2001, in section 63 (cases in which disposal value is nil), in subsection (4)(b)—
(a) for “section 809ZM” substitute “sections 809ZM and 809ZMB”;
(b) for “section 939F” substitute “sections 939F and 939FB”.
21 In ITEPA 2003, in section 713 (donations to charity: payroll deduction scheme), in subsection (6), for “section 809ZM” substitute “sections 809ZM and 809ZMB”.
22 In ITTOIA 2005, in section 108 (gifts of trading stock to charities etc), in subsection (5)(b), for “section 809ZM” substitute “sections 809ZM and 809ZMB”.
23 (1) ITA 2007 is amended as follows.
(2) In section 30 (additional tax), in subsections (1) and (2), at the appropriate place insert—
section 809ZMA (tainted donations: clawback where tainting occurs in later year),
section 809ZMB (tainted donations: associated donations)
.
(3) In section 58 (meaning of “adjusted net income”), for subsection (4) substitute—
(4) This section is subject to section 809ZM(6) and section 809ZMB(3) (which prevent tainted donations and associated donations from being deducted at Step 2 in subsection (1)).
(4) In section 413 (gift aid: overview), in subsection (4A), for “section 809ZM” substitute “sections 809ZM and 809ZMB”.
(5) In section 431 (gifts of shares, securities and real property to charities etc), in subsection (7), for “section 809ZM” substitute “sections 809ZM and 809ZMB”.
(6) In Schedule 4 (index of defined expressions), omit the entry for “potentially advantaged person (in Chapter 8 of Part 13)”.
24 In CTA 2009, in section 105 (gifts of trading stock to charities etc), in subsection (6), for “section 939F” substitute “sections 939F and 939FB”.
25 In CTA 2010, in Schedule 4 (index of defined expressions), omit the entry for “potentially advantaged person (in Part 21C)”.
Section 57
The winter fuel payment charge
1 (1) Part 10 of ITEPA 2003 (social security income) is amended as follows.
(2) At the end of the heading insert “etc”.
(3) In section 655 (structure of Part 10), in subsection (1), at the end insert—
Chapter 9 makes provision for the winter fuel payment charge.
(4) After Chapter 8 insert—
Chapter 9 Winter fuel payment charge
Winter fuel payment charge
681I (1) A person (“P”) is liable to a charge to income tax for a tax year if—
(a) P is entitled to a winter fuel payment in respect of the qualifying week, and
(b) P’s total income for the tax year exceeds £35,000.
(2) The charge is to be known as the “winter fuel payment charge”.
(3) The amount of the charge is equal to the amount of the winter fuel payment.
(4) But P is not liable for the charge if P is entitled to a relevant benefit on any day in the qualifying week.
(5) The following are “relevant benefits”—
(a) income support under section 124 of SSCBA 1992 or section 123 of SSCB(NI)A 1992;
(b) an income-based jobseeker’s allowance under section 1 of JSA 1995 or Article 3 of JS(NI)O 1995;
(c) state pension credit under section 1 of SPCA 2002 or section 1 of SPCA(NI) 2002;
(d) an income-related employment and support allowance under section 1(2)(b) of WRA 2007 or Part 1 of the Welfare Reform Act (Northern Ireland) 2007;
(e) universal credit under Part 1 of WRA 2012 or Part 2 of the Welfare Reform (Northern Ireland) Order 2015.
(6) In this section—
(a) a “winter fuel payment” means a payment under the Social Fund Winter Fuel Payment Regulations 2025, the Winter Heating Assistance (Pension Age) (Scotland) Regulations 2024 or the Social Fund Winter Fuel Payment Regulations (Northern Ireland) 2025;
(b) the “qualifying week”, in relation to a tax year, means the week beginning on the third Monday in the September of that tax year.
Alteration of income limit by Treasury order
681J (1) The Treasury may by order substitute another amount for the amount for the time being specified in section 681I(1)(b).
(2) An order under this section has effect for tax years beginning after the order is made.
(3) A statutory instrument containing an order under this section which increases any person's liability to income tax may not be made unless a draft of it has been laid before and approved by a resolution of the House of Commons.
Consequential amendments
2 In section 7 of TMA 1970 (notice of liability to income tax and capital gains tax), in subsection (3)(c), at the end insert “other than Chapter 9 of Part 10 of ITEPA 2003 (winter fuel payment charge)”.
3 (1) ITEPA 2003 is amended as follows.
(2) In section 1 (overview of contents of this Act), in subsection (3), after paragraph (aa) insert—
(ab) makes provision for the winter fuel payment charge (see Chapter 9 of Part 10),
.
(3) In section 684 (PAYE regulations), in subsection (2), after Item 2ZA insert—
2ZB Provision—
(a) for deductions to be made, if and to the extent that the payee does not object, with a view to securing that income tax payable for a tax year by the payee by virtue of section 681I (winter fuel payment charge) is deducted from PAYE income of the payee paid during that year,
(b) for repayments to be made in a tax year, if and to the extent that the payee does not object, in respect of any amounts overpaid on account of income tax under that section for that tax year, and
(c) as to the circumstances and manner in which a payee may object to the making of deductions or repayments.
(4) In section 717 (orders and regulations made by Treasury or Commissioners), in subsection (4)—
(a) after “section 681F(3)” insert “or 681J(3)”;
(b) after “benefit” insert “or winter fuel payment”.
4 (1) ITA 2007 is amended as follows.
(2) In section 1 (overview of the Income Tax Acts), in subsection (1)(a), after “benefit” insert “and winter fuel payment”.
(3) In section 30 (additional tax), in subsection (1), after “Chapter 8 of Part 10 of ITEPA 2003 (high income child benefit charge),” insert—
Chapter 9 of Part 10 of ITEPA 2003 (winter fuel payment charge),
.
Commencement
5 The amendments made by this Schedule have effect for the tax year 2025-26 and subsequent tax years.
Section 58
Part 1 Carried interest: interpretation of key terms
1 Before Schedule 1 to ITTOIA 2005 insert—
Schedule A1
Carried Interest: interpretation of key terms
Section 23I
Part 1 Meaning of carried interest
Meaning of “carried interest”
1 (1) A sum (including a sum in the form of a loan or advance or an allocation of profits) which arises to an individual from an investment scheme under arrangements is “carried interest” if it arises by way of profit-related return.
(2) A sum which arises to an individual from an investment scheme under arrangements does so by way of “profit-related return” if under the arrangements—
(a) the sum is to, or may, arise only if—
(i) there are profits for a period on the investments, or on particular investments, made for the purposes of the scheme, or
(ii) there are profits arising from a disposal of the investments, or of particular investments, made for those purposes,
(b) the amount of the sum which is to, or may, arise is variable, to a substantial extent, by reference to those profits, and
(c) returns to external investors are also determined by reference to those profits;
but where any part of the sum does not meet these conditions, that part is not to be regarded as arising by way of “profit-related return”.
(3) But where—
(a) one or more sums (“actual sums”) arise to an individual from an investment scheme under the arrangements by way of profit-related return in a tax year, and
(b) there was no significant risk that a sum of at least a certain amount (“the minimum amount”) would not arise to the individual from that scheme,
so much of the actual sum, or of the aggregate of the actual sums, as is equal to the minimum amount is not “carried interest”.
(See sub-paragraphs (7) and (8) as to how the minimum amount is to be apportioned between the actual sums where more than one actual sum arises in the tax year.)
(4) For the purposes of sub-paragraph (3)(b) assess the risk both—
(a) in relation to each actual sum (and the investments to which it relates) individually, taking into account also any other sums that might have arisen to the individual from that scheme under the arrangements instead of that sum, and
(b) in relation to the actual sum or sums and any other sums that might have arisen to the individual from that scheme under the arrangements by way of profit-related return in the tax year (and the investments to which all those sums relate) taken as a whole;
(so that, in a particular case, some of the minimum amount may arise by assessing the risk in accordance with paragraph (a) and some by assessing it in accordance with paragraph (b)).
(5) For the purposes of sub-paragraph (3)(b) assess the risk as at the latest of—
(a) the time when the individual becomes party to the arrangements,
(b) the time when the individual begins to perform investment management services directly or indirectly in respect of an investment scheme under the arrangements, and
(c) the time when a material change is made to the arrangements so far as relating to the sums which are to, or may, arise to the individual.
(6) For the purposes of sub-paragraph (3)(b) ignore any risk that a sum is prevented from arising to the individual (by reason of insolvency or otherwise).
(7) Where more than one actual sum arises in the tax year, the minimum amount is to be apportioned between the actual sums as follows for the purposes of sub-paragraph (3)—
(a) so much of the minimum amount as is attributable to a particular actual sum is to be apportioned to that actual sum, and
(b) so much of the minimum amount as is not attributable to any particular actual sum is to be apportioned between the actual sums on a just and reasonable basis.
(8) For the purpose of sub-paragraph (7) any part of the minimum amount is attributable to a particular actual sum to the extent that there was no significant risk that that part would not arise to the individual in relation to that actual sum, assessing the risk in accordance with sub-paragraph (4)(a).
(9) See also paragraphs 2 to 5 which set out when certain sums are to be treated and not treated as carried interest.
Sums treated as “carried interest”
2 (1) A sum arising to an individual from an investment scheme under arrangements which falls within sub-paragraph (2) or (3)—
(a) is to be assumed to meet the conditions in paragraph 1(2),
(b) is to be assumed to not be a sum in relation to which paragraph 1(3) applies, and
(c) accordingly, is to be treated as constituting “carried interest”.
(2) A sum falls within this sub-paragraph if, under the arrangements, it is to, or may, arise to the individual out of profits on the investments made for the purposes of the scheme, but only after—
(a) all, or substantially all, of the investments in the scheme made by the participants have been repaid to the participants, and
(b) each external investor has received a preferred return on all, or substantially all, of the investor's investments in the scheme.
(3) A sum falls within this sub-paragraph if, under the arrangements, it is to, or may, arise to the individual out of profits on a particular investment made for the purposes of the scheme, but only after—
(a) all, or substantially all, of the relevant investments made by participants have been repaid to those participants, and
(b) each of those participants who is an external investor has received a preferred return on all, or substantially all, of the investor's relevant investments;
and for this purpose “relevant investments” means those investments in the scheme to which the particular investment made for the purposes of the scheme is attributable.
(4) In this paragraph “preferred return” means a return of not less than the amount that would be payable on the investment by way of interest if—
(a) compound interest were payable on the investment for the whole of the period during which it was invested in the scheme, and
(b) the interest were calculated at a rate of 6% per annum, with annual rests.
Consideration for right to sum of carried interest treated as “carried interest”
3 (1) Sub-paragraph (2) applies to consideration that is received or receivable—
(a) by an individual for the disposal, variation, loss or cancellation of the individual’s right to a sum arising from an investment scheme under arrangements by way of profit-related return, or
(b) by a person who is a relevant person in relation to the individual, for the disposal, variation, loss or cancellation of the relevant person’s right to a sum arising from an investment scheme under arrangements by way of profit-related return.
(2) The consideration, to the extent that it is not a disguised fee arising to the individual for the purposes of section 809EZA of ITA 2007—
(a) is to be treated as a sum which arises to the individual from the scheme under the arrangements by way of profit-related return at the time of the disposal, variation, loss or cancellation, and
(b) accordingly, is to be treated as constituting “carried interest”.
(3) For the purposes of sub-paragraph (1), a person is a “relevant person” in relation to an individual if carried interest arising to that person would be treated as arising to the individual for the purposes of section 23I (see paragraph 7 and paragraph 8 of this Schedule).
Tax distribution treated as “carried interest”
4 (1) A tax distribution arising to an individual from an investment scheme under arrangements is to be treated as constituting “carried interest”.
(2) A sum which arises to an individual from an investment scheme under arrangements is a “tax distribution” if—
(a) under the arrangements the sum is to, or may, arise only if tax (including non-UK tax within the meaning of Part 5 of CTA 2010) becomes payable or is expected to become payable as a result of any individual’s entitlement to carried interest under the arrangements, and
(b) the sum arising to the individual results in a corresponding deduction in the individual’s entitlement to carried interest.
Co-investment returns not “carried interest”
5 (1) A sum which arises to an individual from an investment scheme under arrangements by way of profit-related return is not to be treated as “carried interest” to the extent that it constitutes a co-investment repayment or return.
(2) In sub-paragraph (1)—
“co-investment”, in relation to an individual and a scheme, means an investment made directly or indirectly by the individual, or a person who is connected with the individual, in the scheme, where there is no return on the investment which is not an arm's length return within the meaning of section 809EZB(2) of ITA 2007;
“co-investment repayment or return” means a repayment in whole or in part of, or a return on, a co-investment.
(3) Section 993 of ITA 2007 (meaning of “connected”) applies for the purposes of this paragraph but as if—
(a) subsection (4) of that section were omitted, and
(b) partners in a partnership in which the individual is also a partner were not “associates” of the individual for the purposes of sections 450 and 451 of CTA 2010 (“control”).
Definitions
6 (1) In this Part of this Schedule, “profits”, in relation to an investment made for the purposes of an investment scheme, means profits (including unrealised profits) arising from the acquisition, holding, management or disposal of the investment (taking into account items of a revenue nature and items of a capital nature).
(2) In this Part of this Schedule a reference to an investment made by a person in an investment scheme is a reference to a contribution by the person (whether by way of capital, loan or otherwise) towards the property subject to the scheme (but does not include a sum committed but not yet invested).
(3) For the purposes of sub-paragraph (2) a person who holds a direct or indirect interest in an investment scheme and who acquired the interest from a person other than the scheme is to be taken to have made a contribution towards the property subject to the scheme equal to—
(a) the consideration given by the person for the acquisition of the interest, or
(b) if less, the market value within the meaning of the TCGA 1992 (see sections 272 and 273 of that Act) of the interest at the time of the acquisition.
(4) In this Part of this Schedule, in relation to an investment scheme which is a company limited by shares—
(a) references to a repayment of, or a return on, an investment in the scheme include a repayment of, or a return on, an investment represented by a share in the scheme resulting from—
(i) the purchase of the share by the scheme,
(ii) the redemption of the share by the scheme,
(iii) the distribution of assets in respect of the share on the winding up of the scheme, or
(iv) any similar process;
(b) references to a return on an investment in the scheme include a dividend or similar distribution in respect of a share in the scheme representing the investment.
Part 2 Sums arising to other persons treated as arising to the individual
Sums arising to connected persons other than companies
7 (1) This paragraph applies in relation to an individual (“A”) if—
(a) a sum arises to a person (“B”) who is connected with A,
(b) B is not a company, and
(c) the sum does not arise to A apart from this paragraph.
(2) The sum referred to in sub-paragraph (1)(a) arises to A for the purposes of this Schedule and this group of sections.
(3) Where a sum arises to A by virtue of this paragraph, it arises to A at the time the sum referred to in sub-paragraph (1)(a) arises to B.
(4) Section 993 of ITA 2007 (meaning of “connected”) applies for the purposes of this paragraph but as if—
(a) subsection (4) of that section were omitted, and
(b) partners in a partnership in which A is also a partner were not “associates” of A for the purposes of sections 450 and 451 of CTA 2010 (“control”).
Sums arising to connected company or unconnected person
8 (1) This paragraph applies in relation to an individual (“A”) if—
(a) a sum arises to—
(i) a company connected with A, or
(ii) a person not connected with A,
(b) any of the enjoyment conditions are met, and
(c) the sum does not arise to A apart from this paragraph.
(2) The enjoyment conditions are—
(a) the sum, or part of the sum, is in fact so dealt with by any person as to be calculated at some time to enure for the benefit of A or a person connected with A;
(b) the arising of the sum operates to increase the value to A or a person connected with A of any assets which—
(i) A or the connected person holds, or
(ii) are held for the benefit of A or the connected person;
(c) A or a person connected with A receives or is entitled to receive at any time any benefit provided or to be provided out of the sum or part of the sum;
(d) A or a person connected with A may become entitled to the beneficial enjoyment of the sum or part of the sum if one or more powers are exercised or successively exercised (and for these purposes it does not matter who may exercise the powers or whether they are exercisable with or without the consent of another person);
(e) A or a person connected with A is able in any manner to control directly or indirectly the application of the sum or part of the sum.
In this sub-paragraph, in a case where the sum referred to in sub-paragraph (1)(a) arises to a company connected with A, references to a person connected with A do not include that company.
(3) There arises to A for the purposes of this Schedule and this group of sections—
(a) the sum referred to in sub-paragraph (1)(a), or
(b) if the enjoyment condition in sub-paragraph (2)(a), (c), (d) or (e) is met in relation to part of the sum, that part of that sum, or
(c) if the enjoyment condition in sub-paragraph (2)(b) is met, such part of that sum as is equal to the amount by which the value of the assets referred to in that condition is increased.
(4) Where a sum (or part of a sum) arises to A by virtue of this paragraph, it arises to A at the time it arises to the person referred to in sub-paragraph (1)(a)(i) or (ii) (whether the enjoyment condition was met at that time or at a later date).
(5) In determining whether any of the enjoyment conditions are met in relation to a sum or part of a sum—
(a) regard must be had to the substantial result and effect of all the relevant circumstances, and
(b) all benefits which may at any time accrue to a person as a result of the sum arising as specified in sub-paragraph (1)(a) must be taken into account, irrespective of—
(i) the nature or form of the benefits, or
(ii) whether the person has legal or equitable rights in respect of the benefits.
(6) The enjoyment condition in sub-paragraph (2)(b), (c) or (d) is to be treated as not met if it would be met only by reason of A or a person connected with A holding shares or an interest in shares in a company.
(7) The enjoyment condition in sub-paragraph (2)(a) or (e) is to be treated as not met if the sum referred to in sub-paragraph (1)(a) arises to a company and—
(a) the company is liable to pay corporation tax in respect of its profits and the sum is included in the computation of those profits, or
(b) sub-paragraph (a) does not apply but—
(i) the company is a CFC and the exemption in Chapter 14 of Part 9A of TIOPA 2010 applies for the accounting period in which the sum arises, or
(ii) the company is not a CFC but, if it were, that exemption would apply for that period.
In this sub-paragraph “CFC” has the same meaning as in Part 9A of TIOPA 2010.
(8) But sub-paragraphs (6) and (7) do not apply if the sum referred to in sub-paragraph (1)(a) arises to the company referred to in sub-paragraph (1)(a)(i) or the person referred to in sub-paragraph (1)(a)(ii) as part of arrangements where—
(a) it is reasonable to assume that in the absence of the arrangements the sum or part of the sum would have arisen to A or an individual connected with A, and
(b) it is reasonable to assume that the arrangements have as their main purpose, or one of their main purposes, the avoidance of a liability to pay income tax, capital gains tax, inheritance tax or corporation tax.
(9) The condition in sub-paragraph (8)(b) is to be regarded as met in a case where—
(a) the sum arose from an investment scheme,
(b) the sum is applied directly or indirectly as an investment in an investment scheme, and
(c) the persons providing investment management services to the schemes mentioned in paragraphs (a) and (b) are the same or substantially the same.
(10) Section 993 of ITA 2007 (meaning of “connected”) applies for the purposes of this paragraph, but as if—
(a) subsection (4) of that section were omitted, and
(b) partners in a partnership in which A is also a partner were not “associates” of A for the purposes of sections 450 and 451 of CTA 2010 (“control”).
Deferred sums
9 (1) But paragraph 8 does not apply in relation to a sum arising to—
(a) a company connected with A, or
(b) a person not connected with A,
for as long as the sum is a deferred sum in relation to A.
(2) In this paragraph, “deferred sum”, in relation to A—
(a) means a sum where the provision of the sum to A or a person connected with A is deferred (whether pending the meeting of any conditions (including conditions which may never be met) or otherwise), and
(b) includes A's share (as determined on a just and reasonable basis) of any sum the provision of which to A and one or more other persons, taken together, has been deferred (whether pending the meeting of any conditions (including conditions which may never be met) or otherwise).
In this sub-paragraph, in a case where the sum referred to in sub-paragraph (1) arises to a company connected with A, the reference to a person connected with A does not include that company.
(3) Where—
(a) paragraph 8 has been disapplied in relation to a deferred sum by virtue of sub-paragraph (1), and
(b) the sum ceases to be a deferred sum in relation to A,
the sum is to be regarded as arising to the company or person mentioned in sub-paragraph (1) at the time it ceases to be a deferred sum.
(4) Section 993 of ITA 2007 (meaning of “connected”) applies for the purposes of this paragraph but as if—
(a) subsection (4) of that section were omitted, and
(b) partners in a partnership in which A is also a partner were not “associates” of A for the purposes of sections 450 and 451 of CTA 2010 (“control”).
(5) A sum which is deferred carried interest within the meaning of section 103KG(3) of TCGA 1992 when this paragraph comes into force is to be treated for the purposes of sub-paragraph (3) as a deferred sum in relation to which paragraph 8 has been disapplied virtue of sub-paragraph (1).
Deferred sums: exceptions
10 (1) Paragraph 9 does not apply in relation to any sum in relation to which the condition in sub-paragraph (8)(b) of paragraph 8 is met by virtue of sub-paragraph (9) of that paragraph.
(2) Paragraph 9 also does not apply if—
(a) it is reasonable to assume that the deferral referred to in sub-paragraph (2) of paragraph 9 is not the effect of genuine commercial arrangements, or
(b) that deferral is the effect of such arrangements but it is reasonable to assume that the arrangements have as their main purpose, or one of their main purposes, the avoidance of a liability to pay income tax, capital gains tax, corporation tax or inheritance tax.
(3) In sub-paragraph (2), “genuine commercial arrangements” means arrangements involving A (alone or jointly with others performing investment management services) and external investors in the investment scheme.
Part 3 Qualifying carried interest
Chapter 1 Qualifying carried interest
Overview
11 (1) This Part of this Schedule determines when carried interest arising to an individual from an investment scheme is “qualifying carried interest” for the purposes of section 23I.
(2) Paragraph 12 contains the general rule, under which the extent to which carried interest is qualifying carried interest depends on the average holding period of the investment scheme.
(3) Chapters 2 to 5 of this Part contain further provision relating to average holding periods.
(4) Chapter 6 contains an exception to the general rule for carried interest which is treated as being 100% qualifying carried interest.
(5) Chapters 7 and 8 contain supplementary and interpretative provision.
(6) Nothing in this Part of this Schedule affects the liability to any tax of—
(a) the investment scheme, or
(b) external investors in the investment scheme.
Qualifying carried interest: general rule
12 (1) “Qualifying carried interest” is the relevant proportion of a sum of carried interest arising to an individual from an investment scheme.
(2) The relevant proportion is determined by reference to the investment scheme's average holding period as follows.
Average holding period | Relevant proportion
Less than 36 months | 0%
At least 36 months but less than 37 months | 20%
At least 37 months but less than 38 months | 40%
At least 38 months but less than 39 months | 60%
At least 39 months but less than 40 months | 80%
40 months or more | 100%
(3) This paragraph is subject to the following provisions of this Part of this Schedule.
Chapter 2 Average holding period
Average holding period
13 (1) The average holding period of an investment scheme, in relation to a sum of carried interest, is the average length of time for which relevant investments have been held for the purposes of the scheme.
(2) In this paragraph, “relevant investments” means investments—
(a) which are made for the purposes of the scheme, and
(b) by reference to which the carried interest is calculated.
(3) The average holding period is calculated by reference to the time the carried interest arises.
(4) It is calculated as follows.
Step 1 For each relevant investment, multiply the value invested at the time the investment was made by the length of time for which the investment has been held.
Step 2 Add together the amounts produced under step 1 in respect of all relevant investments.
Step 3 Divide the amount produced under step 2 by the total value invested in all relevant investments.
(5) Disregard intermediate holdings or intermediate holding structures (including intermediate investment schemes) by or through which investments are made or held—
(a) when identifying, for the purpose of determining the average holding period of an investment scheme, what relevant investments are held for the purposes of an investment scheme, and
(b) for any other purpose relating to the determination of the average holding period.
This is subject to the following provisions of this Part of this Schedule.
(6) In this paragraph references to the length of time for which a relevant investment has been held are—
(a) in the case of an investment which has been disposed of before the carried interest arises, references to the time for which it was held before being disposed of, and
(b) in any other case, references to the time for which it has been held up to the time the carried interest arises.
(7) For the purposes of this Part of this Schedule a sum which is a deferred sum in relation to an individual within the meaning of paragraph 9 of this Schedule is to be treated as arising to that individual at the time it would have arisen had it not been deferred as specified in paragraph 9(2)(a) or (b).
(8) Chapters 3 to 5 of this Part of this Schedule apply for the purposes of determining the average holding period of an investment scheme.
(9) In those Chapters—
(a) references to the value invested for the purposes of an investment scheme in investments are to the value invested at the time the investments were made, and
(b) references to the base amount held in investments for the purposes of an investment scheme at any time are to the value invested for the purposes of the scheme (within the meaning of paragraph (a)) in the investments that are held for the purposes of the scheme at that time.
Chapter 3 Average holding period: making and disposals of investments
Timing of making investments
14 (1) An investment made by acquiring an asset disposed of under a contract is made when the asset is acquired for the purposes of TCGA 1992 (see section 28 of that Act).
(2) An investment in newly issued shares is made when the shares are issued.
Disposals
15 (1) An investment or part of an investment is disposed of where—
(a) there is a disposal of the investment or the part of the investment for the purposes of the investment scheme,
(b) there is a disposal for the purposes of the investment scheme of an intermediate holding or intermediate holding structure (including an intermediate investment scheme) by or through which the investment is held, or
(c) in any other case, there is a deemed disposal under sub-paragraph (2).
(2) There is a deemed disposal of an investment or part of an investment under this sub-paragraph where—
(a) under any arrangements—
(i) the scheme in substance closes its position on the investment or the part of the investment, or
(ii) the scheme ceases to be exposed to risks and rewards in the respect of the investment or the part of the investment, and
(b) it is reasonable to assume that the arrangements were designed to secure that result.
(3) In the case of a disposal of part of a holding of securities in a company which are of the same class, suppose for the purposes of determining which investments have been disposed of that the disposal affects the securities in the order in which they were acquired (that is, on a first in first out basis).
(4) The references in sub-paragraph (1)(a) and (b) to a disposal are to something which is a disposal for the purposes of TCGA 1992; but for the purposes of sub-paragraph (1)(a) disregard section 116 of TCGA 1992 (which disapplies sections 127 to 130 of that Act in relation to qualifying corporate bonds).
Part disposals
16 (1) Where there is a disposal of part of an investment, the part disposed of and the part not disposed of are to be treated as two separate investments which were made at the same time.
(2) The value of each of those two separate investments is the appropriate proportion of the value first invested in the whole investment.
(3) The appropriate proportion is the proportion of the value of the part in question to the value of the whole investment at the time of the disposal.
(4) The disposal of part of an asset includes the disposal of an interest in or right over the asset (and “part disposed of” is to be construed accordingly).
Acquisitions from associated investment schemes
17 (1) This paragraph applies where an investment scheme (“the acquiring scheme”) acquires an investment on its disposal by an associated investment scheme.
(2) The investment is treated as made by the acquiring scheme when it was made by the associated investment scheme.
(3) The disposal of the investment by the associated investment scheme is to be disregarded.
Unwanted short-term investments
18 (1) The making and disposal of an investment or part of an investment for the purposes of an investment scheme are to be disregarded if the investment or part of the investment is an unwanted short-term investment.
(2) An investment or part of an investment is an unwanted short-term investment to the extent that—
(a) the investment or part investment is made as part of a transaction under which investments are made for the purposes of the scheme,
(b) the value of the investment or part investment does not exceed 50% of the total value of the investments made for the purposes of the scheme by the transaction,
(c) it is reasonable to assume that the investment or part investment had to be made in order for the investments to be made,
(d) at the time of the transaction, managers of the scheme have a firm, settled and evidenced intention to dispose of the investment or part investment for the purposes of the scheme within 12 months,
(e) the investment or part investment is disposed of for the purposes of the scheme (whether or not within 12 months), and
(f) any profit resulting from the disposal has no significant bearing on whether a sum of carried interest arises or on the amount of any sum of carried interest which does arise.
Debt investments made by advancing money
19 (1) In this Part of this Schedule, “debt investment” means an investment in an asset representing a loan relationship or a relevant non-lending relationship (but see paragraph 29(6)(a)).
(2) Sub-paragraph (3) applies where an investment in an asset representing a loan relationship is made for the purposes of an investment scheme by money being advanced.
(3) The debt investment in the asset representing the loan relationship is to be treated as having been made when there was an unconditional obligation to advance the money.
(4) For the purposes of sub-paragraph (3), an obligation is not to be regarded as conditional by reason only that it was contingent on one or more of the following conditions—
(a) a condition the fulfilment of which was outside the control of the scheme or any person connected with the scheme;
(b) a condition that it is reasonable to assume a prudent investor would have obtained on making an investment at arm's length of the same size and nature as the debt investment.
(5) For the purposes of sub-paragraph (4), an investment scheme is connected with another person if—
(a) the scheme directly or indirectly has control of the person, or
(b) the same person, directly or indirectly, has control of the scheme and the person.
(6) For the purposes of sub-paragraph (5) “control”—
(a) in the case of control of a company, is to be read in accordance with sections 450 and 451 of CTA 2010;
(b) in the case of control of a partnership, has the meaning given in section 995(3) of ITA 2007;
(c) in the case of control of an investment scheme which is not a company or partnership, or of any other person which is not a company or partnership, means the ability to secure that the affairs of that scheme or other person are conducted in accordance with one's wishes.
