Law

Finance Act 2013

United Kingdom · statute

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In force since 2026-04-01, as the publisher states.

Copy read on 2026-11-08. The page it was read from

Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives.

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Contents: 310 provisions

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310 provisions

222 International agreements to improve tax compliance

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223 Disclosure of tax avoidance schemes

(1) Part 7 of FA 2004 (disclosure of tax avoidance schemes) is amended in accordance with subsections (2) and (3). (2) After section 312A insert— Duty of client to provide information to promoter 312B (1) This section applies where a person who is a promoter in relation to notifiable arrangements has provided a person (“the client”) with the information prescribed under section 312(2) (duty of promoter to notify client of reference number). (2) The client must, within the prescribed period, provide the promoter with prescribed information relating to the client. (3) The duty under subsection (2) is subject to any exceptions that may be prescribed. (3) After section 313ZA insert— Enquiry following disclosure of client details 313ZB (1) This section applies where— (a) a person who is a promoter in relation to notifiable arrangements has provided HMRC with information in relation to a person (“the client”) under section 313ZA(3) (duty to provide client details), and (b) HMRC suspect that a person other than the client is or is likely to be a party to the arrangements. (2) HMRC may by written notice require the promoter to provide prescribed information in relation to any person other than the client who the promoter might reasonably be expected to know is or is likely to be a party to the arrangements. (3) The promoter must comply with a requirement under or by virtue of subsection (2) within— (a) the prescribed period, or (b) such longer period as HMRC may direct. (4) In section 98C(2) of TMA 1970 (notification under Part 7 of FA 2004)— (a) after paragraph (da) insert— (daa) section 312B (duty of client to provide information to promoter), , and (b) after paragraph (db) insert— (dc) section 313ZB (enquiry following disclosure of client details), .

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224 Powers under Proceeds of Crime Act 2002

Schedule 48 makes provision for, and in connection with, conferring powers under Chapter 3 of Part 5 and Chapters 2 and 3 of Part 8 of the Proceeds of Crime Act 2002 on officers of Revenue and Customs.

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225 Definition of “goods” for certain customs purposes

In section 1(1) of CEMA 1979 (interpretation), in the definition of “goods”, for “baggage” substitute “ containers ”.