Disposals of debt investments
20 (1) References to a “disposal”, in the case of a debt investment, do not include—
(a) any event that is part of a transaction which extends the period for which the loan relationship or relevant non-lending relationship is to subsist on substantially the same terms,
(b) a release of debt which meets condition A, B, C or E in section 322 of CTA 2009 (release of debts where credits not required to be brought into account),
(c) a modification or replacement of a loan relationship to which section 323A(2) of CTA 2009 (substantial modification) applies (see subsection (1) of that section), or
(d) any event that is part of a transaction falling within sub-paragraph (2).
(2) A transaction falls within this sub-paragraph if—
(a) it is undertaken for commercial purposes, and
(b) immediately before and after the transaction the economic exposure to the debtor’s group is substantially the same.
(3) In sub-paragraph (2), the “debtor’s group” means the debtor of the debt investment and each member of the same consolidated group as the debtor.
(4) Where an event is not a disposal of a debt investment made for the purposes of an investment scheme by virtue of this paragraph—
(a) any assets acquired as part of the transaction of which the event is part are to be treated as a single investment with the debt investment, and
(b) the value invested in that single investment is the value that was invested in the debt investment for the purposes of the investment scheme.
(5) For the purposes of determining the average holding period of an investment scheme, where—
(a) any amount of the money debt under a debt investment made for the purposes of the scheme is repaid by the debtor before it was due to be repaid in accordance with the debt investment’s initial repayment terms, and
(b) it is reasonable to assume that the debtor’s decision to repay that amount of the money debt was not affected by considerations relating to the application of this Part of this Schedule,
that amount of the money debt is to be treated as if it had been repaid in accordance with the debt investment’s initial repayment terms (and the debt investment, or corresponding part of the debt investment, is to be treated as being disposed of accordingly).
(6) But if the application of sub-paragraph (5) would otherwise result in the debt investment, or any part of it, being treated as held for more than 40 months, the debt investment, or that part of it, is to be treated as held for 40 months.
(7) Sub-paragraph (5) does not apply to the repayment of an amount of the money debt under a debt investment made for the purposes of the scheme if, at any time before the repayment, the scheme—
(a) did not have the ability to hold the debt investment, or any part of it, until it was due to be disposed of in accordance with its initial repayment terms, or
(b) had the intention to dispose of the debt investment, or any part of it, before it was due to be disposed of in accordance with its initial repayment terms.
(8) In sub-paragraphs (5) and (7) “initial repayment terms”, in relation to a debt investment, means the terms of the debt investment at the time when the investment was made.
Chapter 4 Average holding period: derivatives and hedging
Derivatives
21 (1) A derivative contract entered into for the purposes of an investment scheme is an investment, subject to the following provisions of this paragraph.
(2) The value invested in the derivative contract is—
(a) where the contract is an option, the cost of acquiring the option (whether from the grantor or another person),
(b) where the contract is a future, the price specified in the contract for the underlying subject matter, or
(c) where the contract is a contract for differences, the notional principal of the contract.
(3) But where entering into a derivative contract constitutes a deemed disposal of an investment or part of an investment by virtue of paragraph 15(2)(a)(ii)—
(a) the derivative contract is not an investment, and
(b) the subsequent disposal of the derivative contract without a corresponding disposal of the investment or part investment is to be regarded as the making of a new investment to the extent that the scheme becomes materially exposed to risks and rewards in respect of the investment or part investment.
(4) For the purposes of this Part of this Schedule, references to disposal, in the case of a derivative contract, include any of the following events (to the extent that the event is not otherwise a disposal under paragraph 15(1) or (2))—
(a) the expiry of the contract,
(b) the termination of the contract (whether or not in accordance with its terms),
(c) the disposal, substantial variation, loss or cancellation of the investment scheme's rights under the contract, and
(d) in the case of a derivative contract which is an option, the exercise of the option,
but do not include the renewal of the contract with the same counterparty on substantially the same terms.
(5) The substantial variation of an investment scheme's rights under a derivative contract constitutes (in addition to the disposal of the contract as originally entered into (see sub-paragraph (4)(c)) a new investment consisting of the contract as varied.
Hedging: exchange gains and losses
22 (1) This paragraph applies where—
(a) an investment scheme has a hedging relationship between a hedging instrument and a hedged item, and
(b) the hedging relationship relates to exchange gains or losses.
(2) In this paragraph—
“hedging instrument” means a derivative contract or a liability representing a loan relationship, and
“hedged item” means—
where the hedging instrument is a derivative contract, an investment made for the purposes of the scheme or a liability representing a loan relationship;
where the hedging instrument is a liability representing a loan relationship, an investment made for the purposes of the scheme.
(3) An investment scheme has a hedging relationship between a hedging instrument and a hedged item if or to the extent that—
(a) the instrument and the item are designated by the scheme as a hedge, or
(b) in any other case, the instrument is intended to act as a hedge of exposure to—
(i) changes in fair value of the hedged item or an identified portion of the hedged item, or
(ii) variability in cash flows,
where the exposure is attributable to exchange gains or losses and could affect profit or loss of the investment scheme.
(4) Where the hedged item is an investment, entering into the hedging relationship is not a deemed disposal of the investment under paragraph 15(2).
(5) The hedging instrument is not an investment for the purposes of the investment scheme to the extent that the conditions in sub-paragraph (3)(a) or (b) are met.
(6) But the termination of the hedging relationship is the making of an investment constituting the hedging instrument if or to the extent that that instrument continues to subsist.
Hedging: interest rates
23 (1) This paragraph applies where an investment scheme has a hedging relationship between—
(a) an interest rate contract, and
(b) a qualifying hedged item held for the purposes of the scheme.
(2) An investment scheme has a hedging relationship between an interest rate contract and a qualifying hedged item if or to the extent that—
(a) the interest rate contract and the qualifying hedged item are designated by the scheme as a hedge, or
(b) in any other case, the interest rate contract is intended to act as a hedge of exposure to—
(i) changes in fair value of the qualifying hedged item or an identified portion of the hedged item, or
(ii) variability in cash flows,
where the exposure is attributable to interest rates and could affect profit or loss of the investment scheme.
(3) Where the qualifying hedged item is an investment, entering into the hedging relationship is not a deemed disposal of the investment under paragraph 15(2).
(4) The interest rate contract is not an investment for the purposes of the investment scheme to the extent that the conditions in sub-paragraph (2)(a) or (b) are met.
(5) But the termination of the hedging relationship is the making of an investment constituting the interest rate contract if or to the extent that the interest rate contract continues to subsist.
(6) In this paragraph “qualifying hedged item” means—
(a) money placed at interest,
(b) securities (excluding shares issued by companies),
(c) an asset representing an alternative finance arrangement, and
(d) a liability representing a loan relationship.
Chapter 5 Average holding period: aggregation of acquisitions and disposals
Significant interests
24 (1) Where an investment scheme has a controlling interest in a trading company or the holding company of a trading group—
(a) any investment made for the purposes of the scheme in that company after the time when the controlling interest was acquired is to be regarded as having been made at that time, and
(b) any disposal for the purposes of the scheme of an investment in the company after the time the controlling interest was acquired is to be regarded as not being made until a relevant disposal is made.
(2) In sub-paragraph (1)(b) “relevant disposal”, in relation to a company, means a disposal which (apart from sub-paragraph (1)) has the effect that the investment scheme ceases to have a 40% interest in the company.
(3) For the purposes of this paragraph, in determining whether an investment scheme has a controlling interest or a 40% interest in a company, any share capital of the company which is held for the purposes of an associated investment scheme is to be regarded as held for the purposes of the investment scheme.
Venture capital funds
25 (1) Where a venture capital fund has a relevant interest in a trading company or the holding company of a trading group—
(a) any venture capital investment made for the purposes of the fund in the company after the time the relevant interest was acquired (and before a relevant disposal) is to be regarded as having been made at the time the relevant interest was acquired, and
(b) any disposal for the purposes of the fund of a venture capital investment in the company after that time is to be regarded as not being made until—
(i) a relevant disposal is made, or
(ii) the scheme (or the scheme and one or more investment schemes acting together) ceases to be entitled directly or indirectly to exercise relevant rights in relation to the company.
(2) For the purposes of sub-paragraph (1) a venture capital fund has a relevant interest in a company if —
(a) by virtue of its venture capital investments the fund has at least a 5% interest in the company, or
(b) the total value invested for the purposes of the scheme in venture capital investments that are held for the purposes of the scheme in the company is more than £1 million.
(3) For the purposes of sub-paragraph (1) “relevant disposal” means a disposal immediately following which (ignoring sub-paragraph (1)) the base amount held in investments in the company for the purposes of the venture capital fund is less than 20% of the greatest base amount held in investments in the company for the purposes of the venture capital fund at any one time.
(4) In this Part of this Schedule, “venture capital fund” means an investment scheme in relation to which the condition in sub-paragraph (5) is met.
(5) The condition is that when the scheme starts to invest it is reasonable to assume that over the investing life of the scheme—
(a) at least two-thirds of the total value invested for the purposes of the scheme will be invested in venture capital investments, and
(b) at least two-thirds of the total value invested for the purposes of the scheme will be invested in investments which are held for 40 months or more.
(6) In determining whether sub-paragraph (5)(b) is met in relation to an investment scheme, apply the rule in sub-paragraph (1) to the scheme.
(7) In this paragraph, “venture capital investment”, in relation to an investment scheme, means an investment in a trading company or the holding company of a trading group where—
(a) at the time the investment is made the company is unlisted and is likely to remain so,
(b) at least 75% of the total value of the investment is invested in—
(i) newly issued shares, or
(ii) newly issued securities convertible into shares,
(c) the investment is used in a trade carried on by the trading company or the trading group—
(i) to support its growth, or
(ii) for the development of new products or services,
and is not used directly or indirectly to acquire shares in the company which are not newly issued,
(d) if the investment is the first investment made in the company for the purposes of the scheme, the trading company or group has not carried on that trade for more than 7 years, and
(e) the investment scheme (or the scheme and one or more investment schemes acting together) is entitled directly or indirectly to exercise relevant rights in relation to the company.
(8) In this Part of this Schedule, “relevant rights”, in relation to an investment scheme and a company, are rights which—
(a) relate to the conduct of the business and affairs of the company, and
(b) are at least equivalent to the rights which it is reasonable to assume a prudent investor would have obtained on making an investment in the company at arm's length of the same size and nature as that held in the company for the purposes of the investment scheme.
(9) In determining whether the condition in sub-paragraph (2)(a) or (b) is met in relation to a venture capital fund, any share capital of a company which is held for the purposes of an associated investment scheme is to be regarded as held for the purposes of the venture capital fund.
Significant equity stake funds
26 (1) Where a significant equity stake fund has a significant equity stake investment in a trading company or the holding company of a trading group—
(a) any investment made for the purposes of the fund in that company after the time the significant equity stake investment was acquired is to be regarded as having been made at that time, and
(b) any disposal for the purposes of the fund of an investment in the company after that time is to be regarded as not being made until—
(i) a relevant disposal is made, or
(ii) the fund (or the fund and one or more investment schemes acting together) ceases to be entitled directly or indirectly to exercise relevant rights in relation to the company.
(2) In sub-paragraph (1)(b) “relevant disposal” means a disposal which (apart from sub-paragraph (1)) has the effect that the significant equity stake fund ceases to have a 15% interest in the company.
(3) In this Part of this Schedule “significant equity stake fund” means an investment scheme—
(a) which is not a venture capital fund, and
(b) in relation to which the condition in sub-paragraph (4) is met.
(4) The condition is that when the scheme starts to invest it is reasonable to assume that over the investing life of the scheme—
(a) more than 50% of the total value invested for the purposes of the scheme will be invested in investments which are significant equity stake investments, and
(b) more than 50% of the total value will be invested in investments which are held for 40 months or more.
(5) In determining whether sub-paragraph (4)(b) is met in relation to an investment scheme, apply the rule in sub-paragraph (1) to the scheme.
(6) In this paragraph, “significant equity stake investment”, in relation to an investment scheme, means an investment in a trading company or the holding company of a trading group where—
(a) at the time the investment is made, the company is unlisted and likely to remain so,
(b) by virtue of the investment (on its own or with other investments) the scheme has a 20% interest in the company, and
(c) the investment scheme (or the scheme and one or more investment schemes acting together) is entitled directly or indirectly to exercise relevant rights in relation to the company.
(7) For the purposes of this Part of this Schedule, in determining whether a significant equity stake fund has an interest of a particular percentage in a company, any share capital of the company which is held for the purposes of an associated investment scheme is to be regarded as held for the purposes of the significant equity stake fund.
Controlling equity stake funds
27 (1) Where a controlling equity stake fund has a 25% interest in a trading company or the holding company of a trading group—
(a) any investment made for the purposes of the controlling equity stake fund in the company after the time the 25% interest was acquired is to be regarded as having been made at that time, and
(b) any disposal for the purposes of the controlling equity stake fund of an investment in the company after that time is to be regarded as not being made until a relevant disposal is made.
(2) In sub-paragraph (1)(b), “relevant disposal”, in relation to a company, means a disposal which (apart from sub-paragraph (1)) has the effect that the controlling equity stake fund ceases to have a 25% interest in the company.
(3) In this Part of this Schedule, “controlling equity stake fund” means an investment scheme—
(a) which is not a venture capital fund or significant equity stake fund, and
(b) in relation to which the condition in sub-paragraph (4) is met.
(4) The condition is that when the scheme starts to invest it is reasonable to assume that, over the investing life of the scheme—
(a) more than 50% of the total value invested for the purposes of the scheme will be invested in investments which are controlling interests in trading companies or holding companies of trading groups, and
(b) more than 50% of the total value invested for the purposes of the scheme will be invested in investments which are held for 40 months or more.
(5) In determining whether sub-paragraph (4)(b) is met in relation to an investment scheme, apply the rule in sub-paragraph (1) to the scheme.
(6) For the purposes of this paragraph, in determining whether a controlling equity stake fund has a controlling interest or an interest of a particular percentage in a company, any share capital of the company which is held for the purposes of an associated investment scheme is to be regarded as held for the purposes of the controlling equity stake fund.
Real estate funds
28 (1) Where a real estate fund has a major interest in any land—
(a) any investment made for the purposes of the fund in that land after the time the major interest was acquired is to be regarded as having been made at that time, and
(b) any disposal for the purposes of the fund of an investment in the land after that time is to be regarded as not being made until a relevant disposal is made.
(2) In sub-paragraph (1)(b) “relevant disposal” means a disposal immediately following which (ignoring sub-paragraph (1)) the base amount held in investments in the land for the purposes of the real estate fund is less than 50% of the greatest base amount held in investments in the land for the purposes of the real estate fund at any one time.
(3) Where a real estate fund has a major interest in any land (“the original land”) and subsequently acquires a major interest in any adjacent land—
(a) the acquisition is an investment in the original land for the purposes of sub-paragraph (1)(a), and
(b) after the acquisition, the adjacent land is to be regarded as part of the original land for the purposes of sub-paragraphs (1) and (2).
(4) In this Part of this Schedule, “real estate fund” means an investment scheme—
(a) which is not a venture capital fund, significant equity stake fund or controlling equity stake fund, and
(b) in relation to which the condition in sub-paragraph (5) is met.
(5) The condition is that when the scheme starts to invest it is reasonable to assume that over the investing life of the scheme—
(a) more than 50% of the total value invested for the purposes of the scheme will be invested in land, and
(b) more than 50% of the total value invested for the purposes of the scheme will be invested in investments which are held for 40 months or more.
(6) In determining whether sub-paragraph (5)(b) is met in relation to an investment scheme, apply the rule in sub-paragraph (1) to the scheme.
Credit funds
29 (1) Where a credit fund has a significant debt investment—
(a) any debt investment or investment in shares made for the purposes of the fund after the time the significant debt investment was made that is associated with the significant debt investment is to be regarded as having been made at that time, and
(b) any disposal for the purposes of the fund of the significant debt investment or any debt investment or investment in shares associated with the significant debt investment (all together, “associated investments”) after that time is to be regarded as not being made until a relevant disposal is made.
(2) In sub-paragraph (1)(b) “relevant disposal” means a disposal immediately following which (ignoring sub-paragraph (1)) the base amount held in associated investments for the purposes of the credit fund is less than 50% of the greatest base amount held in associated investments for the purposes of the credit fund at any one time.
(3) In this Part of this Schedule, “credit fund” means an investment scheme—
(a) which is not a venture capital fund, significant equity stake fund, controlling equity stake fund, or real estate fund, and
(b) in relation to which the condition in sub-paragraph (4) is met.
(4) The condition is that when the scheme starts to invest it is reasonable to assume that over the investing life of the scheme—
(a) more than 50% of the total value invested for the purposes of the scheme will be invested in debt investments, and
(b) more than 50% of the total value invested for the purposes of the scheme will be invested in investments which are held for 40 months or more.
(5) In determining whether sub-paragraph (4)(b) is met in relation to an investment scheme, apply the rule in sub-paragraph (1) to the scheme.
(6) For the purposes of this paragraph—
(a) “debt investment” includes an investment in—
(i) any arrangement which produces a return which is economically equivalent to interest within the meaning of Chapter 2A of Part 6 of CTA 2009 (see section 486B(2) of that Act), or
(ii) an asset representing an alternative finance arrangement, a creditor repo, a creditor-quasi repo or a manufactured interest relationship;
(b) a “significant debt investment”, in relation to a credit fund, means a debt investment of at least £1 million or at least 5% of the total amounts raised or to be raised from external investors in the fund;
(c) “shares” includes—
(i) stock;
(ii) any other interest of a member in a company (including a company that has no share capital);
(iii) any interest as co-owner of shares (whether the shares are owned jointly or in common and whether or not the interests of the co-owners are equal);
(iv) rights of unit holders in unit trust schemes that are treated as if they were shares for the purposes of TCGA 1992 as a result of section 99(1) of that Act;
(v) units in tax transparent funds that are treated as assets for the purposes of that Act as a result of section 103D(3) of that Act;
(vi) any derivative contract to the extent that the underlying subject matter of the contract is shares;
(vii) any contract which is not a derivative contract within the meaning of Part 7 of CTA 2009 only as a result of section 589(2)(b) of that Act (general exclusion of contracts whose underlying subject matter consists of shares);
(d) a debt investment is “associated” with a significant debt investment if the debtor of the debt investment is—
(i) also the debtor of the significant debt investment, or
(ii) a member of the same consolidated group as the debtor of the significant debt investment;
(e) an investment in shares is “associated” with a significant debt investment if the shares are in—
(i) the debtor of the significant debt investment, or
(ii) a member of the same consolidated group as the debtor of the significant debt investment.
Funds of funds
30 (1) Paragraph 13(5) (disregard of intermediate holdings and holding structures) does not apply to an investment made for the purposes of a fund of funds in an investment scheme (and, accordingly, such an investment is regarded as an investment in the investment scheme itself).
(2) Sub-paragraph (1) does not apply in relation to a fund of funds in relation to an investment scheme if it is reasonable to assume that the main purpose or one of the main purposes of the making of any investment in any investment scheme for the purposes of the fund of funds is to increase the proportion of carried interest arising to any person which is qualifying carried interest.
(3) Where by virtue of sub-paragraph (1) a fund of funds has a significant investment in an investment scheme (“the underlying scheme”)—
(a) any qualifying investment made for the purposes of the fund in the underlying scheme after the time the significant investment was made is to be regarded as having been made at that time, and
(b) any disposal for the purposes of the fund of a qualifying investment in the underlying scheme after that time is to be regarded as not being made until a relevant disposal is made.
(4) In sub-paragraph (3)(b) “relevant disposal”, in relation to an underlying scheme, means a disposal which (apart from sub-paragraph (3)) has the effect that the fund of fund's investment in the underlying scheme is worth less than whichever is the greater of—
(a) £1 million, or
(b) 5% of the total value invested for the purposes of the fund of funds in investments in the underlying scheme made before the disposal.
(5) In this Part of this Schedule, “fund of funds” means an investment scheme in relation to which the condition in sub-paragraph (6) is met.
(6) The condition is that when the scheme starts to invest it is reasonable to assume that over the investing life of the scheme—
(a) at least 80% of the total value invested for the purposes of the scheme will be invested in—
(i) investment schemes that are independent from the scheme;
(ii) portfolios of investments acquired from investment schemes that are independent from the scheme;
(iii) direct co-investments;
(b) more than 50% of the total value invested for the purposes of the scheme will be invested in investments which are held for 40 months or more.
(7) In determining whether sub-paragraph (6)(b) is met in relation to an investment scheme, apply the rule in sub-paragraph (3) to the scheme.
(8) In this paragraph—
(a) “direct co-investment”: an investment made for the purposes of an investment scheme (the “investing scheme”) is a “direct co-investment” if it is made alongside and on substantially the same terms as an investment made by another investment scheme—
(i) in which an investment has been made for the purposes of the investing scheme, and
(ii) which is independent from the investing scheme;
(b) “independent”: an investment scheme is independent from another investment scheme if the persons providing investment management services to the first scheme and the persons providing investment management services to the second scheme are not the same or substantially the same;
(c) “significant investment”, in relation to an investment scheme means—
(i) an investment of a least £1 million in the scheme, or
(ii) an investment of at least 5% of the total amounts raised or to be raised from external investors in the scheme;
(d) “qualifying investment” means an investment made for the purposes of a fund of funds in an investment scheme (“the underlying scheme”) where it is reasonable to assume that—
(i) the investment is held on substantially the same terms as other investments made by external investors in the underlying scheme,
(ii) the underlying scheme has not made an investment in the fund of funds,
(iii) the underlying scheme is independent from the fund of funds, and
(iv) the investment in the underlying scheme is not part of arrangements the main purpose or one of the main purposes of which is to reward any person involved in providing investment management services to the underlying scheme or a scheme that is not independent from the underlying scheme.
(9) For the purposes of this paragraph—
(a) when an investment in an investment scheme is made by subscribing for an interest in the scheme—
(i) the investment is to be treated as having been made where there was an a unconditional obligation to subscribe for the interest, and
(ii) paragraph 19(4) applies for the purposes of determining when such an obligation is not to be regarded as unconditional as if the reference in paragraph 19(4)(b) to the debt investment were a reference to the investment in the investment scheme;
(b) an investment made for the purposes of a fund of funds in an investment scheme includes an investment in an entity that, when the fund makes the investment, it is reasonable to assume is an investment scheme;
(c) an investment or part of an investment in an investment scheme is disposed of where the investment or part of the investment would be disposed by virtue of paragraph 15 if the investment were an asset for the purposes of TCGA 1992;
(d) any distribution made by the underlying scheme to the fund of funds is to be treated as a part disposal of the investment in the scheme.
Chapter 6 Conditionally qualifying carried interest
Conditionally qualifying carried interest
31 (1) Carried interest which—
(a) arises to an individual from an investment scheme,
(b) is not 100% qualifying carried interest, and
(c) is conditionally qualifying carried interest,
is to be treated as if it were 100% qualifying carried interest.
(2) Carried interest is conditionally qualifying carried interest if Conditions A to C are met.
(3) Condition A is that the carried interest arises to the individual in the period of ten years beginning with the day on which the scheme starts to invest.
(4) Condition B is that it is reasonable to assume that, were the carried interest to arise to the individual at the relevant time (but by reference to the same investments), it would be 100% qualifying carried interest.
(5) The “relevant time” is whichever is the earliest of—
(a) the time when it is reasonable to assume that the investment scheme will be wound up;
(b) the end of the period of four years beginning with the time when it is reasonable to assume that the scheme will cease to invest;
(c) the end of the period of—
(i) four years beginning with the day on which the sum of carried interest arises to the individual, or
(ii) ten years beginning with that day if the carried interest was calculated on the realisation model;
(d) the end of the period of four years beginning with the end of the period by reference to which the amount of the carried interest was determined.
(6) Sub-paragraph (4) does not affect what would otherwise be the time at which an investment is disposed of for the purposes of this Part of this Schedule.
(7) Condition C is that the individual makes a claim under this paragraph for this paragraph to apply to the carried interest.
Carried interest which ceases to be conditionally qualifying carried interest
32 (1) Carried interest which is conditionally qualifying carried interest ceases to be conditionally qualifying carried interest at whichever is the earliest of—
(a) the time when the investment scheme is wound up;
(b) the end of the period of four years beginning with the time the scheme ceases to invest;
(c) the end of the period of—
(i) four years beginning with the day on which the sum of carried interest arises to the individual, or
(ii) ten years beginning with that day if the carried interest was calculated on the realisation model;
(d) the end of the period of four years beginning with the end of the period by reference to which the amount of the carried interest is determined;
(e) the time at which Condition B in paragraph 31(4) ceases to be met.
(2) Carried interest which ceases to be conditionally qualifying carried interest is to be treated as arising to the individual at the time when the carried interest ceases to be conditionally qualifying carried interest (but in relation to the same investments) to the extent that, had it in fact arisen to the individual at that time (but in relation to the same relevant investments), it would not have been qualifying carried interest.
(3) Carried interest which is conditionally exempt from income tax by virtue of section 809FZS of ITA 2007 when this paragraph comes into force is to be treated as if it were conditionally qualifying carried interest for the purposes of this paragraph.
(4) Any amount paid by way of income tax or capital gains tax in respect of carried interest to which paragraph 31 applies is to be treated as if it had been paid in respect of any income tax liability arising under sub-paragraph (2).
Chapter 7 Supplementary
Anti-avoidance
33 (1) For the purposes mentioned in sub-paragraph (2), no regard is to be had to any arrangements the main purpose of which, or one of the main purposes of which, is to increase the proportion of carried interest which is qualifying carried interest.
(2) The purposes referred to in sub-paragraph (1) are—
(a) determining the average holding period, or
(b) determining whether an investment scheme is a venture capital fund, significant equity stake fund, controlling equity stake fund, real estate fund, credit fund or fund of funds.
Treasury regulations
34 (1) The Treasury may by regulations make provision relating to the calculation of the average holding period in some or all cases.
(2) The provision referred to in sub-paragraph (1) includes in particular—
(a) provision for a method of calculating that period which is different from that in paragraph 13;
(b) provision as to what is and is not to be regarded as an investment;
(c) provision as to when an investment is to be regarded as made or disposed of;
(d) anti-avoidance provision.
(3) Regulations under this paragraph may—
(a) amend this Part of this Schedule;
(b) make different provision for different purposes;
(c) contain incidental, supplemental, consequential and transitional provision and savings.
Chapter 8 Interpretation
Interpretation of Part 3
35 (1) In this Part of this Schedule—
“5% interest”, “15% interest”, “20% interest”, “25% interest” and “40% interest” are to be construed in accordance with sub-paragraph (4);
“act together”: two or more investment schemes act together in relation to a company if—
they enter into contractual arrangements (with or without other persons) in relation to the conduct of the company's affairs,
the arrangements are negotiated on arm's length terms, and
the investment schemes act together to secure greater control or influence over the company's affairs than they would be able to secure individually;
“alternative finance arrangements” has the same meaning as in Part 6 of CTA 2009 (see section 501(2) of that Act), disregarding section 508 of that Act;
“associated”: two or more investment schemes are “associated” if, under arrangements including those investment schemes, an investor in one of those schemes would reasonably regard that investment as an investment in the arrangements as a whole rather than exclusively in any particular scheme;
“consolidated group” means a group within the meaning given by international accounting standards;
“contract for differences” has the same meaning as in Part 7 of CTA 2009 (see section 582 of that Act);
“controlling equity stake fund” has the meaning given in paragraph 27;
“controlling interest” has the meaning given in sub-paragraph (3);
“credit fund” has the meaning given in paragraph 29;
“creditor repo” and “creditor quasi-repo” have the same meaning as in Part 6 of CTA 2009 (see sections 543 and 544 of that Act) (but see sub-paragraph (7));
“debt investment” has the meaning given in paragraph 19 (but see also paragraph 29(6)(a) which expands the definition for the purposes of that paragraph);
“debtor” —
in relation to a debt investment within the meaning of paragraph 19, means the person standing in the position of debtor as respects the debt;
in relation to a debt investment falling within paragraph 29(6)(a)(i), means the party from whom the return is due;
in relation to alternative finance arrangements means any person by whom sums are payable under the arrangements for the purposes of the investment scheme;
in relation to an asset representing a creditor repo or creditor quasi-repo means the person described in section 543(2) or 544(2) of CTA 2009;
in relation to an asset representing a manufactured interest relationship means the person by whom the manufactured interest within the meaning of Chapter 9 of Part 6 of CTA 2009 (see section 539(5) of that Act) is payable;
“derivative contract” has the same meaning as in Part 7 of CTA 2009 (but see sub-paragraph (6));
“designated” has the same meaning as for accounting purposes;
“exchange gain or loss” is to be construed in accordance with section 475 of CTA 2009;
“fund of funds” has the meaning given in paragraph 30;
“future” has the same meaning as in Part 7 of CTA 2009 (see section 581 of that Act);
“interest rate contract” means—
a derivative contract whose underlying subject-matter is, or includes, interest rates, or
a swap contract in which payments fall to be made by reference to a rate of interest;
“investing life” is to be construed in accordance with sub-paragraph (2);
“investment” does not include—
cash awaiting investment, or
cash representing the proceeds of the disposal of an investment, where the cash is to be distributed as soon as reasonably practicable to investors in the scheme;
“loan relationship” has the meaning given by section 302(1) of CTA 2009 (but see sub-paragraph (7));
“major interest in land”—
in relation to land in England and Wales, Scotland or Northern Ireland has the same meaning as in section 1178A of CTA 2009, but as if the reference in subsection (4) of that section to “7 years” were to “21 years”;
in relation to land in a territory outside the United Kingdom, means any equivalent interest under the law of that territory;
“manufactured interest relationship” has the same meaning as in the Corporation Tax Acts (see section 539 of the CTA 2009) (but see sub-paragraph (7));
“money debt” means a debt which is a money debt for the purposes of Part 5 of CTA 2009 (see section 303(1) of that Act) or Chapter 2 of Part 6 of that Act (see section 478(3) of that Act);
“option” has the same meaning as in Part 7 of CTA 2009, disregarding section 580(2) of that Act;
“real estate fund” has the meaning given by paragraph 28;
“realisation model”: a sum of carried interest is calculated on the “realisation model” if—
it falls within paragraph 2(2) or (3) (disregarding paragraph 2(2)(b) and (3)(b)), or
in the case of consideration or a tax distribution treated as a sum of carried interest as a result of paragraph 3 or 4, if the carried interest to which the consideration or tax distribution relates were to arise, it would fall within paragraph 2(2) or (3) (disregarding paragraph 2(2)(b) and (3)(b));
“relevant non-lending relationship” has the same meaning as in Chapter 2 of Part 6 of CTA 2009 (see section 478(2) of that Act) (but see sub-paragraph (7));
“relevant rights” has the meaning given by paragraph 25;
“significant equity stake fund” has the meaning given by paragraph 26;
“trading company” and “trading group” have the meanings given by paragraphs 20 and 21 of Schedule 7AC to TCGA 1992;
“underlying subject matter” has the same meaning as in Part 7 of CTA 2009;
“unlisted”: a company is unlisted if—
no shares of any class issued by the company are listed on any stock exchange, and
there are no other trading arrangements in place in respect of shares of any class issued by the company;
“venture capital fund” has the meaning given by paragraph 25.
(2) In this Part of this Schedule—
(a) references to when a scheme starts or ceases to invest are to the time when investments start or cease to be made for the purposes of the scheme, and
(b) references to the investing life of the scheme are to the time between when a scheme starts and ceases to invest.
(3) For the purposes of this Part of this Schedule, an investment scheme has a controlling interest in a company if share capital of the company is held for the purposes of the scheme which—
(a) amounts to more than 50% of the ordinary share capital of the company, and
(b) carries an entitlement to more than 50% of—
(i) voting rights in the company,
(ii) profits available for distribution to shareholders, and
(iii) assets of the company available for distribution to shareholders in a winding-up.
(4) For the purposes of this Part of this Schedule, an investment scheme has an interest of a particular percentage in a company (for example, a 40% interest) if share capital of the company is held for the purposes of the scheme which—
(a) amounts to at least that percentage of the ordinary share capital of the company, and
(b) carries an entitlement to at least that percentage of—
(i) voting rights in the company,
(ii) profits available for distribution to shareholders, and
(iii) assets of the company available for distribution to shareholders in a winding-up.
(5) For the purposes of sub-paragraphs (3) and (4) any share capital held by a company controlled by an investment scheme is to be regarded as held for the purposes of the investment scheme.
(6) For the purposes of the definition of “derivative contract”, read Part 7 of CTA 2009 as if—
(a) references to a company were references to an investment scheme, and
(b) references to a contract of a company were references to a contract for the purposes of an investment scheme.
(7) For the purposes of the definition of “creditor repo”, “creditor quasi-repo”, “loan relationship”, “manufactured interest relationship” and “relevant non-lending relationship” read the relevant provisions of Part 5 and 6 of CTA 2009 as if—
(a) references to a company were references to an investment scheme, and
(b) the reference to a company having such a relationship were a reference to there being such a relationship for the purposes of an investment scheme.
Part 4 Carried interest elections
Election for carried interest to be chargeable as scheme profits arise
36 (1) An individual (“A”) who performs investment management services under arrangements mentioned in section 23I(1)(a) may make an election under this paragraph in respect of an investment scheme if—
(a) a sum of carried interest arises to A from the scheme under the arrangements for the purposes of section 23I(1)(b), or
(b) it is reasonable to expect that such a sum will arise to A.
(2) Sub-paragraph (3) applies for a tax year (“the relevant tax year”) where an election made under this Part of this Schedule has effect for that tax year in respect of an investment scheme (in this Part of this Schedule, “the relevant scheme”).
(3) The amount determined in accordance with sub-paragraph (4) is to be treated for the purposes of section 23I as a sum of carried interest arising to A from the relevant scheme under the arrangements on the last day of the relevant tax year.
(4) The amount determined in accordance with this sub-paragraph is the amount given by reducing—
(a) the amount of carried interest that would arise to A from the relevant scheme under the arrangements for the purposes of section 23I(1)(b) in the relevant tax year in the circumstances mentioned in sub-paragraph (5), by
(b) the sum of the amounts treated under this paragraph as sums of carried interest arising to A from the relevant scheme under the arrangements in previous tax years.
(5) Those circumstances are that—
(a) all of the investments held by the relevant scheme in the relevant tax year, and previously held by the scheme, whose disposal would be relevant to A’s entitlement to carried interest, were disposed of in the relevant tax year,
(b) the amount realised on the disposal of each investment that was not actually disposed of in, or before, the relevant tax year were the amount of the costs to the relevant scheme in acquiring that investment,
(c) all income that was received by the scheme (whether before or during the relevant tax year) and that would be relevant to A’s entitlement to carried interest, were received in the relevant tax year, and
(d) all profits realised by the scheme as a result of those disposals and the receipt of that income were distributed to its investors in the relevant tax year.
(6) Where—
(a) distributions were made by the scheme to external investors before the relevant tax year, and
(b) the timing of those distributions affects the amount of carried interest that actually arises to A,
the amount of carried interest to be presumed to arise in the circumstances mentioned in sub-paragraph (5) is to reflect the fact those distributions were made before the relevant tax year.
(7) But if reflecting that fact would lead to a presumption that an amount of carried interest had arisen before the relevant tax year, any such amount is to be presumed to arise in the relevant tax year.
(8) An election under this paragraph—
(a) must be made by notice given to an officer of Revenue and Customs, and
(b) may not be revoked.
(9) A notice making an election—
(a) must state the first tax year for which it is to have effect, and
(b) may not be given after 31 January following the end of that tax year.
(10) For the purposes of this Part of this Schedule where an election has been made under section 103KFA of TCGA 1992 in respect of a scheme (election for carried interest gains to be chargeable as scheme profits arise)—
(a) the election is to be treated as if it were an election made under this paragraph, and
(b) references to an amount treated as a sum of carried interest arising to an individual from a scheme under sub-paragraph (3) (howsoever expressed) include chargeable gains treated as accruing to the individual under section 103KFA(3) of TCGA 1992 (election for carried interest gains to be chargeable as scheme profits arise) in respect of the scheme.
Election in relation to scheme to apply to associated schemes
37 (1) Where an election has been made under paragraph 36 in relation to an investment scheme (“S”) that is associated with another investment scheme, the election has effect in respect of the other scheme for any tax year for which it has effect in relation to S (whether or not the conditions for an election to be made in respect of the other scheme were met at that time).
(2) “Associated”, in relation to two or more investments schemes, has the same meaning as in Part 3 of this Schedule.
Interaction with other charges
38 (1) The treatment of an amount under paragraph 36(3) as a sum of carried interest arising to an individual does not prevent the individual being charged to income tax or national insurance contributions as a result of section 23I in relation to carried interest that arises to the individual from the relevant scheme.
(2) But sub-paragraph (3) applies where—
(a) the individual has made an election under paragraph 36,
(b) an amount is to be treated as a sum of carried interest arising to the individual for the purposes of section 23I from the relevant scheme under paragraph 36(3),
(c) the individual has paid (and has not been repaid)—
(i) an amount of income tax or national insurance contributions to which the individual was chargeable as a result of the amount being so treated, or
(ii) where paragraph 36(10)(b) applies, an amount of capital gains tax that is attributable to a chargeable gain treated as accruing to the individual,
(d) the individual is charged to income tax and national insurance contributions by virtue of section 23I in relation to carried interest that—
(i) arises to the individual from the relevant scheme under the arrangements mentioned in section 23I(1)(a), and
(ii) arises in or after the tax year for which an amount was first treated as a sum of carried interest arising to the individual from the scheme under paragraph 36(3).
(3) The individual may make a claim for one or more consequential adjustments to be made in respect of the profits chargeable by virtue of section 23I in relation to carried interest mentioned in sub-paragraph (2)(d) to take account of the amounts paid as mentioned in sub-paragraph (2)(c).
(4) On a claim under sub-paragraph (3) an officer of Revenue and Customs must make such of the consequential adjustments claimed (if any) as are just and reasonable.
(5) Consequential adjustments in respect of the profits chargeable by virtue of section 23I must not have the effect that—
(a) the total of—
(i) the amount of income tax and national insurance contributions charged on the adjusted profits by virtue of section 23I, and
(ii) any amounts paid as mentioned in sub-paragraph (2)(c), is less than
(b) the amount of income tax and national insurance contributions to which the individual was chargeable by virtue of section 23I in respect of the sum of carried interest mentioned in sub-paragraph (2)(d) before the making of any consequential adjustments.
(6) Consequential adjustments may be made—
(a) in respect of any period, and
(b) by way of an assessment, the modification of an assessment, the amendment of a claim, or otherwise.
(7) No claim may be made under section 23Q (carried interest: avoidance of double taxation) in respect of tax charged as a result of an amount being treated as a sum of carried interest under paragraph 36(3).
Deemed trade losses where carried interest never arises
39 (1) Sub-paragraph (3) applies where—
(a) an individual has made an election under paragraph 36,
(b) an amount is treated under paragraph 36(3) as a sum of carried interest arising to the individual from the relevant scheme under the arrangements mentioned in section 23I(1)(a), and
(c) the conditions in sub-paragraph (2) are met.
(2) Those conditions are that—
(a) all, or substantially all, of the investments of the relevant scheme have been disposed of,
(b) the amount of carried interest that has actually arisen to the individual from the relevant scheme under the arrangements since the beginning of the first tax year in which an amount was treated under paragraph 36(3) as a sum of carried interest arising to the individual is less than the sum of the amounts treated as carried interest under that paragraph, and
(c) no further amount of carried interest can reasonably be expected to arise to the individual from the relevant scheme under those arrangements.
(3) The amount determined in accordance with sub-paragraph (4) is to be treated for income tax purposes as a loss of the trade treated as carried on by the individual under section 23I for the tax year in which the conditions in sub-paragraph (2) are first met.
(4) The amount of that loss is the amount given by subtracting—
(a) the amount treated as the profits of a trade carried on by the individual under section 23I by virtue of the carried interest that actually arose to the individual from the relevant scheme under the arrangements since the beginning of the first tax year in which an amount was treated as a sum of carried interest arising to the individual under paragraph 36(3), from
(b) the amount treated as the profits of a trade carried on by the individual under section 23I by virtue of the amounts being treated under paragraph 36(3) as sums of carried interest arising to the individual from the relevant scheme.
(5) Where an amount is treated as a loss of the trade for a tax year as a result of sub-paragraph (3)—
(a) paragraph 36(3) does not apply (in relation to the individual and the relevant scheme) for any tax year after that tax year, and
(b) if carried interest arises to the individual in respect of the relevant scheme after that tax year, the individual may not make a claim under paragraph 38(3) in respect of tax charged in relation to it.
Anti-avoidance
40 (1) This paragraph applies where an election was made by an individual under paragraph 36 and the main purpose, or one of the main purposes, of making the election is to cause an amount to be treated as a loss of the trade under paragraph 39(3).
(2) Any such amount that would (in the absence of this paragraph) be treated as a loss of the trade under that paragraph is to be counteracted by the making of such adjustments as are just and reasonable.
(3) Any adjustments required to be made under this paragraph (whether or not by an officer of Revenue and Customs) may be made by way of—
(a) an assessment,
(b) the modification of an assessment, or
(c) amendment or disallowance of a claim, or otherwise.
Part 2 Consequential and connected amendments
TCGA 1992
2 (1) TCGA 1992 is amended as follows.
(2) In section 1H (the main rates of CGT)—
(a) in subsection (3), omit “other than carried interest gains (see subsections (4B) and (9) to (11))”;
(b) omit subsections (4B) and (5);
(c) in subsection (6), omit “Other”;
(d) omit subsections (9) to (11).
(3) In section 1I (income taxed at higher rates or gains exceeding unused basic rate band), omit subsection (A1).
(4) In section 1M (temporary non-residents), after subsection (1) insert—
(1A) Subsection (1) does not apply to a gain that accrues to an individual who was temporarily non-resident in tax year 2025-26 or an earlier tax year under section 103KA(2) or (3) of TCGA 1992 (as it then had effect).
But see section 23M of ITTOIA 2005 which charges the amount of the gain to income tax in the period of return.
(5) In section 86 (attribution of gains to settlors with interest in non-resident or dual resident settlements), for subsection (4ZB), substitute—
(4ZB) Where (apart from this subsection) the amount mentioned in subsection (1)(e) would include an amount of chargeable gains accruing by virtue of the trustee’s entitlement to a sum of carried interest, the amount of the gains is to be disregarded for the purposes of subsection (1)(e).
(4ZC) In subsection (4ZB)—
(a) “carried interest” has the same meaning as in section 23I of ITTOIA 2005 (see Part 1 of Schedule A1 to that Act), and
(b) that definition has effect as if references to a sum arising to an individual included a reference to a sum arising to the trustees.
(6) In section 87 (non-UK resident settlements: attribution of gains to beneficiaries), for subsection (5B) substitute—
(5B) Where (apart from this subsection)—
(a) the amount mentioned in subsection (4)(a) would include an amount of chargeable gains accruing by virtue of the trustee’s entitlement to a sum of carried interest, and
(b) at the time when those chargeable gains accrue, income tax is chargeable by virtue of section 23I of ITTOIA 2005 in respect of the sum of carried interest,
the amount of the gains is to be disregarded for the purposes of determining the section 1(3) amount.
(5C) In subsection (5B) and section 87BA—
(a) “carried interest” has the same meaning as in section 23I of ITTOIA 2005 (see Part 1 of Schedule A1 to that Act), and
(b) that definition has effect as if references to a sum arising to an individual included a reference to a sum arising to the trustees.
(7) After section 87B insert—
Sections 87 and 87A: disregard of capital payments made from carried interest gains
87BA (1) This section applies to a settlement where—
(a) a chargeable gain accruing by virtue of the trustee’s entitlement to a sum of carried interest in respect of which income tax is chargeable by virtue of section 23I of ITTOIA 2005 (“a carried interest gain”) is or has been disregarded for the purposes of determining the section 1(3) amount for the settlement for a tax year as a result of section 87(5B), and
(b) the unused disregarded amount in relation to the carried interest gain is not nil.
(2) For the purposes of sections 87 and 87A as they apply in relation to the settlement, no account is to be taken of a capital payment (or part of a capital payment) received by a beneficiary from the trustees at or after the time when the carried interest gain accrued if (or to the extent that) the amount of the capital payment does not exceed the unused disregarded amount.
(3) But if subsection (2) applies in a case where—
(a) two or more capital payments are received by beneficiaries at the same time, and
(b) the total of those capital payments exceeds the unused disregarded amount,
no account is to be taken of the amount of each capital payment that is the relevant proportion of the unused disregarded amount.
(4) In subsection (3), the “relevant proportion” means the proportion that the amount of the capital payment concerned bears to the total amount of all of the capital payments received by beneficiaries at the same time.
(5) In this section the “unused disregarded amount”, in relation to a carried interest gain, means—
(a) the sum of—
(i) the amount of the carried interest gain, and
(ii) the amount of any other carried interest gains that accrued to the trustees prior to the carried interest gain accruing that are or have been disregarded for the purposes of determining the section 1(3) amount for the settlement for a tax year as a result of section 87(5B), minus
(b) the amount of any capital payments (or part of capital payments) received by beneficiaries from the trustees of which no account has been taken as a result of the application of this section.
(8) For section 103KA (carried interest) substitute—
Carried interest: no chargeable gain
103KA (1) This section applies where—
(a) an individual performs investment management services directly or indirectly in respect of an investment scheme under any arrangements, and
(b) the individual is entitled to carried interest under the arrangements.
(2) Any gain or loss accruing to the individual by virtue of the individual’s entitlement to carried interest is treated as not accruing.
(3) In this section “arrangements”, “carried interest”, “investment scheme” and “investment management services” have the same meaning as in section 23I of ITTOIA 2005 (see section 23R of and Part 1 of Schedule A1 to that Act).
(9) Omit sections 103KB to 103KE.
(10) In section 103KF (relief for external investors on disposal of partnership asset), after subsection (2) insert—
(3) In this section, “external investor” and “investment scheme” have the same meaning as in section 23I of ITTOIA 2005 (see section 23R of that Act).
(11) Omit sections 103KFA to 103KH.
ITA 2007
3 (1) ITA 2007 is amended as follows.
(2) In section 809EZA (disguised investment management fees: charge to income tax)—
(a) omit subsections (2A) to (2C);
(b) in subsection (6), for paragraph (b) substitute—
(b) an AIF within the meaning of regulation 3 of the Alternative Investment Fund Managers Regulations 2013, or any part of an AIF (within that meaning), that is not a collective investment scheme.
;
(c) in subsection (7)—
(i) for the opening words substitute “The references in subsection (6) to a collective investment scheme or AIF include—”;
(ii) in paragraphs (a) and (b), after “collective investment scheme” insert “or AIF”;
(iii) in paragraphs (a) and (b), after “the scheme” insert “or AIF”.
(3) In section 809EZB (meaning of “management fee” in section 809EZA)—
(a) in subsection (1)(a) after “individual” insert “, or a person who is connected with the individual,”;
(b) in subsection (1)(b) after “individual” insert “, or a person who is connected with the individual,”;
(c) at the end of subsection (1)(b), omit “or”;
(d) in subsection (1)(c), for the words from “which” to the end substitute “within the meaning of section 23I of ITTOIA 2005 arising to the individual for the purposes of that section, or”;
(e) after subsection (1)(c) insert—
(d) a sum that would fall within paragraph (c) had it not been deferred as specified in paragraph 9(2)(a) or (b) of Schedule A1 to ITTOIA 2005.
;
(f) in the opening words of subsection (2), after “if” insert “(and only if)”;
(g) after subsection (4) insert—
(5) Section 993 (meaning of “connected”) applies for the purposes of this section, but as if—
(a) subsection (4) of that section were omitted, and
(b) partners in a partnership in which the individual is also a partner were not “associates” of the individual for the purposes of sections 450 and 451 of CTA 2010 (“control”).
(4) Omit sections 809EZC and 809EZD.
(5) In section 809EZDA (sums arising to connected persons other than companies), in subsection (1), omit paragraphs (c) and (d).
(6) In section 809EZDB (sums arising to connected company or unconnected person)—
(a) in subsection (1)(b), for “is” substitute “are”;
(b) in the opening words of subsection (5) for “is” substitute “are”;
(c) in subsection (6) after “A” insert “or a person connected with A”;
(d) in subsection (7), in the opening words, omit “connected with A”;
(e) in subsection (9), for the words from “the sum is applied” to the end substitute
—
(a) the sum arose from an investment scheme,
(b) the sum is applied directly or indirectly as an investment in an investment scheme, and
(c) the persons providing investment management services to the schemes mentioned in paragraphs (a) and (b) are the same or substantially the same.
(7) In section 809EZE (interpretation of Chapter)—
(a) in subsection (1), in the definition of “investment management services”—
(i) before paragraph (a) insert—
(za) the provision of investment advice,
;
(ii) omit the “and” at the end of paragraph (c);
(iii) at the end of paragraph (d) insert
, and
(e) any activity incidental or ancillary to any activity mentioned in paragraphs (za) to (d);
;
(b) in the opening words of subsection (3), for the words from “a share” to “the share” substitute “a direct or indirect interest in an investment scheme and who acquired the interest”;
(c) in subsections (3)(a) and (b) for “share” substitute “interest”.
(8) In section 809EZH (powers to amend Chapter), omit subsection (1)(c).
(9) Omit Chapter 5F.
Schedule 12 Reform of reliefs for business property and agricultural property
Section 65
Part 1 Business property relief and agricultural property relief
Introduction
1 IHTA 1984 is amended as follows.
Business property
2 (1) Section 104 (business property relief) is amended as follows.
(2) In subsection (1)—
(a) in the words before paragraph (a), after “reduced” insert “by 50%.”, and
(b) omit paragraphs (a) and (b) and the words after paragraph (b).
(3) After that subsection insert—
(1A) But so much of the value transferred as—
(a) is attributable to the value of relevant business property that falls within section 105(1)(a), (b) or (bb),
(b) constitutes a chargeable transfer that is not an occasion on which tax is chargeable under Chapter 3 of Part 3 (charges on certain settlements etc), and
(c) does not exceed the amount of the 100% relief allowance available in relation to that chargeable transfer (see section 124D),
is to be treated (instead) as reduced by 100%.
(1B) And so much of the value transferred as—
(a) is attributable to the value of relevant business property that falls within section 105(1)(a), (b) or (bb),
(b) constitutes a chargeable transfer that is an occasion on which tax is chargeable under Chapter 3 of Part 3, and
(c) does not exceed the amount of the 100% trust relief allowance available in relation to that occasion (see sections 124G to 124K),
is to be treated (instead) as reduced by 100%.
(1C) Subsections (1) to (1B) are subject to the following provisions of this Chapter.
Agricultural property
3 (1) Section 116 (agricultural property relief) is amended as follows.
(2) In subsection (1), for the words from “the appropriate” to the end substitute “50%”.
(3) After that subsection insert—
(1A) But so much of that whole or that part as—
(a) constitutes a chargeable transfer that is not an occasion on which tax is chargeable under Chapter 3 of Part 3 (charges on certain settlements etc), and
(b) does not exceed the amount of the 100% relief allowance available in relation to that chargeable transfer (see section 124D),
is to be treated (instead) as reduced by 100%, but only if the transferor’s interest condition is met.
(1B) And so much of that whole or that part as—
(a) constitutes a chargeable transfer that is an occasion on which tax is chargeable under Chapter 3 of Part 3, and
(b) does not exceed the amount of the 100% trust relief allowance available in relation to that occasion (see sections 124G to 124K),
is to be treated (instead) as reduced by 100%, but only if the transferor’s interest condition is met.
(1C) Subsections (1) to (1B) are subject to the following provisions of this Chapter.
(4) In subsection (2)—
(a) in the words before paragraph (a), for “The appropriate percentage is 100 per cent.” substitute “For the purposes of subsections (1A) and (1B), the transferor’s interest condition is met”, and
(b) omit the words after paragraph (c).
(5) In subsection (4)—
(a) for “appropriate percentage would be 100 per cent.” substitute “transferor’s interest condition would be met”, and
(b) for the words from “the appropriate percentage”, in the second place it occurs, to the end substitute
subsections (1A) and (1B) have effect as if—
(a) the transferor’s interest condition were met, and
(b) after paragraph (a) of each subsection there were inserted—
(aa) does not exceed the amount which would have attracted relief under Schedule 8 to the Finance Act 1975, and
.
100% relief allowance
4 In Part 5, after Chapter 2 insert—
Chapter 2A 100% Relief allowance and 100% trust relief allowance
100% relief allowance
124D (1) This section applies for the purpose of determining the amount of the 100% relief allowance available in relation to a chargeable transfer that is not an occasion on which tax is chargeable under Chapter 3 of Part 3 for the purposes of—
(a) section 104(1A) (business property relief), and
(b) section 116(1A) (agricultural property relief).
(2) The 100% relief allowance available in relation to a chargeable transfer (“the relevant transfer”) is equal to—
(a) £2.5 million, less
(b) the total amount by which the values transferred by chargeable transfers made by the transferor in the allowance period were treated as reduced as a result of section 104(1A) or 116(1A).
(3) The allowance period means the period—
(a) beginning with the commencement of the period of seven years ending with the day on which the relevant transfer was made, and
(b) ending—
(i) where the relevant transfer is the transfer made under section 4, immediately before that transfer is deemed to have occurred, or
(ii) otherwise, with the day before the relevant transfer was made.
(4) But where—
(a) more than one conditionally relievable transfer in relation to the transferor occurs on the same day, and
(b) the sum of the potentially relievable values of those transfers exceeds the amount of the 100% relief allowance that would have been available in relation to a transfer made on that same day, if no other transfer had occurred on that day,
the 100% relief allowance available in relation to those transfers is to be determined under subsection (5) (instead of under subsection (2)).
(5) The 100% relief allowance available in relation to each of those transfers is the amount given by multiplying—
(a) the amount given by dividing the potentially relievable value of that transfer by the sum of the potentially relievable values of all of those transfers, by
(b) the amount of the 100% relief allowance that would have been available in relation to a transfer made on that same day, if no other transfer had occurred on that day.
(6) Subsection (7) applies where—
(a) the relevant transfer is the transfer made under section 4 (so far as it is a chargeable transfer), and
(b) the potentially relievable value of that transfer exceeds the amount of the 100% relief allowance available in relation to it.
(7) The 100% relief allowance available in relation to the relevant transfer is to be attributed between the properties transferred in proportion to the amount of the value of each property as is attributable to—
(a) the value of relevant business property that falls within section 105(1)(a), (b) or (bb),
(b) the agricultural value of agricultural property in relation to which the transferor’s interest condition in section 116(2) is met, or
(c) so much of the agricultural value of agricultural property in relation to which the transferor’s interest condition in section 116(2) is treated as met as a result of section 116(4) as does not exceed the amount which would have attracted relief under Schedule 8 to the Finance Act 1975.
(8) Subsection (9) applies where section 131(2) (relief where value of transferred property subsequently decreases) applies in relation to a chargeable transfer—
(a) made by the transferor in the allowance period, and
(b) the value of which is treated as reduced as a result of section 104(1A) or 116(1A).
(9) Subsection (2)(b) applies as if the amount by which that value is treated as reduced under section 104(1A) or 116(1A) is the amount by which it would have been treated as reduced if section 131(2) did not apply.
(10) For the purposes of this section—
(a) a chargeable transfer is a “conditionally relievable transfer” in relation to a transferor if—
(i) it was made by the transferor,
(ii) it is not the transfer made under section 4, and
(iii) section 104(1A) or 116(1A) would apply to reduce the value transferred if there were an amount of the 100% relief allowance available in relation to it, and
(b) the potentially relievable value of a chargeable transfer is so much of the value transferred as would be treated as reduced as a result of section 104(1A) or 116(1A) if the 100% relief allowance available in relation to it were unlimited.
Transfer of unused 100% relief allowance
124E (1) This section applies where—
(a) immediately before the death of a person (a “deceased person”), the deceased person had a spouse or civil partner (“the survivor”), and
(b) an amount of the 100% relief allowance of the deceased person is unused on death.
(2) A person has an amount of unused 100% relief allowance on death if the total 100% relieved amount is less than the deceased person’s final allowance amount.
(3) Accordingly, the “unused 100% relief allowance” in relation to the person is the difference between those amounts.
(4) In this section—
(a) the “total 100% relieved amount” is the total amount by which values transferred by chargeable transfers made by the deceased person in the period of seven years ending with the day on which the deceased person died were treated as reduced as a result of section 104(1A) or 116(1A), and
(b) the “final allowance amount” in relation to a person means the amount specified in section 124D(2)(a) that has effect on the day on which the person dies.
(5) Where a claim is made under this section, the survivor’s final allowance amount, for the purposes of the charge to tax on the death of the survivor, is increased by the lesser of the amount of the survivor’s final allowance amount and—
(a) the amount given by multiplying the survivor’s final allowance amount by the unused percentage of the deceased person, or
(b) where the survivor is the survivor in relation to more than one deceased person, the amount given by multiplying the survivor’s final allowance amount by the sum of the unused percentages of those deceased persons.
(6) The unused percentage of the deceased person means the percentage given by dividing—
(a) the unused 100% relief allowance in relation to the deceased person, by
(b) the deceased person’s final allowance amount.
Claims under section 124E
124F (1) A claim under section 124E may be made—
(a) by the personal representatives of the survivor within the permitted period, or
(b) (if no claim is so made) by any other person liable to the tax chargeable on the survivor's death within such later period as an officer of Revenue and Customs may in the particular case allow.
(2) If no claim under section 124E above has been made in relation to a person (P) by reference to whose death that section applies in relation to the survivor, the claim under that section in relation to the survivor may include a claim under that section in relation to P if that does not affect the tax chargeable on the value transferred by the chargeable transfer of value made on P's death.
(3) In subsection (1)(a) “the permitted period” means—
(a) the period of four years from the end of the month in which the survivor dies or (if it ends later) the period of six months beginning with the date on which the personal representatives first act as such, or
(b) such longer period as an officer of Revenue and Customs may in the particular case allow.
(4) A claim made within either of the periods mentioned in subsection (3)(a) may be withdrawn no later than one month after the end of the period concerned.
100% trust relief allowance
5 After section 124F (as inserted by paragraph 4) insert—
100% trust relief allowance (relevant property)
124G (1) This section applies for the purpose of determining the amount of the 100% trust relief allowance available in relation to an occasion on which tax is charged under section 64 or 65 in relation to a settlement (“the relevant settlement”) for the purposes of—
(a) section 104(1B) (business property relief), and
(b) section 116(1B) (agricultural property relief).