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226 Power to detain goods

(1) Section 139 of CEMA 1979 (provisions as to detention, seizure and condemnation of goods etc) is amended as follows. (2) After subsection (1) insert— (1A) A person mentioned in subsection (1) who reasonably suspects that any thing may be liable to forfeiture under the customs and excise Acts may detain that thing. (1B) References in this section and Schedule 2A to a thing detained as liable to forfeiture under the customs and excise Acts include a thing detained under subsection (1A). (3) In subsection (2), for the words from “either” to the end substitute “ deliver that thing to an officer ”. (4) In subsection (4), for “the Commissioners at the nearest office of customs and excise” substitute “ an officer ”. (5) In subsection (5), for “Schedule 3” substitute “ Schedules 2A and 3 ”. (6) After that subsection insert— (5A) Schedule 2A contains supplementary provisions relating to the detention of things as liable to forfeiture under the customs and excise Acts. (7) After Schedule 2 to that Act (composite goods: supplementary provisions as to excise duties and drawbacks) insert— SCHEDULE 2A Supplementary provisions relating to the detention of things as liable to forfeiture Section 139(5A) Interpretation 1 In this Schedule, references (however expressed) to a thing being detained are references to a thing being detained as liable to forfeiture under the customs and excise Acts. Period of detention 2 (1) This paragraph applies where a thing is detained. (2) The thing may be detained for 30 days beginning with the day on which the thing is first detained. (3) The thing is deemed to be seized as liable to forfeiture under the customs and excise Acts if its detention ceases to be authorised under this paragraph. Notice of detention 3 (1) The Commissioners must take reasonable steps to give written notice of the detention of any thing, and of the grounds for the detention, to any person who to their knowledge was, at the time of the detention, the owner or one of the owners of the thing. (2) But notice need not be given under sub-paragraph (1) if the detention occurred in the presence of— (a) the person whose offence or suspected offence occasioned the detention, (b) the owner or any of the owners of the thing detained or any servant or agent of such an owner, or (c) in the case of any thing detained on a ship or aircraft, the master or commander. Unauthorised removal or disposal: penalties etc 4 (1) This paragraph applies where a thing is detained and, with the agreement of a person within sub-paragraph (2) (“the responsible person”), the thing remains at the place where it is first detained (rather than being removed and detained elsewhere). (2) A person is within this sub-paragraph if the person is— (a) the owner or any of the owners of the thing at the time it was detained or any servant or agent of such an owner, or (b) a person whom the person who detains the thing reasonably believes to be a person within paragraph (a). (3) If the responsible person fails to prevent the unauthorised removal or disposal of the thing from the place where it is detained, that failure attracts a penalty under section 9 of the Finance Act 1994 (civil penalties). (4) The removal or disposal of the thing is unauthorised unless it is done with the permission of a proper officer of Revenue and Customs. (5) Where any duty of excise is payable in respect of the thing— (a) the penalty is to be calculated by reference to the amount of that duty (whether it has been paid or not), and (b) section 9 of the Finance Act 1994 has effect as if in subsection (2)(a) the words “5 per cent of” were omitted. (6) If no duty of excise is payable in respect of the thing, that section has effect as if the penalty provided for by subsection (2)(b) of that section were whichever is the greater of— (a) the value of the thing at the time it was first detained, or (b) £250. 5 (1) This paragraph applies where— (a) a thing is detained at a revenue trader's premises, (b) the thing is liable to forfeiture under the customs and excise Acts, and (c) without the permission of a proper officer of Revenue and Customs, the thing is removed from the trader's premises, or otherwise disposed of, by any person. (2) The Commissioners may seize, as liable to forfeiture under the customs and excise Acts, goods of equivalent value to the thing, from the revenue trader's stock. (3) For the purposes of this paragraph, a revenue trader's premises include any premises used to hold or store anything for the purposes of the revenue trader's trade, regardless of who owns or occupies the premises. (8) The amendments made by this section have effect in relation to things detained on or after the day on which this Act is passed.

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227 Penalty instead of forfeiture of larger ships

(1) Section 143 of CEMA 1979 (penalty in lieu of forfeiture of larger ship where responsible officer is implicated in offence) is amended as follows. (2) For subsection (1) (Commissioners' power to impose fine up to £50) substitute— (1) This section applies where— (a) any ship of 250 or more tons register would, but for section 142, be liable to forfeiture for, or in connection with, any offence under the customs and excise Acts, and (b) in the opinion of the Commissioners, a responsible officer of the ship is implicated either by the officer's own act, or by neglect, in that offence. (3) In subsection (3) (Commissioners' power to bring condemnation proceedings)— (a) for the words from the beginning to the first “they” substitute “ The Commissioners ”, and (b) for “£500” substitute “ £10,000 ”. (4) In subsection (4) (power to detain ship pending payment of deposit against fine or condemnation proceedings)— (a) for the words from the beginning to “section, the” substitute “ The ”, (b) for “£50 or, as the case may be, £500” substitute “ £10,000 ”, and (c) omit “their final decision or, as the case may be,”. (5) In paragraph (a) of subsection (6) (definition of “responsible officer)— (a) after “means” insert “ a person who is, or is acting as, ”, (b) for “or an engineer” substitute “ , an engineer or the bosun ”, and (c) omit the words from “and, in the case of a ship manned” to the end. (6) After that subsection insert— (7) If the Treasury consider that there has been a change in the value of money since the Finance Act 2013 was passed or, as the case may be, since the last occasion when the power conferred by this subsection was exercised, they may by order substitute for the sum for the time being specified in subsections (3) and (4) such other sum as appears to them to be justified by the change. (8) An order under subsection (7) may not vary the penalty for any conduct occurring before the coming into force of the order. (9) An order under subsection (7) must be made by statutory instrument. (10) A statutory instrument containing an order under subsection (7) is subject to annulment in pursuance of a resolution of either House of Parliament.