(2) The 100% trust relief allowance available in relation to an occasion on which tax is charged under section 64 or 65 (“the relevant occasion”) in relation to the relevant settlement is equal to—
(a) the trust maximum allowance (see sections 124H and 124I) for the relevant occasion, less
(b) the total amount by which the values charged on occasions on which tax was charged under section 64 or 65 in relation to the relevant settlement in the allowance period were treated as reduced as a result of section 104(1B) or 116(1B).
(3) The allowance period means the period—
(a) beginning with—
(i) the first day of the second quarter in the period beginning with the date of the most recent ten-year anniversary (within the meaning of Chapter 3 of Part 3) of the relevant settlement, or
(ii) if there has not yet been a ten-year anniversary of the relevant settlement, the first day of the second quarter in the period beginning with the date on which the settlement commenced, and
(b) ending with the day before the relevant occasion occurred.
(4) But where—
(a) more than one conditionally relievable occasion occurs on the same day, and
(b) the sum of the potentially relievable values in relation to those occasions exceeds the amount of the 100% trust relief allowance that would have been available in relation to a conditionally relievable occasion occurring on that same day, if no other such occasion had occurred on that day,
the 100% trust relief allowance available in relation to those occasions is to be determined under subsection (5) (instead of under subsection (2)).
(5) The 100% trust relief allowance available in relation to each of those occasions is the amount given by multiplying—
(a) the amount given by dividing the potentially relievable value in relation to that occasion by the sum of the potentially relievable values in relation to each of those occasions, by
(b) the amount of the 100% trust relief allowance that would have been available in relation to a conditionally relievable occasion occurring on that same day, if no other such occasion had occurred on that day.
(6) For the purposes of this section—
(a) a “conditionally relievable occasion” means an occasion on which—
(i) tax is charged under section 64 or 65 in relation to the relevant settlement, and
(ii) section 104(1B) or 116(1B) would apply to reduce the value charged if there were an amount of the 100% trust relief allowance available in relation to it, and
(b) the potentially relievable value, in relation to an occasion on which tax is charged under section 64 or 65, is so much of the value as otherwise would have been charged on that occasion as would be treated as reduced as a result of section 104(1B) or 116(1B) if the 100% trust relief allowance available in relation to it were unlimited.
Trust maximum allowance
124H (1) The trust maximum allowance for an occasion on which tax is chargeable under section 64 or 65 in relation to a settlement (“the relevant settlement”), other than a qualifying pre-commencement settlement (within the meaning of section 124I), is the sum of transferred allowance amounts the relevant settlement has acquired.
(2) The relevant settlement acquires a transferred allowance amount if—
(a) there is a chargeable transfer of qualifying relievable property that results in the property becoming comprised in the relevant settlement, or
(b) tax is charged as if there was a transfer of value of qualifying relievable property comprised in the relevant settlement as a result of section 4(1) (transfers on death) or section 52(1) (charge on termination of interest in possession).
(3) The transferred allowance amount in relation to a transfer (or deemed transfer) is equal to so much of the value of the qualifying relievable property as does not exceed the maximum allowance cap in relation to it (and if the cap is nil or less, no transferred allowance amount is acquired).
(4) The maximum allowance cap in relation to qualifying relievable property is equal to—
(a) £2.5 million, less
(b) the sum of transferred allowance amounts previously acquired by—
(i) the relevant settlement, or
(ii) any other settlement made by the settlor of the relevant settlement.
(5) But where more than one transfer referred to in subsection (2)(a) or (b), occurs (or is deemed to occur for the purpose of charging tax) on the same day, the maximum allowance cap is allocated between the qualifying relievable property that is the subject of each transfer in proportion to their value.
(6) Property is qualifying relievable property to the extent that on its transfer (or deemed transfer)—
(a) it becomes relevant property, and
(b) the value of the transfer is treated as reduced as a result of section 104(1A) or 116(1A).
(7) For the purposes of this section, the value of qualifying relievable property is equal to so much of the amount of the value transferred on its transfer (or deemed transfer) as is treated as reduced as a result of section 104(1A) or 116(1A).
(8) The determination of whether property is qualifying relievable property, and its value, is to be made as it would be made at the time of the transfer (and accordingly ignoring the occurrence of any subsequent events).
(9) In this section and in section 124I “relevant property” has the meaning it has in Chapter 3 of Part 3 (see section 58).
Trust maximum allowance (qualifying pre-commencement settlements)
124I (1) The trust maximum allowance for an occasion on which tax is chargeable under section 64 or 65 in relation to a qualifying pre-commencement settlement is £2.5 million.
(2) A settlement is a qualifying pre-commencement settlement if—
(a) the settlement commenced before 30 October 2024, and
(b) had there been an occasion on which tax is chargeable under Chapter 3 of Part 3 (apart from section 79), immediately before that date in relation to all of the property comprised in the settlement, at least some of the amount on which tax would then be chargeable would be treated as reduced as a result of subsection (1B) of section 104 or 116 if—
(i) the amendments made to those sections by paragraphs 2, 3 and 12 of Schedule 12 to the Finance Act 2026 had been in force,
(ii) sections 106, 117 and 123 (minimum periods of ownership or occupation) were ignored,
(iii) all of the property had been relevant property, and
(iv) there were an amount of the 100% trust relief allowance available in relation to it.
(3) The condition in subsection (2)(b) is to be treated as met if—
(a) some or all of the property comprised in the settlement is agricultural property let on a tenancy beginning before 1st September 1995,
(b) the transferor’s interest condition in section 116(2) was not met in relation to that property immediately before 30 October 2024, and
(c) the condition in subsection (2)(b) of this section would have been met if the transferor’s interest condition had been met in relation to that property at that time.
100% trust relief allowance (special trusts)
124J (1) This section applies for the purpose of determining the amount of the 100% trust relief allowance available in relation to an occasion on which tax is charged under a special trust charging provision for the purposes of—
(a) section 104(1B) (business property relief), and
(b) section 116(1B) (agricultural property relief).
(2) The 100% trust relief allowance available in relation to an occasion on which tax is charged under a special trust charging provision (“the relevant occasion”) in relation to a settlement (“the relevant settlement”) is equal to—
(a) £2.5 million, less,
(b) the total amount by which the values charged on occasions on which tax was charged under that special trust charging provision in relation to the relevant settlement before the day on which the relevant occasion occurred were treated as reduced as a result of section 104(1B) or 116(1B).
(3) But where—
(a) more than one conditionally relievable occasion in relation to the relevant settlement and that special trust charging provision occurs on the same day, and
(b) the sum of the potentially relievable values in relation to those occasions exceeds the amount of the 100% trust relief allowance that would have been available in relation to a conditionally relievable occasion occurring on that same day, if no other such occasion had occurred on that day,
the 100% trust relief allowance available in relation to those occasions is to be determined under subsection (4) (instead of under subsection (2)).
(4) The 100% trust relief allowance available in relation to each of those occasions is the amount given by multiplying—
(a) the amount given by dividing the potentially relievable value in relation to that occasion by the sum of the potentially relievable values in relation to each of those occasions, by
(b) the amount of the 100% trust relief allowance that would have been available in relation to a conditionally relievable occasion occurring on that same day, if no other such occasion had occurred on that day.
(5) For the purposes of this section—
(a) a “conditionally relievable occasion”, in relation to the relevant settlement and a special trust charging provision, means an occasion—
(i) on which tax is charged under that provision, and
(ii) on which section 104(1B) or 116(1B) would apply to reduce the value charged if there were an amount of the 100% trust relief allowance available in relation to it,
(b) the potentially relievable value, in relation to an occasion on which tax is charged under a special trust charging provision, is so much of the value as otherwise would have been charged on that occasion as would be treated as reduced as a result of section 104(1B) or 116(1B) if the 100% trust relief allowance available in relation to it were unlimited, and
(c) a special trust charging provision means—
(i) section 70 (property leaving temporary charitable trusts),
(ii) section 71 (accumulation and maintenance trusts),
(iii) section 71B (trusts for bereaved minors),
(iv) section 72 (property leaving employee trusts and newspaper trusts),
(v) section 73 (pre-1978 protective trusts),
(vi) section 74 (pre-1981 trusts for disabled persons), or
(vii) paragraph 8 of Schedule 4 (maintenance funds for historic buildings).
100% trust relief allowance (age 18-to-25 trusts)
124K (1) This section applies for the purpose of determining the amount of the 100% trust relief allowance available in relation to an occasion on which tax is charged under section 71E(1)(a) (charge on age 18-to-25 trusts) in relation to a settlement (“the relevant settlement”) and a beneficiary of that settlement (“B”) for the purposes of—
(a) section 104(1B) (business property relief), and
(b) section 116(1B) (agricultural property relief).
(2) There is no 100% trust relief allowance available in relation to an occasion on which tax is charged under section 71E(1)(b).
(3) The 100% trust relief allowance available in relation to an occasion on which tax is charged under section 71E(1)(a) (“the relevant occasion”) in relation to the relevant settlement and B is equal to—
(a) the 18-25 trust allowance in relation to the relevant settlement and B, less,
(b) the total amount by which the values charged on occasions on which tax was charged under that section in relation to the relevant settlement and B before the day on which the relevant occasion occurred were treated as reduced as a result of section 104(1B) or 116(1B).
(4) The 18-to-25 trust allowance in relation to the relevant settlement and B is—
(a) where there is only one qualifying settlement, £2.5 million, or
(b) where there is more than one qualifying settlement, £2.5 million divided by the number of qualifying settlements.
(5) For the purposes of subsection (4), a settlement is a qualifying settlement—
(a) if it is the relevant settlement, or
(b) where the relevant settlement was made by a parent of B on their death on or after 30 October 2024, if it is another settlement—
(i) of which B is a beneficiary,
(ii) to which section 71D applies, and
(iii) that was made by the same parent of B on their death.
(6) But where—
(a) more than one conditionally relievable occasion in relation to the relevant settlement and B occurs on the same day, and
(b) the sum of the potentially relievable values in relation to those occasions exceeds the amount of the 100% trust relief allowance that would have been available in relation to a conditionally relievable occasion occurring on that same day, if no other such occasion had occurred on that day,
the 100% trust relief allowance available in relation to those occasions is to be determined under subsection (7) (instead of under subsection (3)).
(7) The 100% trust relief allowance available in relation to each of those occasions is the amount given by multiplying—
(a) the amount given by dividing the potentially relievable value in relation to that occasion by the sum of the potentially relievable values in relation to each of those occasions, by
(b) the amount of the 100% trust relief allowance that would have been available in relation to a conditionally relievable occasion occurring on that same day, if no other such occasion had occurred on that day.
(8) For the purposes of this section—
(a) a “conditionally relievable occasion”, in relation to the relevant settlement and B, means an occasion—
(i) on which tax is charged under section 71E(1)(a) (charge on age 18-to-25 trusts) in relation to the settlement and B, and
(ii) on which section 104(1B) or 116(1B) would apply to reduce the value charged if there were an amount of the 100% trust relief allowance available in relation to the settlement and B,
(b) the potentially relievable value, in relation to an occasion on which tax is charged under section 71E(1)(a) in relation to the relevant settlement and B, is so much of the value as otherwise would have been charged on that occasion as would be treated as reduced as a result of section 104(1B) or 116(1B) if the 100% trust relief allowance available in relation to it were unlimited, and
(c) “parent” has the meaning given by section 71H.
Indexation of relief allowances
6 (1) After section 124K (as inserted by paragraph 5) insert—
Indexation of allowance amounts
124L (1) If the consumer prices index for the month of September in any year is higher than it was for the previous September, then each relief allowance amount applies to chargeable transfers made on or after 6th April in the following year as if—
(a) increased by the percentage that is the same as the percentage by which the consumer prices index is higher than it was for the previous September, and
(b) rounded up to the nearest amount which is a multiple of £1000 (where it would not otherwise be).
(2) The Treasury must before 6th April 2031 and each subsequent 6th April make an order by statutory instrument amending each relief allowance amount to achieve the result in subsection (1).
(3) In this section—
“consumer prices index” means the all items consumer prices index published by the Statistics Board;
“relief allowance amount” means an amount (for the time being) specified in any of the following provisions—
section 124D(2)(a) (100% relief allowance);
subsection (4)(a) of section 124H (100% trust relief allowance cap);
section 124I(1) (100% trust relief allowance: qualifying pre-commencement settlements);
section 124J(2)(a) (100% trust relief allowance: special trusts);
section 124K(4) (100% trust relief allowance: age 18-to-25 trusts).
(2) The amendment made by sub-paragraph (1) comes into force on 6 April 2030 (and accordingly no relief allowance amount is to be increased by virtue of it before 6 April 2031).
100% relief allowance where relief prevented by section 113A(2) or 124A(2)
7 (1) In section 113A (business property: transfers within seven years before death of transferor), after subsection (2) insert—
(2A) Where subsection (2) applies, the chargeable transfer is to be ignored for the purposes of determining the amount of the 100% relief allowance available in relation to a chargeable transfer under section 124D.
(2) In section 124A (agricultural property: transfers within seven years before death of transferor), after subsection (2) insert—
(2A) Where subsection (2) applies, the chargeable transfer is to be ignored for the purposes of determining the amount of the 100% relief allowance available in relation to a chargeable transfer under section 124D.
Application of section 131 relief
8 (1) Section 131 is amended as follows.
(2) In subsection (2), in the words after paragraph (b), for “were reduced by the amount of the excess” substitute “reflected the market value of the transferred property on the relevant date, rather than its market value at the time of the chargeable transfer”.
(3) Omit subsection (2A).
Rate between ten-year anniversaries
9 (1) Section 69 is amended as follows.
(2) In subsection (1) (rate between ten-year anniversaries), for “was” to the end substitute
would have been last charged under section 64 if the following were disregarded—
(a) section 66(2) (reduction of rate where value attributable to property that is not comprised in the settlement or is not relevant property), and
(b) Chapters 1 to 2A of Part 5 (business property relief and agricultural property relief).
(3) In subsection (2A), for “above (apart from section 66(2) above)” substitute “, disregarding section 66(2) and Chapters 1 to 2A of Part 5,”.
Property moving between settlements
10 In section 81 (property moving between settlements), after subsection (1) insert—
(1A) Subsection (1) applies for the purposes of Chapters 1 to 2A of Part 5 as it applies for the purposes of this Chapter.
Scottish agricultural leases
11 (1) Section 177 (Scottish agricultural leases) is amended as follows.
(2) In subsection (1) for the words “tacit relocation” substitute
—
(a) tacit relocation (or any provision in the lease having the same effect as tacit relocation),
(b) continuation by virtue of section 4, 8(6) or 8E(1) of the Agricultural Holdings (Scotland) Act 2003, or
(c) continuation by virtue of a specified enactment.
.
(3) In subsection (2), for paragraph (a) substitute—
(a) held by virtue of—
(i) tacit relocation (or any provision in the lease having the same effect as tacit relocation),
(ii) continuation by virtue of section 4, 8(6) or 8E(1) of the Agricultural Holdings (Scotland) Act 2003, or
(iii) continuation by virtue of a specified enactment, and
.
(4) After subsection (4) insert—
(5) The Treasury may by regulations make provision about relevant interests, corresponding to the provision made by this section in relation to the interest of a tenant in a lease of agricultural property in Scotland.
(6) For the purposes of subsection (5), a “relevant interest” is the interest of a tenant in a specified type of lease or tenancy of agricultural property in Scotland forming part of the value of a person’s estate immediately before that person’s death.
(7) Regulations under subsection (5) must specify the value which is to be left out of account for the purposes of determining the value of a person’s estate or, as the case may be, part of a person’s estate.
(8) Regulations under this section are to be made by statutory instrument.
(9) Regulations under this section may make such amendments or repeals of this section as appear to the Treasury to be expedient in consequence of provision made by virtue of subsections (1)(c), (2)(a)(iii) or (5).
(10) Regulations under subsections (1)(c), (2)(a)(iii) or (5) may have effect in relation to deaths occurring before the regulations are made.
(11) A statutory instrument containing regulations made under this section is subject to annulment in pursuance of a resolution of the House of Commons.
(12) In this section—
“agricultural property” has the same meaning as in Chapter 2 of Part 5,
“enactment” includes an enactment contained in or made under an Act of the Scottish Parliament,
“specified” means specified by regulations made by the Treasury.
.
Certain shares no longer eligible for 100% relief
12 (1) In section 105 (relevant business property), in subsection (1)—
(a) after paragraph (a) insert—
(aa) any unquoted shares that are traded on a recognised stock exchange;
(ab) any unquoted securities of a company that are traded on a recognised stock exchange;
,
(b) in paragraph (ab) (as inserted by this sub-paragraph)—
(i) the words from “that” to the end become sub-paragraph (i), and
(ii) after that sub-paragraph insert
, and
(ii) which (either by themselves or together with any unquoted shares in, or other unquoted securities of, the company that are owned by the transferor) gave the transferor control of the company immediately before the transfer;
,
(c) after paragraph (ab) (as inserted by this sub-paragraph) insert—
(ac) any unquoted shares that are traded on an exchange outside the United Kingdom that is not a recognised stock exchange;
(ad) any unquoted securities of a company—
(i) that are traded on an exchange outside the United Kingdom that is not a recognised stock exchange, and
(ii) which (either by themselves or together with any unquoted shares in, or other unquoted securities of, the company that are owned by the transferor) gave the transferor control of the company immediately before the transfer;
,
(d) in paragraph (b), at the beginning insert “any other”, and
(e) in paragraph (bb), after “any” insert “other”.
(2) In section 107, in subsection (4) for “105(1)(bb)” substitute “105(1)(aa) or (bb)”.
(3) In that subsection (as amended by sub-paragraph (2)) after “105(1)(aa)”, insert “, (ac)”.
(4) In section 113A, in subsection (3A)(b), for “paragraph (b) or” substitute “any of paragraphs (aa) to”.
(5) In Chapter 3 of Part 6 (valuation)—
(a) in section 178 (sale of shares from deceased’s estate), in subsection (2)—
(i) omit “or dealing on the Unlisted Securities Market”, and
(ii) omit “or dealt in”,
(b) in section 180 (effect of purchasing qualifying investments), in subsection (3) omit “or separately dealt in on the Unlisted Securities Market”, and
(c) in section 186B (suspended investments), in subsection (1) omit “or dealing on the Unlisted Securities Market”.
(6) In section 272(1)—
(a) in the definition of “quoted”—
(i) omit “or dealt in on the Unlisted Securities Market”, and
(ii) for “neither so listed nor so dealt in” substitute “not so listed”, and
(b) at the appropriate place insert—
“recognised stock exchange” has the meaning it has in the Income Tax Acts (see subsection (1) of section 1005 of the Income Tax Act 2007), and subsection (3) of that section (meaning of “listed” on a recognised stock exchange) applies for the purposes of this Act as it applies for the purposes of the Income Tax Acts;
.
(7) In consequence of the amendments made by sub-paragraph (1), in Schedule 20 to FA 1986, in paragraph 8(1A)(a), for “paragraph (b), (bb) or” substitute “any of paragraphs (aa) to”.
Instalments and interest
13 (1) In section 227 (payment by instalments), in subsection (2)—
(a) after paragraph (a) insert—
(aa) property that is relevant business property for the purposes of Chapter 1 of Part 5;
, and
(b) in paragraph (b), after “applies” insert “and that are not relevant business property for the purposes of that Chapter”.
(2) In section 234 (interest on instalments)—
(a) in subsection (1)(a), for the words from “the value” to the end substitute
—
(i) value treated as reduced under Chapter 1 or 2 of Part 5 of this Act, or
(ii) the value of any shares, securities, business or interest in a business, if that value is not treated as reduced under either Chapter of that Part, or
, and
(b) in subsection (2), for “(not being tax attributable to value treated as reduced under Chapter II of Part V of this Act)” substitute “that is not tax attributable to value treated as reduced under Chapter 1 or 2 of Part 5 of this Act”.
Certificates of discharge
14 In section 239 (certificates of discharge), in subsection (4), in paragraph (aa) for “above” substitute “or 124E(5)”.
Temporary relaxation of ownership and occupation conditions
15 (1) This paragraph applies where—
(a) property becomes comprised in a settlement as a result of a transfer of value made on or after 30 October 2024 but before 6 April 2026,
(b) some or all of the value transferred was reduced by 100% as a result of section 104 or section 116 of IHTA 1984,
(c) an occasion on which tax is chargeable under section 65 of that Act occurs as a result of the property ceasing to be comprised in that settlement before 6 April 2026, and
(d) some or all of the amount on which tax is charged would have been reduced by 100% as a result of section 104 or section 116 of that Act, but was not only as a result of an ownership or occupation condition.
(2) For the purposes of that occasion, Chapters 1 and 2 of Part 5 of IHTA 1984 have effect as if the ownership or occupation conditions were omitted.
(3) Where this paragraph applies the transfer of value mentioned in sub-paragraph (1)(a) is not to be regarded as a chargeable transfer of qualifying relievable property for the purposes of section 124H of IHTA 1984 (as inserted by paragraph 5).
(4) In this paragraph, an “ownership or occupation condition” means—
(a) section 106 of IHTA 1984 (minimum period of ownership for business property relief);
(b) section 117 or 123 of that Act (minimum period of occupation or ownership for agricultural property relief).
(5) This paragraph is to be treated as having come into force on 30 October 2024 and has effect in relation to occasions on which tax is chargeable under Chapter 3 of Part 3 of IHTA 1984 on or after that date (but which occur before 6 April 2026).
Application of section 124E in cases where the deceased dies before 6 April 2026
16 For the purposes of applying section 124E in relation to a deceased person who died before 6 April 2026—
(a) the person is to be treated as having an amount of unused 100% relief allowance on death, and
(b) the unused percentage in relation to that person is to be treated as 100%.
Commencement
17 (1) The amendments made by this Part of this Schedule, other than the amendment made by paragraph 6 and the modifications made by paragraph 15, have effect in relation to transfers of value made, and occasions on which tax is chargeable under Chapter 3 of Part 3 of IHTA 1984, on or after 6 April 2026.
(2) Sub-paragraph (3) applies where—
(a) a potentially exempt transfer, or a chargeable transfer, is made after 29 October 2024 but before 6 April 2026, and
(b) the transferor dies on or after 6 April 2026, and
(c) that death is within seven years of the transfer.
(3) The amendments made by this Part of this Schedule, other than the amendments made by sub-paragraphs (1)(b) and (c) and (3) of paragraph 12, are to be treated as having had effect at the time the transfer was made for the purposes of determining the amount of tax, or additional tax, that falls to be calculated in respect of the transfer.
(4) During the period beginning on the date of the transfer and ending immediately before—
(a) the seventh anniversary of that date, or
(b) if it is earlier, the death of the transferor,
it is to be assumed for the purposes of this Act that sub-paragraph (3) will not apply.
(5) For the purpose of determining the trust maximum allowance under section 124H of IHTA 1984 (as inserted by paragraph 5)—
(a) the amendment made by that paragraph is to be treated as if it had come into force on 30 October 2024, and
(b) that section has effect for that purpose in the period beginning with that date and ending with 5 April 2026 as if in subsections (6)(b) and (7), for “as a result of section 104(1A) or 116(1A)” there were substituted “by 100% as a result of section 104(1)(a) or 116(2)”.
(6) Where property is comprised in a qualifying pre-commencement settlement before 30 October 2024, the amendments made by paragraphs 2 to 5 of this Schedule do not have effect in relation to that property, at any time while that property is relevant property, until the first ten-year anniversary that falls on or after 6 April 2026.
(7) For the purposes of section 66(2) of IHTA 1984 as it applies in connection with the first occurrence on or after 6 April 2026 of the charge under section 64(1) of that Act in relation to a settlement, previously relievable property is to be treated as if it were not comprised in the settlement until 6 April 2026.
(8) For the purposes of sub-paragraph (7) “previously relievable property” means relevant property comprised in the settlement before 6 April 2026 to the extent the value of that property charged on the occasion of that charge would have been treated as reduced by 100% as a result of section 104(1)(a) or 116(2) of IHTA 1984 if the amendments made by this Part of this Schedule had not been made.
(9) Sub-paragraph (10) applies for the purposes of—
(a) section 70(7) of IHTA 1984 as it applies in connection with a charge under a special trust charging provision occurring on or after 6 April 2026 in relation to a settlement that commenced before that date, and
(b) sections 71F(6) and 71G(3) of that Act as they apply in connection with a charge under section 71E(1)(a) of that Act occurring on or after 6 April 2026 in relation to a settlement that commenced before that date.
(10) Previously relievable special property is to be treated as if it were excluded property for the purposes of those sections until—
(a) in the case of previously relievable special property in relation to a charge under a special trust charging provision, the commencement of the first successive quarter in the relevant period (within the meaning given by section 70(8) of IHTA 1984) to commence on or after 6 April 2026, or
(b) in the case of previously relievable special property in relation to a charge under section 71E(1)(a) of that Act, the commencement of the first successive quarter in the qualifying period to commence on or after 6 April 2026.
(11) The “qualifying period” in relation to a charge under section 71E(1)(a) of IHTA 1984 means—
(a) in a case where the tax falls to be calculated in accordance with section 71F of that Act, the period referred to in subsection (5) of that Act, or
(b) otherwise, the relevant period (within the meaning given by section 70(8) of that Act as applied by section 71G(3) of that Act).
(12) For the purposes of sub-paragraph (10) “previously relievable special property”, in relation to a charge under a special trust charging provision or under section 71E(1)(a) of IHTA 1984, means property comprised in the settlement before 6 April 2026 to the extent the value of that property charged on the occasion of that charge would have been treated as reduced by 100% as a result of section 104(1)(a) or 116(2) of that Act if the amendments made by this Part of this Schedule had not been made.
(13) But property ceases to be previously relievable special property after the first occasion on or after 6 April 2026 of a charge under a special trust charging provision or under section 71E(1)(a) of that Act in relation to that property.
Part 2 Inheritance tax on overseas property with value attributable to UK agricultural property
Amendment of Schedule A1
18 (1) Schedule A1 to IHTA 1984 is amended as follows.
(2) In the heading of Part 1 of that Schedule, after “property”, in the second place it occurs, insert “or UK agricultural property”.
(3) In the following provisions, for “a UK residential property interest” substitute “relevant UK property”—
(a) in paragraph 2—
(i) sub-paragraph (2)(a) and (b), and
(ii) sub-paragraph (5), and
(b) in paragraph 4—
(i) sub-paragraph (1)(a)(i), and
(ii) sub-paragraph (3) (in both places).
(4) In that paragraph, in sub-paragraphs (4) and (5), for “UK residential property interest” substitute “relevant UK property”.
(5) Before paragraph 8 (and before the italic heading before it) insert—
Relevant UK property
7A In this Schedule “relevant UK property” means—
(a) UK agricultural property, or
(b) a UK residential property interest.
UK agricultural property
7B (1) In this Schedule “UK agricultural property” means agricultural land or pasture in the United Kingdom and includes—
(a) woodland and any building used in connection with the intensive rearing of livestock or fish if the woodland or building is occupied with agricultural land or pasture and the occupation is ancillary to that of the agricultural land or pasture, and
(b) cottages, farm buildings and farmhouses, together with the land occupied with them.
(2) For the purposes of sub-paragraph (1), the breeding and rearing of horses on a stud farm and the grazing of horses in connection with those activities shall be taken to be agriculture and any buildings used in connection with those activities to be farm buildings.
Consequential amendments
19 (1) IHTA 1984 is amended as follows.
(2) In section 48ZA (excluded property: situated outside the UK etc), in subsection (10), after “property”, in the second place it occurs, insert “or UK agricultural property”.
(3) In section 53 (exceptions from charge under section 52), in subsection (4A)(d)(i), after “property”, in the third place it occurs, insert “or UK agricultural property”.
(4) In section 54 (exceptions from charge on death), in subsection (2C)(e)(i), after “property”, in the third place it occurs, insert “or UK agricultural property”.
(5) In section 237 (imposition of charge), in subsection (2A), for “UK residential property interest” substitute “relevant UK property”.
(6) In section 102 of FA 1986 (gifts with reservation), in subsection (7A)(d)(i), after “property”, in the third place it occurs, insert “or UK agricultural property”.
Commencement
20 (1) The amendments made by this Part of this Schedule have effect in relation to times on or after 6 April 2026.
(2) But for the purposes of paragraph 5(1) of Schedule A1 to IHTA 1984—
(a) paragraph (a) of that paragraph does not apply in relation to a disposal of property—
(i) to which paragraph 2 or 3(a) of that Schedule only applies as a result of the amendments made by this Part of this Schedule, and
(ii) that occurs before 6 April 2026, and
(b) paragraph (b) of that paragraph does not apply in relation to a payment of money or money's worth—
(i) in relation to a relevant loan that is only a relevant loan as a result of the amendments made by this Part of this Schedule, and
(ii) that occurs before 6 April 2026.
Schedule 13 Abolition of bingo duty: consequential and transitional provision
Section 88
Consequential provision
1 In FA 1969, omit section 3 and Schedule 9.
2 In FA 1982—
(a) in section 8, in subsection (1), omit paragraph (c);
(b) omit Part 4 of Schedule 6.
3 In FA 1983, in section 5, omit subsection (1).
4 In FA 1986—
(a) in section 6—
(i) omit paragraph (b) of subsection (1) (and the “and” before it);
(ii) omit paragraph (b) of subsection (3) (and the “and” before it);
(iii) in subsection (5), omit the definition of “the bingo commencement date”;
(b) in paragraph 16 of Schedule 4, omit sub-paragraph (2).
5 In F(No.2)A 1992, omit section 7.
6 In FA 1994, in section 12(2)(c) omit “Schedule 3 to the Betting and Gaming Duties Act 1981 or”.
7 In VATA 1994, in section 23A—
(a) in subsection (2), for paragraph (c) substitute—
(c) it is a game of bingo in the United Kingdom, other than a game of unlicensed bingo where every person playing the game participates by use of—
(i) the internet,
(ii) telephone,
(iii) television,
(iv) radio, or
(v) any other kind of electronic or other technology for facilitating communication,
;
(b) after subsection (2) insert—
(3) In this section—
“bingo” includes any version of that game, whatever name it is called;
“unlicensed bingo”—
in Great Britain, means bingo which is not played at premises licensed under a bingo premises licence (within the meaning of Part 8 of the Gambling Act 2005), and
in Northern Ireland, means bingo played at premises licensed under Chapter 2 of Part 3 of the Betting, Gaming, Lotteries and Amusements (Northern Ireland) Order 1985;
.
8 In FA 1997—
(a) in section 10 (gaming duty)—
(i) in subsection (3AA)(a) omit “bingo duty or”;
(ii) after subsection (3AA) insert—
(3AB) This section does not apply to the playing of bingo.
;
(iii) after subsection (6) insert—
(7) In this section, “bingo” includes any version of that game, whatever name it is called.
;
(b) in Schedule 1 (administration and enforcement of gaming duty), for paragraph 16 substitute—
16 Where an officer of Revenue and Customs takes any action in pursuance of instructions of the Commissioners for His Majesty’s Revenue and Customs in connection with the enforcement of the enactments relating to gaming duty and, apart from this paragraph, the officer would in taking that action be committing an offence under the enactments relating to betting or gaming, the officer is not be guilty of that offence.
9 In FA 2003, omit section 9.
10 In FA 2006, in section 11, omit subsection (3).
11 In FA 2007, omit—
(a) paragraph 4 of Schedule 1;
(b) paragraph 9 of Schedule 25 (and the italic heading before it).
12 In FA 2008, in Schedule 41, in the Table in paragraph 1, omit the entry relating to “bingo duty”.
13 In FA 2009, omit—
(a) section 20;
(b) subsection (2) of section 115.
14 In the Borders, Citizenship and Immigration Act 2009, in section 7(2)(e), omit sub-paragraph (ii).
15 In FA 2010, omit section 19.
16 In FA 2012, in Schedule 24, in paragraph 3—
(a) in sub-paragraph (1), for paragraph (b) substitute—
(b) it is a game of bingo in which two or more persons participate on the same premises,
;
(b) after sub-paragraph (4) insert—
(5) In this paragraph, “bingo” includes any version of that game, whatever name it is called.
17 In FA 2014—
(a) omit sections 122 and 123 (and the italic heading before section 122);
(b) in section 154(4), omit paragraph (b) (and the “and” before it);
(c) In section 161—
(i) in subsection (3), omit paragraph (a) (and the “and” after it);
(ii) in subsection (4), omit paragraph (b);
(iii) after subsection (4) insert—
(4A) Remote gaming duty is not charged on a chargeable person’s participation in remote gaming where the remote gaming in question is the playing in the United Kingdom of a game of—
(a) licensed bingo, or
(b) unlicensed bingo, if at least one other person’s participation in the game does not constitute remote gaming.
(4B) In subsection (4A)—
“bingo” includes any version of that game, whatever name it is called;
“licensed bingo”—
in Great Britain, means bingo played at premises licensed under a bingo premises licence (within the meaning of Part 8 of the Gambling Act 2005), and
in Northern Ireland, means bingo played at premises licensed under Chapter 2 of Part 3 of the Betting, Gaming, Lotteries and Amusements (Northern Ireland) Order 1985;
“United Kingdom” includes the territorial sea of the United Kingdom;
“unlicensed bingo” means bingo which is not licensed bingo.
;
(d) in Schedule 28, in paragraph 20, omit sub-paragraph (3).
18 In FA 2016, in paragraph 4(2) of Schedule 18, omit “bingo duty”.
19 In F(No.2)A 2017, in paragraph 2(1) of Schedule 17, omit “bingo duty”.
20 In FA 2024, in the Table in section 32(1), omit the entry relating to “BGDA 1981”.
Transitional and saving provision
21 (1) The repeals and amendments made by section 88 and this Schedule do not affect—
(a) the operation on and after 1 April 2026 of any enactment repealed or amended by section 88 or this Schedule, or revoked by virtue of those repeals and amendments, as the enactment stood immediately before that date, so far as relating to accounting periods for bingo duty that end before that date;
(b) the exercise on and after 1 April 2026 of any power of the Commissioners for His Majesty’s Revenue and Customs or an officer of Revenue and Customs saved by paragraph (a).
(2) Sub-paragraph (1) does not prejudice the generality of section 16(1) of the Interpretation Act 1978.
Schedule 14 Aggregates levy: amendments relating to disapplication of levy to Scotland
Section 103
Amendments of Part 2 of FA 2001
1 Part 2 (aggregates levy) of FA 2001 is amended as follows.
2 Section 17 (exemption etc of quantity of aggregate) is amended as follows.
3 In subsection (2), after paragraph (c) insert—
(ca) it has on or after the day appointed under section 18(4) of the Scotland Act 2016 (and prior to being moved to England, Wales or Northern Ireland) been removed from a relevant Scottish site to premises in Scotland of a person carrying on a business in Scotland;
(cb) it has—
(i) on or after the day appointed under section 18(4) of the Scotland Act 2016 been removed from a site in England, Wales or Northern Ireland that falls within section 19(2) in relation to that quantity of aggregate, and
(ii) subsequently been moved to premises in Scotland of a person carrying on a business in Scotland, prior to being moved to the place in England, Wales or Northern Ireland where it is subjected to commercial exploitation;
.
4 After subsection (3) insert—
(3A) In subsection (2)(ca) the reference to premises in Scotland does not include any premises located at a site that is a relevant Scottish site in relation to the quantity of aggregate.
5 In subsection (7), at the appropriate place insert—
“relevant Scottish site”, in relation to a quantity of aggregate, means a site in Scotland that falls within section 19(2) in relation to that quantity of aggregate, or would so fall if in section 20(1)(a)—
the reference to England, Wales or Northern Ireland included Scotland, and
the reference to relevant waters included Scottish waters.
6 Section 19 (commercial exploitation) is amended as follows.
7 In subsection (1)—
(a) in paragraph (a), after “site” insert “in England, Wales or Northern Ireland”;
(b) after paragraph (a) insert—
(aa) it is removed to a place in England, Wales or Northern Ireland from a site in Scotland that falls within subsection (2) below, or would fall within that subsection if in subsection (1)(a) of section 20 (originating sites)—
(i) the reference to England, Wales or Northern Ireland included Scotland, and
(ii) the reference to relevant waters were to United Kingdom waters.
8 In subsection (5)—
(a) the words from “the aggregate” to the end become paragraph (a) of that subsection;
(b) in that paragraph for “United Kingdom waters” substitute “relevant waters”;
(c) at the end insert
, or
(b) the exploitation falls within subsection (1)(aa).
9 After subsection (5) insert—
(5A) The Treasury may by regulations made by statutory instrument make further provision with regard to the circumstances in which the subjection of a quantity of aggregate to commercial exploitation is to be taken to occur in England, Wales or Northern Ireland, including provision amending this section or any other provision of this Part.
10 At the end insert—
(8) A statutory instrument containing regulations under subsection (5A) may not be made unless a draft of the instrument has been laid before and approved by a resolution of the House of Commons.
11 In section 20 (originating sites), in subsection (1)(a), for “United Kingdom waters” substitute “relevant waters”.
12 In section 48 (interpretation of Part), in subsection (1), at the appropriate places insert—
“relevant waters” means—
the territorial sea adjacent to the United Kingdom, other than Scottish waters, or
any area designated by Order in Council under section 1(7) of the Continental Shelf Act 1964;
;
“Scottish waters” means so much of the territorial sea adjacent to the United Kingdom as is to be treated as adjacent to Scotland for the purposes of the Scotland Act 1998 (see section 126(2) of that Act);
.
Amendments of Aggregates Levy (General) Regulations 2002
13 The Aggregates Levy (General) Regulations 2002 (S.I. 2002/761) are amended as follows.
14 In regulation 13 (which relates to tax credits)—
(a) in paragraph (2), before sub-paragraph (a) insert—
(za) is moved without further processing from premises in England, Wales or Northern Ireland operated or used by a person registered under section 24 of the Act for any purpose specified in subsection (6) of that section to a place in Scotland or Scottish waters;
(b) in paragraph (2)(a), after “Kingdom” insert “from a place in England, Wales or Northern Ireland”.
15 In consequence of the amendment made by paragraph 14(b), in regulation 15(3) after “United Kingdom” insert “from a place in England, Wales or Northern Ireland”.
Repeals: the levy register etc
16 In the Scotland Act 2016, in Schedule 1 (disapplication of UK aggregates levy)—
(a) in paragraph 5 (amendments relating to the levy register), in sub-paragraph (3) for “both places,” substitute “the first place it occurs,”;
(b) paragraph 9 (which amends the definition of “United Kingdom waters” for Part 2 of FA 2001) is omitted.
17 Omit—
(a) section 44 of FA 2001 (destination of receipts), and
(b) paragraph 8 of Schedule 1 to the Scotland Act 2016.
Commencement
18 Paragraphs 1 to 15 have effect in relation to commercial exploitation of aggregate which takes place on or after such date as is appointed under section 18(4) of the Scotland Act 2016.
19 Paragraphs 16 and 17 come into force on the day on which this Act is passed.
Schedule 15 Vaping products duty: amendments of other enactments
Section 139
Penalties
1 (1) In paragraph 1 of Schedule 24 to FA 2007 (penalties for errors), in the table after the entry for tobacco products duty insert—
Vaping products duty | Vaping products duty return.
(2) In paragraph 1 of Schedule 41 to FA 2008 (penalties for failure to notify etc), in the table after the entry for tobacco products duty insert—
Vaping products duty | Obligation not to produce vaping products unless approved or registered (in regulations under section 45 of TCTA 2018).
Vaping products duty | Obligation to produce vaping products only on approved or registered premises (in regulations under section 45 of TCTA 2018).
Vaping products duty | Obligation to be approved under section 122 of FA 2026 (approved stamp holders).
(3) In paragraph 2 of Schedule 24 to FA 2021 (penalties for failure to make returns etc), in the table after item 4 and in the first, second and fifth columns insert—
5 | Vaping products duty | Vaping products duty return under regulations under section 45 of TCTA 2018.
(4) In paragraph 1 of Schedule 25 to FA 2021 (penalties for deliberately withholding information), in the table after item 4 insert—
5 | Vaping products duty | Vaping products duty return under regulations under section 45 of TCTA 2018.
(5) In paragraph 1 of Schedule 26 to FA 2021 (penalties for failure to pay tax), in the table at the end insert—
Vaping products duty
1 | Amount of vaping products duty payable under Part 4 of FA 2026 (except an amount within item 2 or 3) | The date determined by or under regulations under section 45 of TCTA 2018 as the date by which the amount must be paid
2 | Amount of vaping products duty shown in an assessment made by HMRC in default of a return | The date by which the amount would have been required to be paid if it had been shown in the return in question
3 | Amount of vaping products duty shown in an amendment or correction of a return | The date falling 30 days after the date on which the amendment or correction is made
Reviews and appeals
2 FA 1994 is amended as follows—
(a) in section 13A(2), after paragraph (gc) insert—
(gd) any decision by HMRC that a person is liable to a penalty, or as the amount of the person’s liability, under—
(i) section 125 of FA 2026;
(ii) section 126(1) of FA 2026;
;
(b) in section 16(9), after paragraph (b) insert—
(ba) paragraph 5B;
(c) in section 16A(2), after paragraph (g) insert—
(h) approved under section 122 of FA 2026 (approved stamp holders);
;
(d) in Schedule 5 (decisions subject to review and appeal), after paragraph 5A insert—
Part 4 of FA 2026 (vaping products duty)
5B Any decision as to whether or not any person is to be, or continues to be, approved under section 122 of FA 2026.
.
Other amendments
3 CEMA 1979 is amended as follows—
(a) in section 1(1), in the definition of “the Customs and Excise Act 1979” after “(alcohol duty)” insert “and Part 4 of FA 2026 (vaping products duty)”;
(b) in section 1(3) at end insert—
Part 4 of FA 2026 (vaping products duty)
“vaping products”
;
(c) in section 112 (powers of entry upon premises, etc. of revenue traders)—
(i) in subsection (3) after “alcoholic products” insert “or vaping products,”;
(ii) in subsection (5) after “tobacco products” insert “or vaping products”;
(d) in section 113(6) (power to search for concealed pipes, etc) after “alcoholic products” insert “or vaping products”;
(e) in section 160(2A) (power to take samples) after “alcoholic products” insert “or vaping products”;
(f) in section 161A(3) (power to search premises: search warrant) after “manufacture of spirits” insert “or vaping products”;
(g) in section 163A(2) (power to search articles) after “alcoholic products,” insert “vaping products,”.
4 In section 1 of the Excise Duties (Surcharges or Rebates) Act 1979 after subsection (1)(a) insert—
(ab) that chargeable in respect of vaping products;
.
5 In paragraph 11 of Schedule 5 to the Consumer Rights Act 2015, in the table, after the last entry insert—
A local weights and measures authority in Great Britain or a district council in Northern Ireland | Section 136 of the Finance Act 2026 (vaping products duty)
6 In paragraph 2(1) of Schedule 17 to F(No.2)A 2017 (disclosure of tax avoidance schemes: indirect taxes), after “duties on spirits, beer, wine, made-wine and cider” insert—
vaping products duty
7 In section 49 of TCTA 2018 in the definition of “excise duty”—
(a) omit the “or” after paragraph (b), and
(b) after paragraph (c), insert—
or
(d) Part 4 of the Finance Act 2026 (vaping products duty)
.
Section 143
1 The goods specified by this Schedule are goods within a commodity code set out in the following Table, other than those within a commodity code that the Table indicates are excepted.
Commodity code | Classification
Aluminium goods
7601 | Unwrought aluminium
7603 | Aluminium powders and flakes
7604 | Aluminium bars, rods and profiles
7605 | Aluminium wire
7606 | Aluminium plates, sheets and strip, of a thickness exceeding 0.2 mm
7607 | Aluminium foil (whether or not printed or backed with paper, paper-board, plastics or similar backing materials) of a thickness (excluding any backing) not exceeding 0.2 mm
7608 | Aluminium tubes and pipes
7609 | Aluminium tube or pipe fittings (for example, couplings, elbows, sleeves)
7610 | Certain Aluminium structures (excluding prefabricated buildings of heading 9406) and parts of structures (for example, bridges and bridge-sections, towers, lattice masts, roofs, roofing frameworks, doors and windows and their frames and thresholds for doors, balustrades, pillars and columns); aluminium plates, rods, profiles, tubes and the like, prepared for use in structures
7611 | Aluminium reservoirs, tanks, vats and similar containers, for any material (other than compressed or liquefied gas), of a capacity exceeding 300 litres, whether or not lined or heat-insulated, but not fitted with mechanical or thermal equipment
7612 | Aluminium casks, drums, cans, boxes and similar containers (including rigid or collapsible tubular containers), for any material (other than compressed or liquefied gas), of a capacity not exceeding 300 litres, whether or not lined or heat-insulated, but not fitted with mechanical or thermal equipment
7613 | Aluminium containers for compressed or liquefied gas
7614 | Stranded wire, cables, plaited bands and the like, of aluminium, not electrically insulated
7616 | Other articles of aluminium
Cement
2507 00 80 | Other kaolinic clays
2523 10 | Cement clinkers
2523 21 | White Portland cement, whether or not artificially coloured
2523 29 | Other Portland cement
2523 30 | Aluminous cement
2523 90 | Other hydraulic cements
Fertilisers
2808 00 | Nitric acid; sulphonitric acids
2814 | Ammonia, anhydrous or in aqueous solution
2834 21 | Nitrates of potassium
3102 | Mineral or chemical fertilisers, nitrogenous
3105 Except: 3105 60 | Mineral or chemical fertilisers containing two or three of the fertilising elements nitrogen, phosphorus and potassium; other fertilisers; goods of this chapter in tablets or similar forms or in packages of a gross weight not exceeding 10 kg Except: Mineral or chemical fertilisers containing the two fertilising elements phosphorus and potassium
Hydrogen
2804 10 | Hydrogen
Iron and steel goods
2601 12 | Agglomerated
72 Except: 7202 21 7202 30 7202 50 7202 70 7202 80 7202 91 7202 92 7202 93 7202 99 10 7202 99 30 7202 99 80 7204 | Iron and steel Except: Ferro-silicon Ferro-silico-manganese Ferro-silico-chromium Ferro-molybdenum Ferro-tungsten and ferro-silico-tungsten Ferro-titanium and ferro-silico-titanium Ferro-vanadium Ferro-niobium Ferro-phosphorus Ferro-silico-magnesium Other Ferrous waste and scrap; remelting scrap ingots and steel
7301 | Sheet piling of iron or steel, whether or not drilled, punched or made from assembled elements; welded angles, shapes and sections, of iron or steel
7302 | Railway or tramway track construction material of iron or steel, the following: rails, check-rails and rack rails, switch blades, crossing frogs, point rods and other crossing pieces, sleepers (cross-ties), fish- plates, chairs, chair wedges, sole plates (base plates), rail clips, bedplates, ties and other material specialised for jointing or fixing rails
7303 | Tubes, pipes and hollow profiles, of cast iron
7304 | Tubes, pipes and hollow profiles, seamless, of iron (other than cast iron) or steel
7305 | Other tubes and pipes (for example, welded, riveted or similarly closed), having circular cross-sections, the external diameter of which exceeds 406.4 mm, of iron or steel
7306 | Other tubes, pipes and hollow profiles (for example, open seam or welded, riveted or similarly closed), of iron or steel
7307 | Tube or pipe fittings (for example, couplings, elbows, sleeves), of iron or steel
7308 | Structures (excluding prefabricated buildings of heading 9406) and parts of structures (for example, bridges and bridge-sections, lock- gates, towers, lattice masts, roofs, roofing frameworks, doors and windows and their frames and thresholds for doors, shutters, balustrades, pillars and columns), of iron or steel; plates, rods, angles, shapes, sections, tubes and the like, prepared for use in structures, of iron or steel
7309 | Reservoirs, tanks, vats and similar containers for any material (other than compressed or liquefied gas), of iron or steel, of a capacity exceeding 300 litres, whether or not lined or heat-insulated, but not fitted with mechanical or thermal equipment
7310 | Tanks, casks, drums, cans, boxes and similar containers, for any material (other than compressed or liquefied gas), of iron or steel, of a capacity not exceeding 300 litres, whether or not lined or heat-insulated, but not fitted with mechanical or thermal equipment
7311 | Containers for compressed or liquefied gas, of iron or steel
7318 | Screws, bolts, nuts, coach screws, screw hooks, rivets, cotters, cotter pins, washers (including spring washers) and similar articles, of iron or steel
7326 | Other articles of iron or steel
2 (1) In this Schedule “commodity code” means a code assigned to a classification of goods by the Goods Classification Table.
(2) Regulations under section 8 of TCTA 2018 about determining within which commodity code a good falls apply for the purposes of CBAM.
(3) The Commissioners may by regulations make such amendments to the Table in paragraph 1 as they consider appropriate in consequence of the Goods Classification Table, or a document replacing it, being amended or replaced.
(4) In this paragraph, references to the Goods Classification Table are references to the Goods Classification Table as defined in regulations under section 8 of TCTA 2018.
Section 151
Part 1 Introduction
1 (1) The Commissioners are responsible for the collection and management of CBAM.
(2) In this Schedule—
(a) Part 2—
(i) requires a person to register with HMRC for the purposes of CBAM if the person triggers registration, and
(ii) makes further provision relating to registration and de-registration;
(b) Part 3 makes provision about the payment of CBAM, accounting periods and returns;
(c) Part 4 makes provision about the determination and evidencing of emissions embodied in a CBAM good and relief under section 150;
(d) Part 5 confers power to make regulations about the measurement of weight;
(e) Part 6 makes provision about records;
(f) Part 7 makes provision about the artificial separation of business activities;
(g) Part 8 makes provision about death, incapacity and insolvency;
(h) Parts 9 and 10 make provision about the recovery of CBAM and repayments;
(i) Parts 11 and 12 make provision about penalties, reviews and appeals relating to CBAM.
Part 2 Registration
Duty to register with HMRC
2 (1) A person must register with HMRC if the person triggers registration.
(2) A person triggers registration if—
(a) it is the first day of the month and, during the preceding 12 months, the person imported into the United Kingdom CBAM goods with an aggregate value of £50,000 or more in the course of a business, or
(b) the person is expected to import into the United Kingdom, in the course of a business, CBAM goods with an aggregate value of £50,000 or more before the end of a period of 30 days.
(3) For the purposes of sub-paragraph (2)—
(a) disregard any CBAM good—
(i) in respect of which section 147(2) applies (goods originating in the United Kingdom and returned goods), or
(ii) that has been subject to the charge to CBAM by operation of section 145 (special customs procedures) and subsequently exported from the United Kingdom;
(b) if a good is, or would be, subject to the charge to CBAM by operation of section 145 (special customs procedures) the value of the good is taken to be the amount of its value that is attributable to the CBAM good that entered, or would enter, the special customs procedure.
(4) A person who triggers registration must register before the end of the period of 30 days beginning with the day on which the person first triggered registration.
(5) When registering, a person must provide—
(a) information specified by the Commissioners in regulations, and
(b) a declaration that the person believes the information provided to be complete and correct.
(6) An officer of Revenue and Customs may require a person to—
(a) provide such information as the officer considers necessary in order to determine whether the person is required to register under this paragraph, and
(b) provide that information within such period as the officer considers reasonable.
(7) If it appears to an officer of Revenue and Customs that a person has triggered registration under this paragraph and has failed to register before the end of the period of 30 days in sub-paragraph (4), the officer may register the person.
(8) If an officer of Revenue and Customs registers a person under sub-paragraph (7), the officer must notify the person of this.
(9) The Commissioners may specify in a notice published by them the way in which a person is to register, provide information and make a declaration under this paragraph.
(10) For the purposes of this Part of this Act—
(a) a person is a “registered person” if the person—
(i) has registered, or been registered by an officer of Revenue and Customs, under this paragraph, and
(ii) has not been deregistered (see paragraph 3);
(b) a person is a “registrable person” if the person—
(i) has triggered registration under this paragraph, but
(ii) has not registered, or been registered by an officer of Revenue and Customs, under this paragraph;
(c) references to registering or a registration are to registering or a registration under this paragraph.
Deregistration
3 (1) An officer of Revenue and Customs must deregister a registered person if the officer is satisfied that—
(a) the person is not required to be registered and either—
(i) the person has requested that they be deregistered, or
(ii) the person has not been required to be registered at any time in the period of 12 months ending with the day on which the officer of Revenue and Customs deregisters the person, or
(b) the person was not required to be registered on the day on which they registered and has not been required to be registered since,
but this is subject to sub-paragraph (2).
(2) An officer of Revenue and Customs may decide not to deregister a person if—
(a) there are outstanding amounts of CBAM, or amounts recoverable on the basis that they are amounts of CBAM, due from the person,
(b) there are one or more outstanding returns under Part 3 of this Schedule due from the person, or
(c) the officer considers that the person will be required to be registered before the end of the period of 12 months beginning with the day on which the person would otherwise be deregistered.
(3) For the purposes of this paragraph, a person is “required to be registered” on a day if—
(a) the person triggers registration on the day, or
(b) on the first day of the month in which the day falls, the person triggered registration under paragraph 2(2)(a).
(4) An officer of Revenue and Customs deregisters a person by issuing the person with a notice of deregistration.
(5) A notice of deregistration must specify when the de-registration takes effect (which may be in the past).
(6) A request under sub-paragraph (1)(a) must be made in the way specified in a notice published by the Commissioners.
(7) If a person has requested under sub-paragraph (1)(a) that they be deregistered and the request is rejected, an officer of Revenue and Customs must issue the person with a notice—
(a) informing them that their request has been rejected, and
(b) giving reasons.
Notification of changed or incorrect information
4 (1) A registered person must notify HMRC if—
(a) information they provided under paragraph 2 changes, or
(b) they discover that such provided information is incorrect.
(2) The notification must be given before the end of the period of 30 days beginning with the day on which the information changed or they discovered that the information is incorrect.
(3) The notification must be given in the way specified in a notice published by the Commissioners.
Value of CBAM goods
5 The Commissioners may by regulations make provision about determining the value of CBAM goods for the purposes of this Part of this Schedule.
Part 3 Payment, accounting periods and returns
Payment and accounting periods
6 (1) A registered or registrable person must account for and pay CBAM in respect of each accounting period.
(2) The accounting periods are the periods of 3 months ending at the end of March, June, September and December.
(3) Payment in respect of an accounting period must be made before the end of the last working day of the second month after the end of the accounting period.
(4) Payment must be made by a method specified in a notice published by the Commissioners.
Returns
7 (1) A registered or registrable person must make a return to HMRC for each accounting period.
(2) A return under this paragraph must be made before the end of the last working day of the second month after the end of the accounting period to which it relates.
(3) The Commissioners may by regulations make provision about what is to be included in a return under this paragraph.
(4) The Commissioners may specify in a notice published by them—
(a) the way in which the return is to be made;
(b) that a digital facility provided by HMRC must be used to calculate the amount of CBAM shown in the return, subject to such exceptions as may be specified in the notice.
8 (1) A person who has made a return under paragraph 7 may amend the return by notice to HMRC (and may further amend the return by further notice to HMRC) only in order to correct an error.
(2) No amendment may be made to replace information on the emissions embodied in CBAM goods determined using default values set under paragraph 11 with such information determined in accordance with regulations under paragraph 10.
(3) The Commissioners may specify in a notice published by them—
(a) the way in which an amendment is to be made, and
(b) by when it must be made.
Power to change accounting periods and deadlines
9 The Commissioners may by regulations amend—
(a) paragraph 6(2) or (3) or 7(2);
(b) item 5 in the table in paragraph 2(1) of Schedule 24 to FA 2021 (which relates to penalties for a failure to make returns under paragraph 7 of this Schedule) in consequence of an amendment under this paragraph of paragraph 6(2).
Part 4 Determination and evidence of emissions and carbon price relief
10 (1) The Commissioners may by regulations make provision about how emissions embodied in CBAM goods are to be determined and evidenced.
(2) Regulations under this paragraph may (among other things)—
(a) make different provision in relation to different goods, sectors, places, circumstances or activities;
(b) make provision for methods of calculating figures;
(c) make provision about measurement, sampling or analysis;
(d) make provision by reference to information or technical standards published by a third party (including by an international organisation);
(e) make provision about the treatment of gaps in data or measurement;
(f) provide for the use of estimates or standard values or factors (including how estimates are to be made or standard values or factors are to be determined);
(g) make provision about the treatment of anything used or done in the course of activities in the course of which the emissions were emitted;
(h) make provision requiring information to be verified by a specified person or body.
11 (1) The Treasury may by notice set default values that may be used for determining the emissions embodied in CBAM goods.
(2) Default values set under this paragraph may (among other things)—
(a) vary depending on where the emissions embodied in a CBAM good were emitted;
(b) be in respect of any portion of the emissions embodied in a CBAM good.
(3) A default value may be set at a level that ensures that there would not be an advantage to any person liable to CBAM in using the value instead of determining the emissions embodied in a CBAM good in accordance with regulations under paragraph 10.
(4) In sub-paragraph (3), “advantage” includes an advantage arising from—
(a) the emissions embodied in a CBAM good being lower if determined using default values;
(b) not bearing the cost of determining or verifying emissions in accordance with regulations under paragraph 10.
12 (1) The Commissioners may by regulations make provision about how relief under section 150 (carbon price relief) is to be determined and evidenced.
(2) Regulations under sub-paragraph (1) may (among other things)—
(a) make provision for methods of calculating the relief in accordance with principles for determining the amount of relief set out in regulations made under section 150;
(b) make provision otherwise supplementing regulations made under section 150 about how relief under that section is to be determined;
(c) make different provision in relation to different goods, sectors, places, circumstances or activities or by reference to where a carbon price is payable;
(d) make provision requiring information to be verified by a specified person or body or by reference to information provided by a third party;
(e) make provision about currency conversion.
Part 5 Measurement of weight
13 (1) The Commissioners may by regulations make provision about the measurement of weight for the purposes of CBAM.
(2) Regulations under this paragraph may (among other things) include provision about—
(a) how weight is to be measured;
(b) the time at which weight is to be measured;
(c) how weight is to be evidenced;
(d) agreements between HMRC and particular persons about how weight is to be measured or evidenced, including provision for HMRC to disregard the terms of an agreement in circumstances set out in the regulations;
(e) an officer of Revenue and Customs making their own assessment or best judgement of weight in relation to CBAM goods and substituting that assessment or judgement for the assessment or judgement of any other person;
(f) an officer of Revenue and Customs inspecting or weighing CBAM goods or samples;
(g) the assessment of weight by an officer of Revenue and Customs being based on estimates or assumptions.