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228 Data-gathering from merchant acquirers etc

(1) In Part 2 of Schedule 23 to FA 2011 (data-gathering powers: relevant data-holders), after paragraph 13 insert— Merchant acquirers etc 13A (1) A person who has a contractual obligation to make payments to retailers in settlement of payment card transactions is a relevant data-holder. (2) In this paragraph— “payment card” includes a credit card, a charge card and a debit card; “payment card transaction” means any transaction in which a payment card is accepted as payment; “retailer” means a person who accepts a payment card as payment for any transaction. (3) In this paragraph any reference to a payment card being accepted as payment includes a reference to any account number or other indicators associated with a payment card being accepted as payment. (2) This section applies in relation to relevant data with a bearing on any period (whether before, on or after the day on which this Act is passed).

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229 Corporation tax: deferral of payment of exit charge

Schedule 49 contains provision for, and in connection with, deferring the payment by a company of certain corporation tax in circumstances where income, profits or gains arise by virtue of section 25, 185 or 187(4) of TCGA 1992 or section 162, 333, 334, 609, 610, 859 or 862 of CTA 2009.

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230 Penalties: late filing, late payment and errors

Schedule 50 contains provision for, and in connection with, penalties for late filing, late payment and errors.

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231 Overpayment relief: generally prevailing practice exclusion and EU law

(1) In Schedule 1AB to TMA 1970 (recovery of overpaid tax etc), in paragraph 2 (cases in which Commissioners not liable to give effect to claim), after sub-paragraph (9) insert— (9A) Cases G and H do not apply where the amount paid, or liable to be paid, is tax which has been charged contrary to EU law. (9B) For the purposes of sub-paragraph (9A), an amount of tax is charged contrary to EU law if, in the circumstances in question, the charge to tax is contrary to— (a) the provisions relating to the free movement of goods, persons, services and capital in Titles II and IV of Part 3 of the Treaty on the Functioning of the European Union, or (b) the provisions of any subsequent treaty replacing the provisions mentioned in paragraph (a). (2) In Schedule 2 to OTA 1975 (management and collection of petroleum revenue tax), in paragraph 13B (claim for relief for overpaid tax etc: cases in which HMRC not liable to give effect to a claim), after sub-paragraph (8) insert— (9) Case G does not apply where the amount paid, or liable to be paid, is tax which has been charged contrary to EU law. (10) For the purposes of sub-paragraph (9), an amount of tax is charged contrary to EU law if, in the circumstances in question, the charge to tax is contrary to— (a) the provisions relating to the free movement of goods, persons, services and capital in Titles II and IV of Part 3 of the Treaty on the Functioning of the European Union, or (b) the provisions of any subsequent treaty replacing the provisions mentioned in paragraph (a). (3) In Part 6 of Schedule 18 to FA 1998 (overpaid tax, excessive assessments or repayments etc), in paragraph 51A (cases in which Commissioners not liable to give effect to a claim), after sub-paragraph (8) insert— (9) Case G does not apply where the amount paid, or liable to be paid, is tax which has been charged contrary to EU law. (10) For the purposes of sub-paragraph (9), an amount of tax is charged contrary to EU law if, in the circumstances in question, the charge to tax is contrary to— (a) the provisions relating to the free movement of goods, persons, services and capital in Titles II and IV of Part 3 of the Treaty on the Functioning of the European Union, or (b) the provisions of any subsequent treaty replacing the provisions mentioned in paragraph (a). (4) In Part 6 of Schedule 10 to FA 2003 (relief in case of overpaid tax or excessive assessment), in paragraph 34A (cases in which Commissioners not liable to give effect to a claim), after sub-paragraph (8) insert— (9) Case G does not apply where the amount paid, or liable to be paid, is tax which has been charged contrary to EU law. (10) For the purposes of sub-paragraph (9), an amount of tax is charged contrary to EU law if, in the circumstances in question, the charge to tax is contrary to— (a) the provisions relating to the free movement of goods, persons, services and capital in Titles II and IV of Part 3 of the Treaty on the Functioning of the European Union, or (b) the provisions of any subsequent treaty replacing the provisions mentioned in paragraph (a). (5) The amendments made by this section have effect in relation to any claim (in respect of overpaid tax, excessive assessment etc) made after the end of the six month period beginning with the day on which this Act is passed.