Part 6 Records
General requirements
14 (1) The Commissioners may by regulations require specified persons—
(a) to keep, for purposes connected with CBAM, records of specified matters, and
(b) to preserve records for a specified period.
(2) Regulations under sub-paragraph (1) may provide that a duty to preserve records under the regulations may be discharged by preserving them, or the information contained in them, in any form and by any means, subject to any conditions or exceptions specified in the regulations.
(3) The period specified in regulations under sub-paragraph (1) may not exceed—
(a) in a case where the records relate to an accounting period, 6 years beginning with the day after the end of the accounting period to which the records relate, or
(b) in any other case, 6 years beginning with the day on which the records are created.
Directions
15 (1) An officer of Revenue and Customs may direct a registered or registrable person—
(a) to keep such records as are specified in the direction;
(b) to preserve those records for a specified period.
(2) The officer may not give a direction under sub-paragraph (1) unless they have reasonable grounds for believing that the records specified in the direction might assist in identifying CBAM goods in respect of which CBAM might not be paid.
(3) A direction under sub-paragraph (1)—
(a) must be in writing,
(b) must specify the consequences under Part 11 of this Schedule of a failure to comply with a requirement imposed by the direction, and
(c) may be revoked or replaced by a further direction.
(4) The period specified in a direction under sub-paragraph (1)(b) may not exceed 6 years.
Part 7 Artificial separation of business activities
16 (1) This paragraph applies for the purpose of preventing the maintenance or creation of any artificial separation of business activities carried on by two or more persons resulting in an avoidance of CBAM.
(2) An officer of Revenue and Customs may make a direction naming any person if they are satisfied that—
(a) the person is importing CBAM goods into the United Kingdom in the course of a business,
(b) the activities in the course of which the person does so form only part of certain activities, the other activities being carried on concurrently or previously (or both) by one or more other persons,
(c) the activities carried on by those persons have been, or are, artificially separated, having regard to whether the persons carrying on those activities are connected within the meaning of section 1122 of CTA 2010 (“connected” persons), and
(d) if all the activities of those persons were taken into account, a single person carrying on that business would at the time of the direction be required to register under paragraph 2.
(3) The effect of a direction under sub-paragraph (2) is that for the purposes of this Part of this Act—
(a) the persons named in the direction are to be treated as a single taxable person (“the taxable person”) carrying on the activities of a business described in the direction,
(b) the taxable person is deemed to have registered on the date of the direction or on such earlier or later date as may be specified in the direction—
(i) in the name of one of the persons named in the direction nominated jointly by them in writing to the officer of Revenue and Customs who made the direction within the period of 14 days beginning with the date of the direction, or
(ii) if no such name is nominated, in such name as may be determined by the officer;
(c) the importation of CBAM goods by, or on behalf of, a person named in the direction in the course of the activities carried on by the taxable person is to be treated as the importation of CBAM goods in the course of a business by the taxable person;
(d) each person named in the direction is jointly and severally liable for any CBAM due from the taxable person;
(e) any failure by the taxable person to comply with any requirement imposed by or under this Part of this Act is to be treated as a failure by each person named in the direction severally.
(4) The earliest date a direction may specify under sub-paragraph (3)(b) is the date on which the persons named in the direction would, if they were treated as a single taxable person on that date, have first triggered registration under paragraph 2.
(5) Sub-paragraph (6) applies where, after a direction is made under sub-paragraph (2), it appears to an officer of Revenue and Customs that—
(a) a person who was not named in the direction is importing CBAM goods in the course of activities which should be regarded as part of the activities of the business described in the direction, or
(b) a person who is named in the direction should no longer be named in the direction.
(6) The officer of Revenue and Customs may by direction modify the earlier direction so that—
(a) it names the person mentioned in sub-paragraph (5)(a), or
(b) the person mentioned in sub-paragraph (5)(b) is removed from the earlier direction (as the case may be).
(7) A modification under sub-paragraph (6)(a) comes into force on—
(a) the date on which the person began to import CBAM goods in the course of activities which should be regarded as part of the activities of the business described in the direction, or
(b) if later, the date on which the single taxable person referred to in the earlier direction is deemed to have registered.
(8) A modification under sub-paragraph (6)(b) comes into force on the date specified in the direction.
(9) A direction under sub-paragraph (2), and any determination under sub-paragraph (3)(b)(ii), must be given to each person named in the direction.
(10) A direction under sub-paragraph (6)(a) must be given to each person named in the earlier direction as modified.
(11) A direction under sub-paragraph (6)(b) must be given to—
(a) each person named in the earlier direction as modified, and
(b) the person being removed from the earlier direction.
(12) A registered person is to be treated as no longer being a registered person in their own right from such time as they begin to form part of a single taxable person under a direction under this paragraph.
Part 8 Death, incapacity and insolvency
17 (1) This paragraph applies where a registered person, who is an individual, is deceased or incapacitated and another person (P) carries on the business to which the registered person’s registration relates.
(2) Where this paragraph applies, P must notify HMRC of their carrying on of the business before the end of the period of 21 days beginning with the day on which they began to carry on the business.
(3) The notification must—
(a) be accompanied by evidence of P’s authority to carry on the business;
(b) include information, and be accompanied by evidence about, the death or incapacitation of the registered person.
(4) The Commissioners may specify in a notice published by them—
(a) the particular items of information to be included in, and evidence to accompany, the notification;
(b) the way in which the notification is to be given.
(5) Where this paragraph applies, HMRC may treat P as if they were the registered person for the purposes of CBAM for a period of up to 6 months beginning with the day on which the period under sub-paragraph (2) ends.
(6) An officer of Revenue and Customs may extend the period under sub-paragraph (5) as they think fit by notice in writing to P.
18 (1) This paragraph applies where a registered person is subject to an insolvency procedure and a person (P) acts as an insolvency office holder in relation to that registered person.
(2) Where this paragraph applies, HMRC may treat P as if they were the registered person for the purposes of CBAM.
(3) Where P is treated under sub-paragraph (2) as if they were the registered person—
(a) any liability of the registered person to pay CBAM which arose at a time before the date on which the insolvency procedure began continues to be payable by the registered person;
(b) any liability of the registered person to pay CBAM which arises at a time on or after the date on which the insolvency procedure began is to be regarded as an expense of that procedure (unless the procedure is within sub-paragraph (4)(b)(vii)).
(4) In this paragraph—
(a) “insolvency office holder” means—
(i) an administrative receiver;
(ii) an administrator;
(iii) a liquidator;
(iv) a receiver appointed by the courts or by a mortgagee;
(v) a trustee in bankruptcy;
(vi) a trustee (or interim trustee) in the sequestration of an estate;
(vii) a person acting in an equivalent capacity under the law of a country or territory outside the United Kingdom;
(b) “insolvency procedure” means—
(i) administration;
(ii) administrative receivership;
(iii) bankruptcy;
(iv) receivership;
(v) sequestration;
(vi) winding up;
(vii) an equivalent procedure under the law of a country or territory outside the United Kingdom.
Part 9 Recovery
Recovery as a debt due
19 CBAM is recoverable as a debt due to the Crown.
Assessments of amounts of CBAM
20 (1) Sub-paragraph (2) applies where it appears to an officer of Revenue and Customs that—
(a) any period is an accounting period by reference to which a registered or registrable person is liable to CBAM,
(b) an amount of CBAM for which the person is liable to account by reference to that period has become due, and
(c) there has been a relevant default by the person (see sub-paragraph (3)).
(2) The officer of Revenue and Customs—
(a) may—
(i) in a case where the amount of CBAM due from the person for that period cannot be ascertained, assess the amount due from the person for that period to the best of their judgement;
(ii) in any other case, assess the amount due from the person for that period, and
(b) where such an assessment is made, must notify the person of that amount.
(3) The following are “relevant defaults”—
(a) a failure to comply with a requirement of paragraph 2 (registration) or paragraph 4 (updating or correcting registration information);
(b) the provision, in purported compliance with paragraph 2 or 4, of incomplete or incorrect information;
(c) a failure to make a return required by paragraph 7;
(d) a failure to keep documents, or provide facilities, necessary to verify returns required by paragraph 7;
(e) the submitting, in purported compliance with paragraph 7, of an incomplete or incorrect return;
(f) a failure to comply with a requirement imposed under paragraph 14 or by paragraph 15 (keeping and preserving records);
(g) a failure to provide HMRC with complete or accurate information in complying with any requirement imposed by or under this Part of this Act;
(h) an unreasonable delay in complying with a requirement, where the failure to comply would be a default within any of paragraphs (a) to (g).
21 (1) Sub-paragraph (2) applies where—
(a) an officer of Revenue and Customs has made an assessment under paragraph 20(2) for an accounting period as a result of a person’s failure to submit a return for that period,
(b) the CBAM assessed has been paid but no proper return has been made for that period, and
(c) as a result of a failure to make a return for a later accounting period, an officer of Revenue and Customs makes another assessment (“the later assessment”) under paragraph 20(2) in relation to the later period.
(2) The officer of Revenue and Customs may, if the officer considers it appropriate in light of the absence of a proper return for the earlier period, specify in the later assessment an amount of CBAM due that is greater than the amount that they would have considered to be appropriate had they had regard only to the later period.
Supplementary assessments
22 (1) Sub-paragraph (2) applies where—
(a) an assessment has been notified to a person under paragraph 20(2), and
(b) it appears to an officer of Revenue and Customs that the amount which ought to have been assessed as due exceeds the amount that has already been assessed.
(2) The officer of Revenue and Customs—
(a) may make a supplementary assessment of the amount of CBAM due from the person to the best of their judgement, and
(b) where such an assessment is made, must notify the person of that amount.
Further provision about assessments under paragraphs 20 and 22
23 (1) An amount assessed and notified to a person under paragraph 20 or 22 is recoverable on the basis that it is an amount of CBAM due from that person.
(2) But sub-paragraph (1) does not apply if, or to the extent that, the assessment has been withdrawn or reduced.
Time limits for assessments
24 (1) An assessment under paragraph 20 or 22 may not be made after the relevant time.
(2) Except in a case within sub-paragraph (3) the relevant time is the earlier of—
(a) the end of the period of 4 years from the end of the accounting period to which the assessment relates, or
(b) the end of the period of 1 year beginning with the day on which evidence of facts, sufficient in the opinion of the officer of Revenue and Customs making the assessment to justify making it, comes to the knowledge of any officer of Revenue and Customs.
(3) Where an assessment of an amount due from a person is made in a case involving loss of CBAM—
(a) brought about deliberately by the person, or
(b) attributable to a failure by the person to comply with a requirement of paragraph 2 or 4,
the relevant time is the end of the period of 20 years from the end of the accounting period to which the assessment relates.
(4) In sub-paragraph (3) the reference to a loss brought about by a person includes a reference to a loss brought about by another person acting on behalf of that person.
Part 10 Repayments
Repayments of overpaid tax
25 (1) This paragraph applies where a person (P) has paid an amount to the Commissioners by way of CBAM which was not tax due.
(2) The Commissioners are liable, on the making of a claim by P, to repay the amount.
(3) A claim under this paragraph must be made in the way, and be supported by the information, specified in a notice published by the Commissioners.
(4) Except as provided by this paragraph, the Commissioners are not liable to repay any amount paid by way of CBAM by reason of the fact that it was not tax due.
(5) This paragraph is subject to paragraph 26.
Supplementary provision about repayment etc
26 (1) The Commissioners are not liable, on any claim for a repayment of CBAM, to repay any amount paid more than 3 years before the making of the claim.
(2) It is a defence to any claim for repayment of an amount of CBAM that the repayment of that amount would unjustly enrich the claimant.
27 (1) This paragraph applies where—
(a) an amount has been paid by way of CBAM which (apart from paragraph 26(2)) would fall to be repaid to a person (P), and
(b) the whole or a part of the cost of the payment of that amount to the Commissioners has, for practical purposes, been borne by a person other than P.
(2) Where loss or damage has been, or may be, incurred by P as a result of mistaken assumptions made in P’s case about the operation of any provisions relating to CBAM, that loss or damage is to be disregarded, except to the extent of the quantified amount, in the making of a relevant determination.
(3) In sub-paragraph (2)—
(a) “the quantified amount” means the amount (if any) which is shown by P to constitute the amount that would appropriately compensate P for loss or damage shown by P to have resulted, for any business carried on by P, from the making of the mistaken assumptions;
(b) a “relevant determination” means a determination for the purposes of paragraph 26(2) as to—
(i) whether or to what extent the repayment of an amount would enrich P, or
(ii) whether or to what extent any enrichment of P would be unjust.
(4) The reference in sub-paragraph (2) to provisions relating to CBAM is a reference to—
(a) any provision made by or under any enactment which relates to the tax or to any matter connected with it, or
(b) any notice published by the Commissioners under or for the purposes of any such provision.
Reimbursement arrangements
28 (1) The Commissioners may by regulations provide for reimbursement arrangements to be disregarded for the purposes of paragraph 26(2) except where the arrangements—
(a) contain such provision as may be required by the regulations, and
(b) are supported by such undertakings to comply with the provisions of the arrangements as may be required by the regulations to be given to the Commissioners.
(2) In this paragraph “reimbursement arrangements” means arrangements for the purposes of a claim to a repayment of CBAM which—
(a) are made by a person for the purpose of securing that the person is not unjustly enriched by the repayment of any amount in pursuance of the claim, and
(b) provide for the reimbursement of a person who has for practical purposes borne the whole or any part of the cost of the original payment of that amount to the Commissioners.
(3) Regulations under this paragraph may (among other things) make provision requiring reimbursement arrangements to contain provision—
(a) requiring a reimbursement for which the arrangements provide to be made within a specified period after the repayment to which it relates;
(b) for the repayment of amounts to the Commissioners where those amounts are not reimbursed in accordance with the arrangements;
(c) requiring interest paid by the Commissioners on any amount repaid by them to be treated in the same way as that amount for the purposes of any requirement under the arrangements to make reimbursement or to repay the Commissioners;
(d) requiring records of a specified description relating to the arrangements to be kept and produced to the Commissioners, or to an officer of Revenue and Customs;
(e) imposing obligations on specified persons for the purposes of provision made under paragraphs (a) to (d).
(4) Regulations under this paragraph may—
(a) make provision about the form, manner and timing of undertakings given to the Commissioners in accordance with the regulations;
(b) provide for those matters to be determined by the Commissioners in accordance with the regulations.
Assessment for excessive repayment
29 (1) Sub-paragraph (3) applies where—
(a) an amount has been paid at any time to a person by way of a repayment of CBAM, and
(b) the amount paid exceeded the amount which the Commissioners were liable at that time to repay to that person.
(2) Sub-paragraph (3) also applies where a person is liable to pay any amount to the Commissioners in pursuance of an obligation imposed by regulations under paragraph 28(3)(b), (c) or (e).
(3) The Commissioners may—
(a) to the best of their judgement, assess the amount of the excess (in a case within sub-paragraph (1)) or the amount due (in a case within sub-paragraph (2)), and
(b) where such an assessment is made, notify the amount to the person.
(4) Subject to sub-paragraph (5), where—
(a) an assessment is made on any person under this paragraph in respect of a repayment of CBAM, and
(b) the Commissioners have power under Part 9 of this Schedule to make an assessment on that person as to an amount of CBAM due from that person,
the assessments may be combined and notified to the person as one assessment.
(5) A notice of a combined assessment under sub-paragraph (4) must separately identify the amount being assessed in respect of repayments of CBAM.
Supplementary assessments
30 (1) Sub-paragraph (2) applies where—
(a) an assessment has been notified to a person under paragraph 29, and
(b) it appears to an officer of Revenue and Customs that the amount which ought to have been assessed as due exceeds the amount that has already been assessed.
(2) The officer of Revenue and Customs may—
(a) on or before the last day on which the assessment under paragraph 29 could have been made (see paragraph 32), make a supplementary assessment of the amount of CBAM due from the person, and
(b) where such a supplementary assessment is made, notify the amount to that person.
Further provision about assessments under paragraphs 29 and 30
31 (1) Where an amount has been assessed and notified to a person under paragraph 29 or 30, it is recoverable on the basis that it is an amount of CBAM due from that person.
(2) But sub-paragraph (1) does not have effect if, or to the extent that, the assessment has been withdrawn or reduced.
Time limit for assessments
32 An assessment under paragraph 29 or 30 may not be made more than 2 years after evidence of facts, sufficient in the opinion of the officer of Revenue and Customs making the assessment to justify making it, comes to the knowledge of any officer of Revenue and Customs.
Part 11 Penalties
Penalties payable in connection with this Schedule
33 This Part of this Schedule provides for penalties payable in connection with this Schedule, as follows—
(a) paragraph 34 amends Schedule 41 to FA 2008 to impose a penalty for a failure to register with, or provide information to, HMRC under paragraph 2 of this Schedule;
(b) paragraph 35 amends Schedule 24 to FA 2021 to impose a penalty for a failure to make a return under paragraph 7 of this Schedule;
(c) paragraph 36 amends Schedule 24 to FA 2007 to impose a penalty for errors in returns under paragraph 7 of this Schedule and in other documents;
(d) paragraph 37 amends Schedule 26 to FA 2021 to impose a penalty for a failure to pay CBAM;
(e) paragraph 38 imposes a penalty for failing to make a notification under—
(i) paragraph 4 (changed or incorrect registration information);
(ii) Part 8 (death, incapacity or insolvency);
(f) paragraph 39 imposes a penalty for failing to keep or preserve records under Part 6 of this Schedule or regulations under that Part.
34 (1) Schedule 41 to FA 2008 (penalties: failure to notify and certain VAT and excise wrongdoing) is amended in accordance with sub-paragraphs (2) and (3).
(2) In the table in paragraph 1 (failure to notify etc), after the entry related to climate change levy, insert—
Carbon border adjustment mechanism | Obligation of a person under paragraph 2 of Schedule 17 to FA 2026.
(3) In paragraph 7, after sub-paragraph (9) insert—
(10) In the case of a relevant obligation under paragraph 2 of Schedule 17 to FA 2026 (which relates to the carbon border adjustment mechanism), the potential lost revenue is the amount of the tax (if any) for which P is liable for the period—
(a) beginning with the end of the period specified in paragraph 2(4) of Schedule 17 of FA 2026, and
(b) ending with the day on which P registers under paragraph 2 of Schedule 17 to FA 2026 or HMRC otherwise becomes fully aware of P’s obligation to register.
(4) No failure to comply with an obligation under paragraph 2 of this Schedule “involves an offshore matter” for the purposes of Schedule 41 to FA 2008 (see paragraph 6A of that Schedule).
(5) Paragraph 16(1) of Schedule 41 to FA 2008 (penalties: failure to notify etc) has effect in its application to CBAM as if for “shall” there were substituted “may”.
35 In Schedule 24 to FA 2021 (penalties for failure to make returns etc), in the Table in paragraph 2(1), after item 5 (inserted by paragraph 1(3) of Schedule 15 to this Act) insert—
6 | Carbon border adjustment mechanism | - | Return under paragraph 7 of Schedule 17 to FA 2026 | -
.
36 (1) In the table in paragraph 1 of Schedule 24 to FA 2007 (penalties for errors), after the entry relating to climate change levy, insert—
Carbon border adjustment mechanism | Return under paragraph 7 of Schedule 17 to FA 2026.
(2) No inaccuracy in a return under paragraph 7 of this Schedule “involves an offshore matter” for the purposes of Schedule 24 to FA 2007 (see paragraph 4A of that Schedule).
(3) Paragraph 13(1) of Schedule 24 to FA 2007 (penalties for errors) has effect in its application to CBAM as if for “shall” there were substituted “may”.
37 In Schedule 26 to FA 2021 (penalties for failure to pay tax), in paragraph 1(1), after the table relating to value added tax insert—
Carbon border adjustment mechanism
1 | Amount of CBAM payable under paragraph 6 of Schedule 17 to FA 2026 (except an amount within item 2, 3 or 4) | The date determined by paragraph 6 of Schedule 17 to FA 2026 as the date by which the amount must be paid
2 | Amount of CBAM shown in an assessment made by HMRC in default of a return (see paragraph 3) | The date by which the amount would have been required to be paid if it had been shown in the return in question
3 | Amount of CBAM shown in an amendment of a return | The date falling 30 days after the date on which the amendment is made
4 | Amount of CBAM shown in an assessment made by HMRC otherwise than in default of a return (see paragraph 3) | The date falling 30 days after the date on which the assessment is made
.
38 (1) A person (P) is liable to a penalty if P fails to comply with a requirement to make a notification under—
(a) paragraph 4 (changed or incorrect registration information);
(b) paragraph 17 (death or incapacity).
(2) The penalty is—
(a) a fixed penalty of £500, and
(b) a daily penalty of £40 for each day on which P continues to fail to make the required notification after the last day on which P was permitted to do so.
39 A person (P) is liable to a penalty of £500 if P fails to comply with a requirement to keep or preserve a record under Part 6 of this Schedule or regulations under that Part.
40 (1) But a penalty is not payable under paragraph 38 or 39 if—
(a) P satisfies an officer of Revenue and Customs or, on appeal, the tribunal that there is a reasonable excuse for the failure, or
(b) the penalty would subject P to double jeopardy.
(2) For the purpose of sub-paragraph (1)(a)—
(a) an insufficiency of funds is not a reasonable excuse,
(b) where P relies on any other person to do anything, that is not a reasonable excuse unless P took reasonable care to avoid the failure, and
(c) where P had a reasonable excuse for the failure but the excuse has ceased, P is to be treated as having continued to have the excuse only if the failure is remedied without unreasonable delay after the excuse ceased.
(3) For the purpose of sub-paragraph (1)(b), the penalty would subject P to double jeopardy if, by reason of the conduct constituting the failure, P has been—
(a) convicted of an offence, or
(b) assessed to a penalty other than under paragraph 38 or 39.
Penalties under paragraphs 38 or 39: administration and supplementary provision
41 The following paragraphs of this Part of this Schedule apply in relation to a penalty under paragraph 38 or 39.
42 (1) Where a person is liable to a penalty, an officer of Revenue and Customs—
(a) may assess the amount of the penalty, and
(b) where such an assessment is made, must notify the person of the amount.
(2) Sub-paragraph (3) applies where—
(a) an officer of Revenue and Customs has made an assessment of a penalty, and
(b) it appears to the officer that the amount which ought to have been assessed exceeds the amount that has already been assessed.
(3) The officer may—
(a) may make a supplementary assessment of the amount of the penalty, and
(b) where such an assessment is made, must notify the person of that amount.
(4) An amount assessed and notified to a person under sub-paragraph (1) or (3) is recoverable on the basis that it is an amount of CBAM due from that person.
(5) But sub-paragraph (4) does not apply if, or to the extent that, the assessment has been withdrawn or reduced.
(6) The fact that conduct giving rise to a penalty has ended before an assessment is made under sub-paragraph (1) or (3) does not affect the power of an officer of Revenue and Customs to make such an assessment.
43 (1) Sub-paragraph (2) applies where—
(a) an officer of Revenue and Customs assesses a person to an amount of penalty under paragraph 42(1) or (3), and
(b) the person is also assessed under Part 9 of this Schedule for an accounting period to which the conduct attracting the penalty relates.
(2) The assessments under paragraph 42(1) or (3) and under Part 9 of this Schedule may be combined and notified to the person as one assessment.
(3) A notice of a combined assessment under sub-paragraph (2) must separately identify the penalty being assessed.
44 (1) Where an assessment is made under paragraph 42(1) or (3) to an amount of daily penalty under paragraph 38(2)(b), the notification of that amount must specify a date, not later than the day on which the notification is given, to which the amount is assessed.
(2) If the failure attracting the penalty continues after that date, a further assessment or further assessments may be made under paragraph 42(1) or (3) in respect of the continued failure.
(3) Sub-paragraph (4) applies where—
(a) a notification of an amount of a penalty specifies a date under sub-paragraph (1), and
(b) the failure in question is remedied within such period as may for the purpose of this sub-paragraph be specified in the notification.
(4) The failure is to be deemed to be remedied on the date specified under sub-paragraph (1).
45 (1) An officer of Revenue and Customs assessing a penalty or, on appeal, the tribunal may reduce the penalty to such amount (including nil) as they think proper.
(2) On an appeal relating to a penalty reduced by an officer of Revenue and Customs under sub-paragraph (1), the tribunal may cancel the whole or any part of the officer’s reduction.
46 (1) An assessment under paragraph 42(1) or (3) may not be made after the end of the relevant period.
(2) Except in a case within sub-paragraph (3), the relevant period is the period of 4 years beginning with the day on which the failure attracting the penalty began.
(3) Where an assessment under paragraph 42(1) or (3) is made in a case involving loss of CBAM—
(a) brought about deliberately by the person liable to the penalty, or
(b) attributable to a failure by that person to comply with a requirement under Part 2 of this Schedule,
the relevant period is the period of 20 years beginning with the day on which the failure attracting the penalty began.
(4) In sub-paragraph (3) the reference to a loss brought about by a person includes a reference to a loss brought about by another person acting on behalf of that person.
Penalties under paragraphs 38 and 39: power to amend in light of inflation
47 The Treasury may by regulations amend paragraph 38 or 39 so as to substitute for an amount for the time being specified there another amount that takes account of inflation.
Part 12 Reviews and appeals
Appealable decisions
48 (1) A person may appeal against a decision of the Commissioners or an officer of Revenue and Customs in respect of any of the following matters—
(a) where a person has made a return under paragraph 7 (returns) in respect of an accounting period—
(i) whether or not the person is liable to pay an amount of CBAM for that period;
(ii) the amount of CBAM payable by the person for that period;
(b) the registration, or de-registration, of a person under Part 2 of this Schedule;
(c) whether to treat a person as if they were a registered person for the purposes of CBAM under paragraph 17(5) or 18(2);
(d) whether to extend such treatment under paragraph 17(6);
(e) whether the Commissioners are liable to repay an amount to a person under paragraph 25(2) or the amount of such a repayment;
(f) whether or not the repayment of an amount under paragraph 25(2) is excessive (see paragraph 29);
(g) the amount that a person is liable to pay the Commissioners to comply with an obligation under paragraph 28(3)(b), (c) or (e);
(h) whether a person is liable to a penalty under paragraph 38 or 39 or the amount of such a penalty;
(i) the period by reference to which payments of CBAM are to be made.
(2) A person may also appeal against the following directions of the Commissioners or an officer of Revenue and Customs—
(a) a direction under paragraph 15;
(b) a direction under paragraph 16(2) or (6).
(3) In sub-paragraph (1), “amount of CBAM” includes an amount recoverable on the basis that it is an amount of CBAM.
(4) In the following provisions of this Part of this Schedule—
(a) “decision” means a decision, determination or direction within sub-paragraph (1) or (2);
(b) references to appealing against a decision are to appealing against the decision under paragraph 48
Offer of a review to a person notified of a decision
49 (1) HMRC must offer a person (P) who has been notified of a decision that they may appeal against a review of the decision.
(2) The offer of a review must be made by notice given to P at the same time as the decision is notified to P.
(3) P has a period of 30 days, beginning with the date of the document notifying P of the decision, to accept the offer (if P chooses to) by notifying HMRC.
(4) The offer is to be treated as withdrawn if P has appealed against the decision.
(5) This paragraph does not apply in relation to a decision consisting of a conclusion of a review.
Right of other persons to require review
50 (1) A person, other than P, who has the right to appeal against a decision may require a review of the decision by notifying HMRC.
(2) But that right to require a review ceases if the person appeals against the decision.
(3) A notification under sub-paragraph (1) must be made within the period of 30 days beginning with the day on which the person becomes aware of the decision.
Duty to review
51 (1) An officer of Revenue and Customs must review a decision if—
(a) P has notified HMRC under paragraph 49 accepting the offer of a review, or
(b) a person other than P has notified HMRC under paragraph 50 that they require a review.
(2) But the officer must not review the decision if any person who has the right to appeal against the decision has done so before HMRC has been notified as described in sub-paragraph (1).
Extension of time to accept or require review
52 (1) An officer of Revenue and Customs may by notice extend (or further extend) the period mentioned in paragraph 49(3) or 50(3).
(2) The period is extended to the end of the period of 30 days beginning with—
(a) the date of the notice, or
(b) any other date set out in the notice or a further notice.
Review out of time
53 (1) This paragraph applies if—
(a) P has not accepted the offer of a review of a decision within the period mentioned in paragraph 49(3) (including as extended under paragraph 52) and makes a request to HMRC in writing for a review out of time, or
(b) a person other than P who may require a review of a decision has not done so within the period mentioned in paragraph 50(3) (including as extended under paragraph 52) and makes a request to HMRC in writing for a review out of time.
(2) An officer of Revenue and Customs must review the decision if the officer is satisfied that the person—
(a) had a reasonable excuse for not accepting the offer of a review or requiring the review within the applicable period, and
(b) made the request without unreasonable delay after the excuse had ceased to apply.
(3) But the officer must not review the decision if any person who has the right to appeal against the decision has done so before the request was made.
The review
54 (1) This paragraph applies if an officer of Revenue and Customs is required to undertake a review under paragraph 51 or 53.
(2) The nature and extent of the review are to be such as appear appropriate to the officer in the circumstances.
(3) For the purposes of sub-paragraph (2), the officer must have regard to steps taken before the beginning of the review by—
(a) the decision-maker in reaching the decision, and
(b) any person in seeking to resolve disagreement about the decision.