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232 Overpayment relief: time limit for claims

(1) In Schedule 1AB to TMA 1970 (recovery of overpaid tax etc), in paragraph 3 (making a claim), in sub-paragraph (3) after “the relevant tax year is” insert — (a) where the amount liable to be paid is excessive by reason of a mistake in a return or returns under section 8, 8A or 12AA, the tax year to which the return (or, if more than one, the first return) relates, and (b) otherwise, . (2) In Schedule 2 to OTA 1975, in paragraph 13C (claim for relief for overpaid tax etc: making a claim), in sub-paragraph (3) after “the relevant chargeable period is” insert — (a) where the amount liable to be paid is excessive by reason of a mistake in a return or returns under paragraph 2 or 5, the chargeable period to which the return (or, if more than one, the first return) relates, and (b) otherwise, . (3) In Part 6 of Schedule 18 to FA 1998 (overpaid tax, excessive assessments or repayments, etc), in paragraph 51B (making a claim), in sub-paragraph (3), after “the relevant accounting period is” insert — (a) where the amount liable to be paid is excessive by reason of a mistake in a company tax return or returns, the accounting period to which the return (or, if more than one, the first return) relates, and (b) otherwise, . (4) The amendments made by this section have effect in relation to any claim (in respect of overpaid tax, excessive assessment etc) made after the end of the six month period beginning with the day on which this Act is passed.

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233 Self assessment: withdrawal of notice to file etc

Schedule 51 contains provision for, and in connection with, withdrawing a notice under section 8, 8A or 12AA of TMA 1970 and cancelling liability to a penalty under Schedule 55 to FA 2009.

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234 Restrictions on interim payments in proceedings relating to taxation matters

(1) This section applies to an application for an interim remedy (however described), made in any court proceedings relating to a taxation matter, if the application is founded (wholly or in part) on a point of law which has yet to be finally determined in the proceedings. (2) Any power of a court to grant an interim remedy (however described) requiring the Commissioners for Her Majesty's Revenue and Customs, or an officer of Revenue and Customs, to pay any sum to any claimant (however described) in the proceedings is restricted as follows. (3) The court may grant the interim remedy only if it is shown to the satisfaction of the court— (a) that, taking account of all sources of funding (including borrowing) reasonably likely to be available to fund the proceedings, the payment of the sum is necessary to enable the proceedings to continue, or (b) that the circumstances of the claimant are exceptional and such that the granting of the remedy is necessary in the interests of justice. (4) The powers restricted by this section include (for example)— (a) powers under rule 25 of the Civil Procedure Rules 1998 (S.I. 1998/3132); (b) powers under Part II of Rule 29 of the Rules of the Court of Judicature (Northern Ireland) (Revision) 1980 (S.R. 1980 No.346). (5) This section applies in relation to proceedings whenever commenced, but only in relation to applications made in those proceedings on or after 26 June 2013. (6) This section applies on and after 26 June 2013. (7) Subsection (8) applies where, on or after 26 June 2013 but before the passing of this Act, an interim remedy was granted by a court using a power which, because of subsection (6), is to be taken to have been restricted by this section. (8) Unless it is shown to the satisfaction of the court that paragraph (a) or (b) of subsection (3) applied at the time the interim remedy was granted, the court must, on an application made to it under this subsection— (a) revoke or modify the interim remedy so as to secure compliance with this section, and (b) if the Commissioners have, or an officer of Revenue and Customs has, paid any sum as originally required by the interim remedy, order the repayment of the sum or any part of the sum as appropriate (with interest from the date of payment). (9) For the purposes of this section, proceedings on appeal are to be treated as part of the original proceedings from which the appeal lies. (10) In this section “taxation matter” means anything, other than national insurance contributions, the collection and management of which is the responsibility of the Commissioners for Her Majesty's Revenue and Customs (or was the responsibility of the Commissioners of Inland Revenue or Commissioners of Customs and Excise).