(4) The review must take account of any representations made by the person requiring the review, at a stage which gives the officer a reasonable opportunity to consider them.
(5) The review may conclude that the decision is to be—
(a) upheld,
(b) varied, or
(c) cancelled.
(6) The officer must give the person who required the review notice of the conclusions of the review and their reasoning before the end of—
(a) the period of 45 days beginning with the relevant date, or
(b) such other period as the officer and the person who required the review may agree.
(7) In sub-paragraph (6), “the relevant date” means—
(a) in a case falling within paragraph 49, the date HMRC received the person’s notification accepting the offer of a review,
(b) in a case falling within paragraph 50, the date HMRC received notification from the person requiring a review, or
(c) in a case falling within paragraph 53, the date on which the officer decided they were under a duty to undertake the review.
(8) Where an officer of Revenue and Customs is required to undertake a review but does not give notice of the conclusions within the period specified in sub-paragraph (6), the review is to be treated as having concluded that the decision is upheld.
(9) If sub-paragraph (8) applies, the officer must notify the person who required the review of the conclusion which the review is treated as having reached.
The review: penalties under Schedule 24 to FA 2021
55 (1) This paragraph applies if HMRC are required, by virtue of paragraph 23(1) of Schedule 24 to FA 2021, to undertake a review under paragraph 51 or 53 of a penalty decision in respect of which an appeal lies under paragraph 22(b) of that Schedule.
(2) The review may also conclude that HMRC’s decision that the person requiring the review was liable to any of the penalty points by virtue of which they were liable to the penalty in respect of which the appeal lies is to be—
(a) upheld, or
(b) cancelled.
(3) Sub-paragraph (2) applies in relation to a penalty point even if the time limit for appealing against it expired before the relevant date.
(4) Sub-paragraph (2) does not apply in relation to a penalty point if—
(a) it was concluded on an earlier review required to be undertaken under paragraph 51 or 53 that HMRC’s decision that the person who required the review was liable to the penalty point was to be upheld, or
(b) HMRC's decision that the person who required the review was liable to the penalty point has been affirmed on appeal.
(5) In sub-paragraph (3) “relevant date” has the same meaning as in paragraph 54(6) (see paragraph 54(7)).
56 (1) If the conclusions of a review include conclusions reached by virtue of paragraph 55 and the conclusions of the review are final, sub-paragraphs (4) and (5) of paragraph 24 of Schedule 24 to FA 2021 apply but with the following modifications—
(a) references to the appeal under paragraph 22(b) of that Schedule are to be read as references to the review required to be undertaken under paragraph 51 or 53 (as the case may be),
(b) references to the tribunal are to be read as references to HMRC, and
(c) references to cancelling a decision are to be read as references to concluding that HMRC’s decision is to be cancelled.
(2) For the purposes of sub-paragraph (1), the conclusions of a review are to be treated as final only if the period specified in paragraph 57(3)(b), (4)(b) or (5) for appealing the reviewed decision has ended and no appeal has been made within that period.
Bringing of appeals
57 (1) An appeal under paragraph 48 is to be made to the tribunal before—
(a) the end of the period of 30 days beginning with—
(i) in a case where P is the appellant, the date of the document notifying P of the decision to which the appeal relates, or
(ii) in a case where a person other than P is the appellant, the day on which that person becomes aware of the decision, or
(b) if later, the end of the period in which the appellant may accept or require a review (see paragraph 49(3) or 50(3)), including as extended under paragraph 52.
(2) But this is subject to sub-paragraphs (3) to (5).
(3) In a case where a review of the decision has been required under paragraph 51—
(a) an appeal may not be made until the conclusion date, and
(b) any appeal is to be made within the period of 30 days beginning with that date.
(4) In a case where a review of the decision has been requested under paragraph 53—
(a) an appeal may not be made—
(i) unless an officer of Revenue and Customs has notified the person who requested the review as to whether or not a review will be undertaken, and
(ii) if an officer of Revenue and Customs has notified that person that a review will be undertaken, before the conclusion date;
(b) any appeal where paragraph (a)(ii) applies is to be made within the period of 30 days beginning with the conclusion date;
(c) if an officer of Revenue and Customs has notified the person who requested the review that a review will not be undertaken, an appeal may be made only if the tribunal gives permission to do so.
(5) In a case where paragraph 54(8) applies, any appeal is to be made at any time in the period beginning with the end of the applicable period in paragraph 54(6) and ending with the date 30 days after the conclusion date.
(6) An appeal may be made after the end of any period specified by this paragraph if the tribunal gives permission to do so.
(7) In this paragraph, “conclusion date” means the date of the document notifying the conclusions of the review.
Further provision about appeals
58 (1) An appeal under paragraph 48 relating to a decision that an amount is due from a person may not be entertained by the tribunal unless the amount which HMRC have determined to be due has been paid to or deposited with the Commissioners.
(2) But sub-paragraph (1) does not apply if—
(a) HMRC are satisfied or, if HMRC are not satisfied but the tribunal has decided, on the application of the appellant, that the requirement to pay or deposit the amount would cause the appellant to suffer hardship, and
(b) the appellant has—
(i) paid or deposited such other amount (if any) by way of security, or
(ii) provided such other security,
as HMRC or, as the case may be, the tribunal consider appropriate.
(3) Notwithstanding sections 11 and 13 of the Tribunals, Courts and Enforcement Act 2007, the decision of the tribunal as to the issue of hardship is final.
Determination on appeal
59 (1) Where, on an appeal under paragraph 48—
(a) it is found that an assessment in respect of the appellant is an assessment for an amount that is less than it ought to have been, and
(b) the tribunal give a direction specifying the correct amount,
the assessment has effect as an assessment of the amount specified in the direction and (without prejudice to any power under this Schedule to reduce the amount of interest payable on the amount of an assessment) as if it were an assessment notified to the appellant in that amount at the same time as the original assessment.
(2) Where the tribunal allows an appeal under paragraph 48(1)(c), (d) or (i) or (2) on the ground that the decision-maker could not reasonably have arrived at the decision, the tribunal may—
(a) direct that the decision, so far as it remains in force, is to cease to have effect from such time as the tribunal may direct, or
(b) require an officer of Revenue and Customs to conduct, in accordance with the directions of the tribunal, a review or a further review of the original decision as appropriate.
(3) Where, on an appeal under paragraph 48, the tribunal find that a liability to a penalty or to an amount of interest arises, the tribunal must not give any direction for the modification of the amount payable in respect of that liability except—
(a) in exercise of a power conferred on the tribunal by Part 11 of this Schedule (penalties), or
(b) for the purpose of making the amount payable conform to the amount due in accordance with this Part of this Act.
(4) Sections 85 and 85B of VATA 1994 (settling of appeals by agreement and payment of tax where there is a further appeal) apply in relation to an appeal under paragraph 48 of this Schedule as they apply to an appeal under section 83 of VATA 1994, reading—
(a) references to section 83 of that Act as references to paragraph 48 of this Schedule, and
(b) the references to value added tax as references to CBAM.
Part 13 Service
60 (1) Anything that may or must be given, notified or issued to a person (P) under this Part of this Act, or provision made under this Part of this Act, may be given, notified or issued by sending it to P or to P’s representative by post, addressed to P’s, or (as the case may be) P’s representative’s, last known address.
(2) Anything given to P’s representative is to be treated as having been given to P.
(3) In this section, “representative”, in relation to P, means—
(a) any of P’s personal representatives;
(b) any person holding office as receiver in relation to P or any of P’s property;
(c) P’s trustee in bankruptcy or liquidator;
(d) a trustee (or interim trustee) in a sequestration of P’s estate under the Bankruptcy (Scotland) Act 2016;
(e) any other person acting in a representative capacity in relation to P.
Part 14 Interpretation
61 In this Schedule, “the tribunal” means the First-tier Tribunal or, where determined by or under Tribunal Procedure Rules, the Upper Tribunal.
Section 152
Part 1 Fraudulent evasion
1 (1) A person commits an offence if the person is knowingly concerned in, or in the taking of steps with a view to, the fraudulent evasion (by that person or another person) of CBAM.
(2) The reference in sub-paragraph (1) to the evasion of CBAM includes a reference to obtaining—
(a) relief relating to CBAM, or
(b) a repayment of CBAM,
in circumstances where there is no entitlement to it.
(3) A person guilty of an offence under this paragraph is liable—
(a) on summary conviction in England and Wales—
(i) to imprisonment for a term not exceeding the general limit in a magistrates’ court,
(ii) to a fine not exceeding £20,000 or (if greater) three times the total of the amounts of CBAM that were, or were intended to be, evaded, or
(iii) to both;
(b) on summary conviction in Scotland—
(i) to imprisonment for a term not exceeding 12 months,
(ii) to a fine not exceeding the statutory maximum or (if greater) three times the total of the amounts of CBAM that were, or were intended to be, evaded, or
(iii) to both;
(c) on summary conviction in Northern Ireland—
(i) to imprisonment for a term not exceeding 6 months,
(ii) to a fine not exceeding the statutory maximum or (if greater) three times the total of the amounts of CBAM that were, or were intended to be, evaded, or
(iii) to both;
(d) on conviction on indictment—
(i) to imprisonment for a term not exceeding 14 years,
(ii) to a fine, or
(iii) to both.
(4) In sub-paragraph (3), the references to the amounts of CBAM that were, or were intended to be, evaded include—
(a) the amounts of any relief relating to CBAM, and
(b) the amounts of any repayment of CBAM,
which were, or were intended to be, obtained in circumstances when there was no entitlement to them.
(5) In determining for the purposes of sub-paragraph (3) the amounts of CBAM that were, or were intended to be, evaded, no account is to be taken of the extent to which any liability to tax of a person would be, or would have been, reduced by the amount of any relief relating to CBAM or repayment of CBAM to which the person was, or would have been, entitled.
Part 2 Misstatement
2 (1) A person commits an offence if, for purposes connected with CBAM, the person—
(a) produces or provides, causes to be produced or provided, or otherwise makes use of any document which is false in a material particular, and
(b) does so intending to deceive any person or to secure that a machine will respond to the document as if it were a true document.
(2) A person commits an offence if, in providing any information under any provision made by or under this Part of this Act, the person—
(a) makes a statement which the person knows to be false in a material particular, or
(b) recklessly makes a statement which is false in a material particular.
(3) A person guilty of an offence under this paragraph is liable—
(a) on summary conviction in England and Wales—
(i) to imprisonment for a term not exceeding 6 months,
(ii) to a fine not exceeding £20,000, or
(iii) to both;
(b) on summary conviction in Scotland—
(i) to imprisonment for a term not exceeding 6 months,
(ii) to a fine not exceeding the statutory maximum, or
(iii) to both;
(c) on summary conviction in Northern Ireland—
(i) to imprisonment for a term not exceeding 6 months,
(ii) to a fine not exceeding the statutory maximum, or
(iii) to both;
(d) on conviction on indictment—
(i) to imprisonment for a term not exceeding 14 years,
(ii) to a fine, or
(iii) to both.
(4) In the case of an offence under this paragraph where—
(a) the document referred to in sub-paragraph (1) is a return required under Part 3 of Schedule 17, or
(b) the information referred to in sub-paragraph (2) is contained in or otherwise relevant to such a return,
the maximum amount of the fine on summary conviction is the greater of £20,000 or the statutory maximum (as the case may be), and the amount equal to three times the sum of the amounts (if any) by which the return understates any person’s liability to CBAM.
(5) In sub-paragraph (4) the reference to the amount by which a return understates a person’s liability to CBAM is the sum of—
(a) the amount (if any) by which the person’s gross liability is understated, and
(b) the amount (if any) by which any entitlements of the person to relief relating to CBAM and repayments of CBAM is overstated.
(6) In sub-paragraph (5) “gross liability” means liability to CBAM before any deduction is made in respect of any entitlements to relief relating to CBAM and repayments of CBAM.
Part 3 Proceedings
3 Sections 145 to 155 of CEMA 1979 (proceedings for offences, mitigation of penalties and certain other matters) apply in relation to offences and penalties under this Schedule as they apply in relation to offences under the customs and excise Acts.
Schedule 19 Supplementary amendments relating to CBAM
Section 153
Provisional collection of CBAM
1 In section 1 of the Provisional Collection of Taxes Act 1968 (temporary statutory effect of House of Commons resolutions), in subsection (1), after “climate change levy,” insert “carbon border adjustment mechanism,”.
Information and inspection powers
2 (1) Schedule 36 to FA 2008 (information and inspection powers) is amended as follows.
(2) In the table in paragraph 61A(2) (definition of involved third parties), after item 14 insert—
15 | A person involved (in any capacity) in the production, or importation to or exportation from the United Kingdom, of CBAM goods (within the meaning of section 2 of FA 2026) or in connected activities | Documents relating to matters in which the person is or has been involved | Carbon border adjustment mechanism
16 | A person involved (in any capacity) in the supply, storage purchase, sale or transportation of CBAM goods (within the meaning of section 2 of FA 2026) | Documents relating to matters in which the person is or has been involved | Carbon border adjustment mechanism
(3) In paragraph 63(1) (definition of tax), after paragraph (k) insert—
(ka) carbon border adjustment mechanism,
.
Serial tax avoidance
3 In paragraph 4(2) of Schedule 18 to FA 2016 (serial tax avoidance: definition of indirect tax), after “climate change levy” insert—
carbon border adjustment mechanism
.
Disclosure of tax avoidance schemes
4 In paragraph 2(1) of Schedule 17 to F(No.2)A 2017 (disclosure of tax avoidance schemes: definition of indirect tax), after “climate change levy” insert—
carbon border adjustment mechanism
.
Schedule 20 Registration of tax advisers: exceptions
Section 223
1 (1) A tax adviser does not contravene section 223(1) (prohibited interaction with HMRC) in any of the following circumstances—
(a) where the adviser provides payroll, or other tax or accounting, software to a client for use in relation to the client’s tax affairs and the adviser interacts with HMRC in their capacity as such a provider;
(b) where the adviser interacts with HMRC in relation to—
(i) any matter relating to a duty of customs or to any provision, so far as relating to a duty of customs, made by or under the customs and excise Acts or Union customs legislation, or
(ii) any matter relating to a duty of excise or import VAT that is connected to a matter within sub-paragraph (i);
(c) where the adviser is a VAT representative and interacts with HMRC in their capacity as such;
(ca) where the adviser is an IOSS representative and interacts with HMRC in their capacity as such;
(d) where the adviser is a NI tax representative and interacts with HMRC in their capacity as such;
(e) where the adviser is a UK representative and interacts with HMRC in their capacity as such;
(ea) where the adviser interacts with HMRC in relation to a tax that is not payable to HMRC (such as council tax or non-domestic rates);
(eb) where the adviser interacts with HMRC in relation to the provision of a valuation of property under section 10 of CRCA 2005 (the valuation office);
(f) where the adviser interacts with HMRC in relation to a client who is a group undertaking in relation to the adviser;
(g) where the adviser interacts with HMRC in relation to an appeal to a court or tribunal;
(h) where the adviser interacts with HMRC in order to comply with an obligation of the adviser under any enactment (including this Act);
(i) where the adviser interacts with HMRC in response to a request for information from HMRC.
(2) In this paragraph—
“the customs and excise acts” has the meaning given by section 1(1) of CEMA 1979 (interpretation);
“group undertaking” has the meaning given by section 1161(5) of the Companies Act 2006 (meaning of “undertaking” and related expressions);
“import VAT” means value added tax chargeable by virtue of section 1(1)(c) of VATA 1994 (importation of goods into the United Kingdom);
“IOSS representative” means a person registered as an IOSS representative under Schedule 9ZE to VATA 1994 (distance selling of goods imported to Northern Ireland: special accounting scheme) (see Part 5 of that Schedule);
“NI tax representative” has the meaning given by regulation 76(2) of the Excise Goods (Holding, Movement and Duty Point) Regulations 2010 (S.I. 2010/593) (excise duty and distance sales: NI representatives), as those Regulations have effect subject to the Excise Duties (Northern Ireland Miscellaneous Modifications and Amendments) (EU Exit) Regulations 2020 (S.I. 2020/1559);
“UK representative” has the meaning given by section 123 (vaping product duty: UK representatives);
“Union customs legislation” has the meaning given by section 37(1) of TCTA 2018 (minor definitions);
“VAT representative” has the meaning given by section 48(2A) of VATA 1994 (VAT representatives).
Schedule 21 Registration of tax advisers: reviews and appeals
Section 244
Appealable decisions
1 A person may appeal to the tribunal against a decision of an officer of Revenue and Customs in respect of any of the following matters—
(a) whether to approve the person’s application for registration under section 230 (application for registration);
(b) whether to suspend the person’s registration under section 232 (suspension of registration);
(c) whether to give the person a compliance notice under section 233 (compliance notice);
(d) whether to assess the person to a financial penalty under section 234 or 235 (prohibited interactions with HMRC);
(e) whether to issue a temporary or permanent ineligibility order to the person under section 236 or 237 (ineligibility orders);
(f) whether to assess the person to a financial penalty under section 238 (failure to notify clients);
(g) whether to approve an application under paragraph 10 (temporary relief from suspension of registration pending review or appeal: cases other than amount of tax etc overdue);
(h) whether to revoke such an approval, or to impose or vary any conditions or restrictions that such an approval is subject to, under paragraph 10.
Offer of review
2 (1) HMRC must offer a person a review of a decision that has been notified to the person if an appeal against the decision may be brought under paragraph 1.
(2) The offer of a review must be made by notice to the person at the same time as the decision is notified to them.
(3) This paragraph does not apply in relation to—
(a) a decision mentioned in paragraph 1(g) or (h) (temporary relief from suspension of registration pending review or appeal: cases other than amount of tax etc overdue), or
(b) a decision consisting of a conclusion of a review under this Schedule.
Time to accept offer of review
3 (1) Where HMRC have offered a person a review of a decision under paragraph 2, the person may accept the offer by notice to HMRC within the period of 30 days beginning with the day on which notice of the offer was issued.
(2) An officer of Revenue and Customs may by notice extend the period within which a person may accept the offer to—
(a) the end of the period of 30 days beginning with the date of the notice, or
(b) any other date set out in the notice or a further notice.
(3) But an officer may not give a notice under sub-paragraph (2) after the period within which a person may accept the offer has ended.
Review out of time
4 (1) Where HMRC have offered a person a review of a decision under paragraph 2, the person may accept the offer by notice to HMRC after the period for accepting the offer has ended if an officer of Revenue and Customs agrees.
(2) An officer of Revenue and Customs must agree to an offer being accepted under this paragraph if the person has requested in writing that HMRC do so and the officer is satisfied that—
(a) there was a reasonable excuse for not accepting the offer before the period for accepting the offer had ended, and
(b) the request has been made without unreasonable delay after the excuse has ceased to apply.
(3) If a request of the kind mentioned in sub-paragraph (2) is made, an officer of Revenue and Customs must notify the person whether they agree to the request.
No review after appeal to the tribunal
5 Where HMRC have offered a person a review of a decision under paragraph 2, the person may not accept the offer under paragraph 3 or 4 if they have appealed to the tribunal against the decision.
Review
6 (1) This paragraph applies if a person accepts an offer under paragraph 3 or 4 to review a decision.
(2) An officer of Revenue and Customs must review the decision.
(3) The nature and extent of the review are to be such as appear appropriate to the officer in the circumstances.
(4) The review must take account of any representations made by the person at a stage which gives the officer a reasonable opportunity to consider them.
(5) The review may conclude that the decision is to be—
(a) upheld,
(b) varied, or
(c) cancelled.
(6) The officer must give the person notice of the conclusions of the review and their reasoning before the end of—
(a) the period of 45 days beginning with the day on which HMRC received notice of the person’s acceptance of the offer to review the decision, or
(b) such other period as the officer and the person may agree.
(7) Where an officer of Revenue and Customs is required to undertake a review but does not give notice of the conclusions within the period specified in sub-paragraph (6), the review is to be treated as having concluded that the decision is upheld.
(8) If sub-paragraph (7) applies, an officer of Revenue and Customs must notify the person of the conclusion which the review is treated as having reached.
Bringing of appeals
7 (1) This paragraph applies where HMRC have offered to review a decision that a person may appeal against to the tribunal.
(2) The right of the person at any time to appeal to the tribunal depends on whether or not the person has accepted the offer at that time.
(3) If the person has accepted the offer, the person—
(a) may not appeal to the tribunal before the beginning of the post-review period;
(b) may appeal to the tribunal after the end of that period only if the tribunal gives permission.
(4) If the person has not accepted the offer, the person—
(a) may appeal to the tribunal within—
(i) the period of 30 days beginning with the day on which notice of the offer to review the decision was issued by HMRC, or
(ii) if the period for accepting the offer has been extended under paragraph 3(2), such extended period;
(b) may appeal to the tribunal after the end of that period only if the tribunal gives permission.
(5) In this paragraph “post-review period” means—
(a) the period of 30 days beginning with the day on which notice of the conclusions of the review was issued by an officer of Revenue and Customs, or
(b) where paragraph 6(7) applies, the period beginning with the end of the period specified in paragraph 6(6) and ending 30 days after the day on which the notification under paragraph 6(8) is issued by an officer of Revenue and Customs.
Powers of tribunal
8 On an appeal under paragraph 1 that is notified to the tribunal, the tribunal may confirm, vary or cancel the decision.
Temporary relief from suspension of registration pending review or appeal: amount of tax etc overdue
9 (1) This paragraph applies where—
(a) an authorised officer of Revenue and Customs decides under section 232(1) to suspend a tax adviser’s registration,
(b) the decision is made solely on the basis that the adviser or a relevant individual of the adviser does not meet the condition in section 227(2)(a) (amount of tax etc overdue), and
(c) the adviser has—
(i) accepted an offer under this Schedule to review the decision, or
(ii) appealed against the decision to the tribunal.
(2) The adviser may apply to HMRC to suspend the effect of the decision pending the outcome of the review or appeal.
(3) An authorised officer of Revenue and Customs must, by notice, approve an application made under sub-paragraph (2).
(4) A notice under sub-paragraph (3) must—
(a) state the date from which it has effect, and
(b) in a case where the adviser’s registration has already been suspended, temporarily reinstate the adviser’s registration.
(5) The day on which the approval of an application under this paragraph (including any temporary reinstatement of the adviser’s registration) expires is—
(a) in a case where the decision to suspend the tax adviser’s registration is cancelled on a review under this Schedule, the day on which it is cancelled;
(b) in a case where the decision to suspend the tax adviser’s registration is upheld on a review under this Schedule, the last day on which an appeal could be brought against that decision (ignoring any possibility of an appeal brought out of time with permission), unless paragraph (c) applies;
(c) in a case where an appeal (other than an appeal brought out of time with permission) is brought in respect of the decision to suspend the tax adviser’s registration, the day on which the appeal is finally determined.
(6) HMRC may specify in a notice published by them provision about the form, manner, timing and content of applications under this paragraph.
Temporary relief from suspension of registration pending review or appeal: other cases
10 (1) This paragraph applies where—
(a) an authorised officer of Revenue and Customs decides under section 232 (suspension of registration) to suspend a tax adviser’s registration,
(b) paragraph 9 (amount of tax etc overdue) does not apply in relation to the decision, and
(c) the adviser has—
(i) accepted an offer under this Schedule to review the decision, or
(ii) appealed against the decision to the tribunal.
(2) The adviser may apply to HMRC to suspend the effect of the decision pending the outcome of the review or appeal.
(3) An authorised officer of Revenue and Customs may, by notice, approve an application under sub-paragraph (2) only if they are satisfied that—
(a) the adviser has demonstrated that if the application were not approved the adviser would be unable to continue as a going concern pending the final determination of the review or appeal, and
(b) it is appropriate in all the circumstances to approve the application.
(4) In determining whether it would be appropriate to approve the application, the officer must have regard to—
(a) the prospect of the review or appeal succeeding;
(b) any alternative steps available to, and taken by, the adviser to protect their position pending the final determination of the review or appeal;
(c) whether the adviser has acted expeditiously in accepting the offer of the review or in bringing and progressing the appeal.
(5) A notice under sub-paragraph (3) approving the application must—
(a) state the date from which it has effect, and
(b) in a case where the adviser’s registration has already been suspended, temporarily reinstate the adviser’s registration.
(6) A notice under sub-paragraph (3) may approve an application subject to any conditions or restrictions specified in the notice.
(7) The day on which the approval of an application under this paragraph (including any temporary reinstatement of the adviser’s registration) expires is—
(a) in a case where the decision to suspend the tax adviser’s registration is cancelled on a review under this Schedule, the day on which it is cancelled;
(b) in a case where the decision to suspend the tax adviser’s registration is upheld on a review under this Schedule, the last day on which an appeal could be brought against that decision (ignoring any possibility of an appeal brought out of time with permission), unless paragraph (c) applies;
(c) in a case where an appeal (other than an appeal brought out of time with permission) is brought in respect of the decision to suspend the tax adviser’s registration, the day on which the appeal is finally determined.
(8) An authorised officer of Revenue and Customs may, by notice, revoke the approval of an application under this paragraph, or vary the conditions or restrictions to which it is subject, if they are satisfied that a change in circumstances justifies doing so.
(9) HMRC may specify in a notice published by them provision about the form, manner, timing and content of applications under this paragraph.
Section 250
Part 1 Amendments to Schedule 38 to FA 2012
1 Schedule 38 to FA 2012 (tax agents: dishonest conduct) is amended in accordance with this Part.
2 For the Schedule heading substitute “Tax advisers: sanctionable conduct”.
3 In paragraph 1 (overview)—
(a) in paragraph (a)—
(i) for “agent” substitute “adviser”;
(ii) for “dishonest” substitute “sanctionable”;
(b) omit paragraph (b);
(c) after paragraph (c) insert—
(ca) Part 3A confers power on HMRC to issue conduct notices,
;
(d) in paragraph (d), for “dishonest” substitute “sanctionable”.
4 (1) For paragraph 2 and the italic heading before it (tax agent) substitute—
Tax adviser
2 (1) In this Schedule “tax adviser” means—
(a) an organisation that, in the course of a business carried on by it, assists other persons with their tax affairs, or
(b) an individual who, in the course of a business (whether carried on by the individual as a sole trader or by an organisation for which the individual works), assists other persons with their tax affairs.
(2) An organisation or individual assists another person with their tax affairs if the organisation or individual does any of the following—
(a) advises the other person in relation to tax;
(b) acts or purports to act as an agent on behalf of the other person in relation to tax;
(c) provides assistance with any document that is likely to be relied on by HMRC to determine the other person’s tax position;
(d) provides assistance for non-tax purposes, if the assistance is provided in the knowledge that it will be, or is likely to be, used by the other person in connection with the other person's tax affairs.
(3) A person can be a tax adviser even if they, or an organisation for which they work, are appointed indirectly (for example, at the request of someone other than their client).
(4) In this Schedule (except in paragraph 17) “client”, in relation to a tax adviser, means a person who the adviser, in the course of a business (whether carried on by the adviser or by an organisation for which the adviser works), assists with their tax affairs.
5 (1) In the italic heading before paragraph 3, for “Dishonest” substitute “Sanctionable”.
(2) In paragraph 3 (dishonest conduct)—
(a) for sub-paragraph (1) substitute—
(1) For the purposes of this Schedule, a person “engages in sanctionable conduct” if, in the course of acting as a tax adviser, the person does something with the intention of bringing about a loss of tax revenue.
;
(b) in sub-paragraph (3), for “individual” substitute “person”;
(c) for sub-paragraph (7) substitute—
(7) A reference in this paragraph to doing something includes omitting to do something.
6 Omit Part 2 (establishing dishonest conduct).
7 In the Part 3 heading, for “agent’s” substitute “adviser’s”.
8 In paragraph 7 (circumstances in which power is exercisable)—
(a) in sub-paragraph (1), after “and” insert “, in respect of a person other than a tax adviser,”;
(b) after sub-paragraph (1) insert—
(1A) An officer of Revenue and Customs may ask for the approval of the tribunal before exercising the power in paragraph 8 in respect of a tax adviser (and for the effect of not obtaining such approval see paragraph 20(1A) (appeals)).
;
(c) for sub-paragraph (2) substitute—
(2) Case A is where an authorised officer of Revenue and Customs has reasonable grounds to suspect that a person is engaging in, or has engaged in, sanctionable conduct.
;
(d) in sub-paragraph (3)—
(i) in paragraph (a), for “an individual” substitute “a person”;
(ii) in paragraph (b)—
(A) for “individual” (in each place it occurs) substitute “person”;
(B) for “agent” (in each place it occurs) substitute “adviser”;
(e) in sub-paragraph (4), in the opening words—
(i) omit “determination or”;
(ii) omit “confirmed or”;
(f) in sub-paragraph (5)—
(i) in the opening words, for “agent” substitute “adviser”;
(ii) in paragraphs (a) and (b), for “individual” substitute “person”;
(g) in sub-paragraph (6)—
(i) for “individual” substitute “person”;
(ii) for “agent” substitute “adviser”.
9 In paragraph 8(2)(a) (file access notice), for “agent” substitute “adviser”.
10 In paragraph 9 (relevant documents)—
(a) in sub-paragraph (1)—
(i) for “agent’s” substitute “adviser’s”;
(ii) for “agent” (in each place it occurs) substitute “adviser”;
(b) in sub-paragraph (3), omit paragraph (b) and the “and” before it.
11 In paragraph 10 (content of file access notice)—
(a) in sub-paragraph (1), after “may” insert “, subject to sub-paragraph (1A),”;
(b) after sub-paragraph (1) insert—
(1A) In a case falling within case A (see paragraph 7), a file access notice may only require the provision of relevant documents relating to clients of the tax adviser with respect to whom the authorised officer of Revenue and Customs mentioned in paragraph 7(2) has reasonable grounds to suspect the tax adviser is engaging in or has engaged in sanctionable conduct.
(1B) In a case falling within Case A (see paragraph 7), a file access notice—
(a) must identify the clients of the tax adviser (in relation to whom relevant documents are required to be provided), and
(b) may identify those clients by reference to a class or description of clients.
;
(c) in sub-paragraph (2)—
(i) for “A file” substitute “In a case falling within Case B (see paragraph 7), a file”;
(ii) for “agent” substitute “adviser”;
(d) in sub-paragraph (3), for “agent” (in each place it occurs) substitute “adviser”.
12 In paragraph 13 (approval of file access notice by tribunal)—
(a) in sub-paragraph (1)(d), for “agent” substitute “adviser”;
(b) in sub-paragraph (2)—
(i) for “an individual” substitute “a person”;
(ii) for “dishonest” substitute “sanctionable”.
13 In paragraph 20 (appeal against file access notice)—
(a) in sub-paragraph (1), for “agent” substitute “adviser”;
(b) after sub-paragraph (1) insert—
(1A) If—
(a) the document-holder is the tax adviser, and
(b) the giving of the file access notice was not approved by the tribunal (see paragraph 7(1A)),
the document-holder may appeal against the file access notice or any requirement in it.
;
(c) in sub-paragraph (2), in the opening words, after “appeal” insert “under sub-paragraph (1) or (1A)”.
14 After paragraph 23 insert—
Increased daily default penalty
23A (1) This paragraph applies if—
(a) a penalty under paragraph 23 is assessed in respect of a person's failure to comply with a file access notice,
(b) the failure continues for more than 30 days beginning with the date on which notification of that assessment was issued, and
(c) HMRC has (at any time) told the person that an application may be made under this paragraph for an increased daily penalty to be assessable.
(2) An officer of Revenue and Customs may make an application to the tribunal for the person to be liable to an increased daily penalty.
(3) If the tribunal decides that the person should be liable to an increased daily penalty—
(a) the tribunal must determine the day from which the increased daily penalty is to apply and the maximum amount of that penalty (“the new maximum amount”), and
(b) from that day, paragraph 23 has effect in the person's case as if the new maximum amount were substituted for the amount for the time being specified there.
(4) The new maximum amount may not be more than £1,000.
(5) In determining the new maximum amount the tribunal must have regard to—
(a) the likely cost to the person of complying with the notice,
(b) any benefits to the person of not complying with it, and
(c) any benefits to anyone else resulting from the person's non-compliance.
(6) If the tribunal makes a determination under this paragraph, HMRC must notify the person.
(7) The notification must specify the new maximum amount and the day from which it applies.
15 After paragraph 25 insert—
Penalties for inaccurate documents
25A (1) If a person, in purported compliance with a file access notice, provides a document that contains an inaccuracy, the person is liable to a penalty not exceeding £3,000 where—
(a) the inaccuracy is deliberate or due to a failure by the person to take reasonable care,
(b) the person knows of the inaccuracy at the time the document is provided but does not inform HMRC at that time, or
(c) the person discovers the inaccuracy some time later and fails to take reasonable steps to inform HMRC.
(2) Where the document contains more than one inaccuracy, a penalty is payable for each inaccuracy.
16 After Part 3 insert—
Part 3A Conduct notices
Giving of conduct notice
25B (1) This paragraph applies if HMRC determine that a person is engaging in or has engaged in sanctionable conduct.
(2) An authorised officer (or an officer of Revenue and Customs with the approval of an authorised officer) may notify the person of the determination.
(3) The notice must state the grounds on which the determination was made.
(4) For the effect of notifying the person, see paragraph 29(2).
(5) A notice under this paragraph is referred to as a “conduct notice”.
Withdrawal of conduct notice
25C (1) An officer of Revenue and Customs may withdraw a conduct notice at any time.
(2) If they do so, they must notify the person of the withdrawal.
(3) A conduct notice given to a person is to be treated as withdrawn at the applicable deadline if HMRC have not, before such deadline, assessed the person to a penalty under Part 4 in respect of the conduct forming the subject of the notice.
(4) In this paragraph “the applicable deadline” has the same meaning as in paragraph 30(3) (assessment of penalties).
17 In the Part 4 heading, for “dishonest” substitute “sanctionable”.
18 For paragraph 26 and the italic heading before it (penalty for dishonest conduct) substitute—
Penalty for sanctionable conduct
26 (1) A person who engages in sanctionable conduct is liable to a penalty.
(2) The penalty to which the person is liable is—
(a) in a case in which potential lost revenue is attributable to the sanctionable conduct (see paragraph 26C)—
(i) the appropriate percentage of the potential lost revenue determined in accordance with paragraph 26C, or
(ii) if higher, £7,500;
(b) in any other case, £7,500.
(3) But if the person would, but for this sub-paragraph, be liable to a penalty of an amount that is higher than £1,000,000, the person is instead liable to a penalty of that amount.
(4) For the purposes of this paragraph, the “appropriate percentage” is—
(a) 70%, or
(b) if the person disclosed the sanctionable conduct, the percentage determined in accordance with sub-paragraphs (5) and (6).
(5) If the person disclosed the sanctionable conduct, HMRC must reduce the appropriate percentage from 70% to a percentage that reflects the quality of the disclosure.
(6) But the appropriate percentage may not be reduced to a percentage that is below—
(a) in the case of a prompted disclosure, 35%, and
(b) in the case of an unprompted disclosure, 20%.
(7) This paragraph is subject to paragraphs 26B (increased penalties) and 27 (special reduction).
Disclosure of conduct
26A (1) For the purposes of paragraph 26, a person “discloses” sanctionable conduct by—
(a) telling HMRC about it,
(b) giving HMRC reasonable help in identifying the client or clients concerned and in quantifying the loss of tax revenue (if any) brought about by it, and
(c) allowing HMRC access to records for the purpose of ensuring that any such loss is recovered or otherwise properly accounted for.
(2) A disclosure is “unprompted” if it is made at a time when the person has no reason to believe that HMRC have discovered or are about to discover the sanctionable conduct.
(3) Otherwise, a disclosure is “prompted”.
(4) In relation to disclosure, “quality” includes timing, nature and extent.
Increased penalties
26B (1) Sub-paragraph (2) applies where—
(a) a person is liable to a penalty under paragraph 26, and
(b) in the period of 20 years ending with the day on which the person became liable to the penalty, the person has been assessed to a penalty under that paragraph on more than 1, but fewer than 6, occasions.
(2) Paragraph 26 applies in relation to the penalty mentioned in sub-paragraph (1)(a) as if—
(a) each reference to 70% of the potential lost revenue were a reference to 85% of the potential lost revenue, and
(b) the reference in sub-paragraph (3) to £1,000,000 were a reference to £5,000,000.
(3) Sub-paragraph (4) applies where—
(a) a person is liable to a penalty under paragraph 26, and
(b) in the period of 20 years ending with the day on which the person became liable to the penalty, the person has been assessed to a penalty under that paragraph on 6 or more occasions.
(4) Paragraph 26 applies in relation to the penalty mentioned in sub-paragraph (3)(a) as if—
(a) each reference to 70% of the potential lost revenue were a reference to 100% of the potential lost revenue, and
(b) sub-paragraph (3) (maximum amount) were omitted.
(5) For the purposes of sub-paragraphs (1)(b) and (3)(b), a penalty under paragraph 26 is not to be taken into account if—
(a) the person was assessed to the penalty more than 4 years before the day mentioned in sub-paragraph (1)(b) or (3)(b) (as the case may be), and
(b) in the period of 4 years after the penalty was assessed, the person was not assessed to another such penalty.
(6) Where—
(a) a penalty under paragraph 26 is not to be taken into account in accordance with sub-paragraph (5), and
(b) the person had previously been assessed to one or more other penalties under paragraph 26,
those previous penalties are also not to be taken into account for the purposes of sub-paragraphs (1)(b) and (3)(b).
(7) For the purposes of sub-paragraphs (1)(b) and (3)(b), if a person is assessed to a penalty under paragraph 26 and the penalty is, at any time, subsequently set aside or otherwise cancelled, the penalty is to be treated from that time as if it was not assessed on the person.
Potential lost revenue
26C (1) Potential lost revenue is attributable to a tax adviser’s sanctionable conduct if—
(a) an act within sub-paragraph (2) takes place, and
(b) the sanctionable conduct includes the tax adviser—
(i) doing the act on behalf of the client, or
(ii) advising or assisting the client to do the act.
(2) The following acts are within this sub-paragraph—
(a) the giving to HMRC of a document of a kind listed in the table in paragraph 1 of Schedule 24 to FA 2007 (error in taxpayer’s document) by a client where the condition in paragraph 1(2) of that Schedule is satisfied;
(b) a failure by a client to comply with an obligation specified in the table in paragraph 1 of Schedule 41 to FA 2008 (failure to notify etc);
(c) a failure by a client to make or deliver a return specified in the table in paragraph 1 of Schedule 55 to FA 2009 (failure to make returns etc) on or before the filing date where the failure continues after the end of the period of 12 months beginning with the penalty date;
(d) a failure by a client to make a return specified in the third column of the table in paragraph 1 of Schedule 25 to FA 2021 (failure to make returns etc) on or before the due date.
(3) In sub-paragraph (2)(c) “filing date” and “penalty date” have the same meaning as in Schedule 55 to FA 2009 (see paragraph 1(4) of that Schedule).
(4) In sub-paragraph (2)(d) “due date” has the same meaning as in Schedule 25 to FA 2021 (see paragraph 2(4) of that Schedule).
(5) The amount of potential lost revenue that is attributable to the sanctionable conduct is—
(a) in a case within sub-paragraph (2)(a), the potential lost revenue in respect of the inaccuracy in question as determined in accordance with paragraphs 5 to 8 of Schedule 24 to FA 2007;
(b) in a case within sub-paragraph (2)(b), the potential lost revenue in respect of the failure as determined in accordance with paragraphs 7 and 11 of Schedule 41 to FA 2008;
(c) in a case within sub-paragraph (2)(c), the amount of the liability to tax which would have been shown in the return in question as determined in accordance with paragraph 24 of Schedule 55 to FA 2009;
(d) in a case within sub-paragraph (2)(d), the amount of the liability to tax which would have been shown in the return in question as determined in accordance with paragraph 11 of Schedule 25 to FA 2021.
(6) In its application for the purposes of sub-paragraph (5)(c), paragraph 24(2) of Schedule 55 to FA 2009 (determination of penalty where no return made) has effect as if references to a penalty were references to a penalty under this Schedule.
(7) In its application for the purposes of sub-paragraph (5)(d), paragraph 11(2) and (3) of Schedule 25 to FA 2021 (determination of penalty where no return made) has effect as if references to a penalty were references to a penalty under this Schedule.
19 In paragraph 27 (special reduction)—
(a) in sub-paragraph (1)—
(i) for “an individual” substitute “a person”;
(ii) omit “of £5,000”;
(b) in sub-paragraph (2)(a), omit “to an amount below £5,000 (which may be nil)”.
20 In paragraph 28 (power to publish details)—
(a) for sub-paragraph (1), substitute—
(1) The Commissioners must publish information about a person if the person incurs a penalty under paragraph 26 of more than £7,500.
;
(b) in sub-paragraph (2)—
(i) in paragraph (a), for “individual’s” substitute “person’s”;
(ii) in paragraph (b), for “individual’s address” substitute “person’s postcode”;
(iii) in paragraph (c), for “individual” substitute “person”;
(iv) in paragraph (e), for “dishonest” substitute “sanctionable”;
(v) in paragraph (f), for “individual’s” substitute “person’s”;
(vi) in paragraph (g), for “dishonest” substitute “sanctionable”;
(c) omit sub-paragraph (3);
(d) in sub-paragraph (4)—
(i) after “(5)” insert “, (7)”;
(ii) for “an individual” substitute “a person”;
(e) in sub-paragraph (5)—
(i) for “agent” substitute “adviser”;
(ii) for “the individual” substitute “an individual”.
21 In paragraph 29 (assessment of penalties)—
(a) in sub-paragraph (2), for the words from “and either” to the end substitute “and not withdrawn”;
(b) omit sub-paragraph (3).
22 In paragraph 30 (deadline for assessment)—
(a) in sub-paragraph (3)(a), omit “(see paragraph 29(2))”;
(b) in sub-paragraphs (4) and (5), for “dishonest” substitute “sanctionable”.
23 In paragraph 31 (appeal against penalty)—
(a) in sub-paragraph (1)(a), after “Part 3” insert “or 4”;
(b) after sub-paragraph (1) insert—
(1A) But sub-paragraph (1)(b) does not give a right of appeal against the amount of an increased daily penalty payable as a result of paragraph 23A (increased daily default penalty).
24 In paragraph 35 (power to change amount of penalties)—
(a) for sub-paragraph (1) substitute—
(1) The Treasury may by regulations amend any of paragraphs 22(1), 23, 23A(4), 25A(1), 26(2) and (3), 26B(2) and 28(1) so as to increase or decrease the amount of a penalty for the time being specified in those paragraphs to reflect a change in the value of money.
;
(b) omit sub-paragraph (2).
25 In paragraph 37(1) (meaning of “tax”), after paragraph (la) insert—
(lb) diverted profits tax,
(lc) multinational top-up tax,
(ld) domestic top-up tax,
(le) annual tax on enveloped dwellings,
(lf) plastic packaging tax,
(lg) economic crime (anti-money laundering) levy,
(lh) digital services tax,
(li) soft drinks industry levy,
.
26 In paragraph 38—
(a) in the definition of “client”—
(i) in paragraph (a), for “paragraph 2(1)” substitute “paragraph 2(4)”;
(ii) omit paragraph (b);
(b) in the definition of “conduct notice”, for “paragraph 4” substitute “paragraph 25B”;
(c) in the definition of “organisation”, for “includes any person or firm” substitute “means any body corporate, partnership or other organisation”.
27 Omit paragraph 39 (clients).
28 In paragraph 40 (loss of tax revenue), for “dishonest” substitute “sanctionable”.
Part 2 Consequential amendments
TMA 1970
29 In section 103ZA of TMA 1970 (disapplication of sections 100 to 103 in the case of certain penalties), in paragraph (g), for “tax agents: dishonest conduct” substitute “tax advisers: sanctionable conduct”.
Social Security Administration Act 1992
30 In section 110ZA(2A) of the Social Security Administration Act 1992 (class 1, 1A, 1B or 2 contributions: powers to call for documents etc), for “tax agent’s” substitute “tax adviser’s”.
Social Security Administration (Northern Ireland) Act 1992
31 In section 104ZA(2A) of the Social Security Administration (Northern Ireland) Act 1992 (class 1, 1A, 1B or 2 contributions: powers to call for documents etc), for “tax agent’s” substitute “tax adviser’s”.
The Education (Student Loans) (Repayment) Regulations (Northern Ireland) 2009
32 In regulation 9(2) of the Education (Student Loans) (Repayment) Regulations (Northern Ireland) 2009 (S.I. 2009/128) (student loan repayments: penalties), for “Tax Agents: Dishonest Conduct” substitute “tax advisers: sanctionable conduct”.
The Education (Student Loans) (Repayment) Regulations 2009
33 In regulation 13(2) of the Education (Student Loans) (Repayment) Regulations 2009 (S.I. 2009/470) (student loan repayments: penalties), for “Tax Agents: Dishonest Conduct” substitute “tax advisers: sanctionable conduct”.
FA 2012
34 In section 223 of FA 2012 (tax agents: dishonest conduct)—
(a) for the heading substitute “Tax advisers: sanctionable conduct”;
(b) in subsection (1)—
(i) for “agents” substitute “advisers”;
(ii) for “dishonest” substitute “sanctionable”.
The Social Security (Contributions) (Amendment and Application of Schedule 38 to the Finance Act 2012) Regulations 2013
35 In the Social Security (Contributions) (Amendment and Application of Schedule 38 to the Finance Act 2012) Regulations 2013 (S.I. 2013/622)—
(a) for the Part 5 heading substitute “Tax advisers: sanctionable conduct”;
(b) in regulation 41 (application of Schedule 38 to the Finance Act 2012), for “tax agents: dishonest conduct” substitute “tax advisers: sanctionable conduct”.
The Small Charitable Donations Regulations 2013
36 In regulation 6 of the Small Charitable Donations Regulations 2013 (S.I. 2013/938) (agents of the charity: information powers and penalties)—
(a) in paragraph (1)—
(i) for “tax agents: dishonest conduct” substitute “tax advisers: sanctionable conduct”;
(ii) for “to tax agents” substitute “to tax advisers”;
(b) in paragraph (2)(a), for “agent” substitute “adviser”.
FA 2014
37 In Schedule 34 to FA 2014 (promoters of tax avoidance schemes: threshold conditions), for paragraph 4 and the italic heading before it (dishonest tax agents) substitute—
Tax advisers
4 A person meets this condition if the person is given a notification of a penalty under paragraph 26 of Schedule 38 to FA 2012 (tax advisers: sanctionable conduct) and either—
(a) the time period during which a notice of appeal may be given in relation to the penalty has expired, or
(b) an appeal against the penalty has been made and the tribunal has confirmed the decision that a penalty is payable under that paragraph (whether or not the amount of the penalty is varied).
Section 255
Part 1 Power to require provision of data to HMRC on an ongoing basis
Provision of data to HMRC on an ongoing basis
1 (1) The Treasury may by regulations make provision requiring a relevant data-holder to provide to HMRC on an ongoing basis any data specified for that type of relevant data-holder.
(2) Regulations under this paragraph may make provision requiring data to be provided—
(a) in relation to specified recurring periods;
(b) at specified times or within specified periods;
(c) in a specified form and manner.
(3) The power in this paragraph is exercisable only to assist with the efficient and effective discharge of HMRC's tax functions—
(a) whether a particular function or more generally, and
(b) whether involving a particular taxpayer or taxpayers generally.
(4) Regulations under this paragraph may not require a relevant data-holder to provide data for the purpose of HMRC checking the relevant data-holder’s own tax position.
(5) Sub-paragraph (4) does not—
(a) prevent regulations from requiring a relevant data-holder to provide data about a matter mentioned in paragraph 14(3)(a) of Schedule 23 to FA 2011 (beneficial ownership of certain payments etc), or
(b) limit the use that may be made of data obtained under this Schedule (see section 17(1) of CRCA 2005).
(6) In this Schedule “relevant data-holder” has the same meaning as in Schedule 23 to FA 2011 (data-gathering powers) (see Part 2 of that Schedule).
Data within possession or power
2 (1) A relevant data-holder is not required by regulations under paragraph 1 to provide data to HMRC unless the data are within their possession or power.
(2) The Treasury may by regulations make provision requiring a relevant-data holder to make reasonable efforts to obtain any specified identifying information that the relevant data-holder would, but for sub-paragraph (1), be required to provide to HMRC.
(3) In this Schedule “identifying information” means any information which identifies a person or an account including, in particular, a company’s registered number, a national insurance number, a unique taxpayer reference, a VAT registration number or any other unique government-issued identifier associated with a person or account.
Due diligence and record-keeping
3 (1) The Treasury may by regulations make provision requiring a relevant data-holder to—
(a) take specified steps to verify relevant data before providing them to HMRC,
(b) keep a record of—
(i) the relevant data, and
(ii) the steps taken by the relevant data-holder under paragraph (a) in relation to the relevant data, and
(c) preserve those records for a specified period.
(2) In this paragraph “relevant data” means data that a relevant-data holder is required by regulations under paragraph 1 to provide to HMRC.
Provision of data to persons other than HMRC
4 (1) The Treasury may by regulations make provision requiring a relevant data-holder to provide data to a specified person (other than HMRC) in circumstances where—
(a) the relevant data-holder is required by regulations under paragraph 1 to provide the data to HMRC, and
(b) the data relate to the specified person.
(2) Regulations under this paragraph may make provision requiring data to be provided—
(a) at a specified time or within a specified period;
(b) in a specified form and manner.
Notification to HMRC
5 (1) The Treasury may by regulations make provision requiring a relevant data-holder to notify HMRC in circumstances where the relevant data-holder is required by regulations under paragraph 1 to provide data to HMRC.
(2) Regulations under this paragraph may make provision requiring a notification to be given—
(a) within a specified period;
(b) in a specified form and manner.
Compliance
6 (1) Where an officer of Revenue and Customs reasonably suspects that a person is not complying with their obligations under this Part of this Schedule, or regulations made under it, the officer may by notice require the person to provide such information as the officer reasonably requires in order to determine whether the person is complying with such obligations.
(2) Information required by a notice under this paragraph must be provided—
(a) within the period specified in the notice, being a period of no less than 30 days, and
(b) in the form and manner specified in the notice.
Part 2 Penalties and appeals
Penalties for failure to provide data to HMRC on an ongoing basis etc
7 If a person fails to comply with a requirement in regulations under paragraph 1 (provision of data to HMRC on an ongoing basis) or paragraph 2 (data within possession or power), the person is liable—
(a) to a penalty not exceeding £5,000, and
(b) if the failure continues after notice of an assessment of a penalty under paragraph (a) is issued, to a penalty or penalties not exceeding £600 for each subsequent day on which the failure continues.
Penalties for failure to apply due diligence procedures
8 (1) If a person fails to comply with a requirement in regulations under paragraph 3(1)(a) (due diligence), the person is liable to a penalty not exceeding £100.
(2) Where the failure relates to verifying data about more than one person or account, a penalty is payable in respect of each person or account.
Penalties for failure to keep or preserve records
9 If a person fails to comply with a requirement in regulations under paragraph 3(1)(b) or (c) (record-keeping), the person is liable to a penalty not exceeding £5,000.
Penalties for failure to provide data to other persons
10 If a person fails to comply with a requirement in regulations under paragraph 4 (provision of data to persons other than HMRC), the person is liable—
(a) to a penalty not exceeding £5,000, and
(b) if the failure continues after notice of an assessment of a penalty under paragraph (a) is issued, to a penalty or penalties not exceeding £600 for each subsequent day on which the failure continues.
Penalties for failure to notify
11 If a person fails to comply with a requirement in regulations under paragraph 5 (notification to HMRC), the person is liable to a penalty not exceeding £1,000.
Penalties for failure to provide information
12 If a person fails to comply with a requirement in paragraph 6 (compliance), the person is liable—
(a) to a penalty not exceeding £5,000, and
(b) if the failure continues after notice of an assessment of a penalty under paragraph (a) is issued, to a penalty or penalties not exceeding £600 for each subsequent day on which the failure continues.
Penalties for inaccurate or incomplete data
13 (1) If a person, in purported compliance with a requirement in regulations under paragraph 1, provides inaccurate or incomplete data to HMRC, the person is liable to a penalty not exceeding £100 where—
(a) the inaccuracy or incompleteness is deliberate,
(b) the inaccuracy or incompleteness is due to a failure to take reasonable care, or
(c) the person discovers the inaccuracy or incompleteness some time later and fails to take reasonable steps to inform HMRC.
(2) Where the inaccuracy or incompleteness relates to data about more than one person or account, a penalty is payable in respect of each person or account.
Reasonable excuse
14 (1) Liability to a penalty under any of paragraphs 7 to 12 does not arise if the person satisfies an officer of Revenue and Customs or, on an appeal notified to the tribunal, the tribunal that there is a reasonable excuse for the failure.
(2) For the purposes of this paragraph none of the following is a reasonable excuse—
(a) that there is an insufficiency of funds to do something;
(b) that a person relies upon another person to do something.
(3) If a person had a reasonable excuse for a failure but the excuse has ceased, the person is to be treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased.
Duplication of liability to penalties
15 (1) A person is not liable to penalties under more than one of paragraph 8 (failure to apply due diligence procedures), paragraph 9 (failure to keep or preserve records) and paragraph 13 (inaccurate or incomplete data) in respect of the same act or omission.
(2) Where, apart from sub-paragraph (1), a person would be so liable, the person is liable to a penalty in respect of that act or omission under whichever one of paragraphs 8, 9 or 13 is, in the opinion of an officer of Revenue and Customs, appropriate in the circumstances.
Double jeopardy
16 A person is not liable to a penalty under this Schedule in respect of anything in respect of which the person has been convicted of an offence.
Failure to comply with time limit
17 A failure to do anything required to be done within a limited period of time does not give rise to liability to a penalty under this Schedule if the thing was done within such further time (if any) as an officer of Revenue and Customs may have allowed.
Assessment of penalties
18 (1) An officer of Revenue and Customs may assess a penalty under any of paragraphs 7 to 13 and set it at such amount as, in the opinion of the officer, is appropriate.
(2) Notice of an assessment of a penalty under this paragraph must—
(a) be given to the person liable to the penalty, and
(b) state the date on which it is issued and the time within which an appeal against the assessment may be made.
(3) Subject to sub-paragraph (4), after a notice of assessment of a penalty under this paragraph has been given, the assessment must not be altered except on appeal.
(4) If it is discovered by an officer of Revenue and Customs that the amount of a penalty under paragraph 7(b), 10(b) or 12(b) which has been assessed under this paragraph is or has become insufficient, the officer may make an assessment in a further amount so that the penalty is set at the amount which, in the opinion of that officer, is appropriate.
Time limits and treatment of penalties
19 (1) An assessment of a penalty under paragraph 7, 9, 10, 11 or 12 must be made within the period of 12 months beginning with the date on which the person became liable to the penalty.
(2) An assessment of a penalty under paragraph 8 or 13 must be made—
(a) within the period of 12 months beginning with the date on which the inaccuracy, incompleteness or failure first came to the attention of an officer of Revenue and Customs, and
(b) within the period of 6 years beginning with the date on which the person became liable to the penalty.
(3) A penalty assessed under paragraph 18—
(a) is due and payable at the end of the period of 30 days beginning with the day on which the notice of assessment is issued, and
(b) is, subject to paragraph (a), to be treated for all purposes as if it were tax charged in an assessment and due and payable.
Appeals
20 (1) A person may appeal against a penalty assessment under paragraph 18—
(a) on the grounds that liability to the penalty does not arise, or
(b) as to the amount of the penalty.
(2) Notice of an appeal must—
(a) state the grounds of appeal, and
(b) be given in writing to HMRC before the end of the period of 30 days beginning with the date on which notice of the assessment under paragraph 18 was issued.
(3) Subject to sub-paragraph (4), the provisions of Part 5 of TMA 1970 relating to appeals have effect in relation to appeals under this paragraph as they have effect in relation to an appeal against an assessment to income tax.
(4) On an appeal under this paragraph that is notified to the tribunal, the tribunal may—
(a) if it appears that no liability to a penalty has arisen, set the assessment aside,
(b) if the amount assessed appears to be appropriate, confirm the assessment,
(c) if the amount assessed appears to be excessive, reduce it to such other amount (including nil) as the tribunal considers appropriate, or
(d) if the amount assessed appears to be insufficient, increase it to such amount not exceeding the permitted maximum as the tribunal considers appropriate.
Part 3 General
Power to change amount of penalties
21 The Treasury may by regulations amend any of paragraphs 7 to 13 so as to increase or reduce the amount of a penalty for the time being specified in those paragraphs.
Regulations
22 (1) Regulations under this Schedule may—
(a) make different provision for different purposes;
(b) provide for exceptions to any requirement imposed by the regulations;
(c) make provision by reference to things specified in a notice that is—
(i) published by HMRC in accordance with the regulations, and
(ii) not withdrawn by a further notice;
(d) make consequential, supplementary, incidental, transitional or saving provision.
(2) Regulations under paragraph 1 (provision of data to HMRC on an ongoing basis) or 3 (due diligence and record-keeping) may make provision by reference to a document as amended from time to time.
(3) Regulations under this Schedule are to be made by statutory instrument.
(4) A statutory instrument containing regulations under paragraph 21 (power to change amount of penalties) which increase the amount of a penalty by more than is necessary to reflect a change in the value of money may not be made unless a draft of the instrument has been laid before and approved by a resolution of the House of Commons.
(5) Any other statutory instrument containing regulations under this Schedule is subject to annulment in pursuance of a resolution of the House of Commons.
Application of provisions of TMA 1970
23 Subject to the provisions of this Schedule, the following provisions of TMA 1970 apply for the purposes of this Schedule as they apply for the purposes of the Taxes Acts—
(a) section 108 (responsibility of company officers);
(b) section 114 (want of form);
(c) section 115 (delivery and service of documents).
Crown application
24 (1) This Schedule, other than a provision of it that confers a power to make regulations, applies to the Crown but not to His Majesty in His private capacity (within the meaning of the Crown Proceedings Act 1947).
(2) Regulations under this Schedule may be made so as to apply to the Crown, but not so as to apply to His Majesty in His private capacity (within the meaning of the Crown Proceedings Act 1947).
Interpretation
25 In this Schedule—
“HMRC” means His Majesty’s Revenue and Customs;
“relevant data-holder” has the meaning given in paragraph 1;
“specified”, in relation to regulations, means specified or described in the regulations;
“tax” has the same meaning as in Schedule 23 to FA 2011 (see paragraph 45 of that Schedule);
“tribunal” means the First-tier Tribunal or Upper Tribunal as determined under Tribunal Procedure Rules.