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235 Interpretation

(1) In this Act— “ALDA 1979” means the Alcoholic Liquor Duties Act 1979, “BGDA 1981” means the Betting and Gaming Duties Act 1981, “CAA 2001” means the Capital Allowances Act 2001, “CEMA 1979” means the Customs and Excise Management Act 1979, “CRCA 2005” means the Commissioners for Revenue and Customs Act 2005, “CTA 2009” means the Corporation Tax Act 2009, “CTA 2010” means the Corporation Tax Act 2010, “F(No.3)A 2010” means the Finance (No. 3) Act 2010, “HODA 1979” means the Hydrocarbon Oil Duties Act 1979, “ICTA” means the Income and Corporation Taxes Act 1988, “IHTA 1984” means the Inheritance Tax Act 1984, “ITA 2007” means the Income Tax Act 2007, “ITEPA 2003” means the Income Tax (Earnings and Pensions) Act 2003, “ITTOIA 2005” means the Income Tax (Trading and Other Income) Act 2005, “OTA 1975” means the Oil Taxation Act 1975, “TCGA 1992” means the Taxation of Chargeable Gains Act 1992, “TIOPA 2010” means the Taxation (International and Other Provisions) Act 2010, “TMA 1970” means the Taxes Management Act 1970, “TPDA 1979” means the Tobacco Products Duty Act 1979, “VATA 1994” means the Value Added Tax Act 1994, and “VERA 1994” means the Vehicle Excise and Registration Act 1994. (2) In this Act— “FA”, followed by a year, means the Finance Act of that year; “F(No.2)A”, followed by a year, means the Finance (No. 2) Act of that year.

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236 Short title

This Act may be cited as the Finance Act 2013.

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SCHEDULE 1 Annual investment allowance: periods straddling 1 January 2013 or 1 January 2015

Section 7 Chargeable periods which straddle 1 January 2013 1 (1) This paragraph applies in relation to a chargeable period which begins before 1 January 2013 and ends on or after that date but not later than the specified date (“the first straddling period”). (1A) The specified date” means— (a) for the purposes of corporation tax, 31 March 2014, and (b) for the purposes of income tax, 5 April 2014. (2) The maximum allowance under section 51A of CAA 2001 for the first straddling period is the sum of each maximum allowance that would be found if— (a) so much (if any) of the first straddling period as falls before the relevant date, (b) so much of the first straddling period as falls on or after the relevant date but before 1 January 2013, and (c) so much of the first straddling period as falls on or after 1 January 2013, were each treated as separate chargeable periods. (3) But this is subject to paragraphs 2 and 3. (4) In this Schedule “the relevant date” means— (a) for the purposes of corporation tax, 1 April 2012; (b) for the purposes of income tax, 6 April 2012. Straddling period beginning before the relevant date 2 (1) This paragraph applies where the first straddling period begins before the relevant date. (2) So far as concerns expenditure incurred before the relevant date, the maximum allowance under section 51A of CAA 2001 for the first straddling period is what would have been the maximum allowance for that period if the amendment made by section 7(1) had not been made. (3) So far as concerns expenditure incurred on or after the relevant date but before 1 January 2013, the maximum allowance under section 51A of CAA 2001 for the first straddling period is— A − B (4) In sub-paragraph (3)— (a) “A” means the amount that would have been the maximum allowance for the period beginning on the relevant date and ending at the end of the first straddling period if— (i) that period had been a separate chargeable period, and (ii) the amendment made by section 7(1) had not been made; (b) “B” means the amount (if any) by which— (i) the AIA expenditure incurred in the period mentioned in paragraph 1(2)(a) in respect of which a claim for an annual investment allowance is made, exceeds (ii) the maximum allowance under section 51A of CAA 2001 for that period if it were treated as a separate chargeable period. (5) So far as concerns expenditure incurred on or after 1 January 2013, the maximum allowance under section 51A of CAA 2001 for the first straddling period is the sum of each maximum allowance that would be found if the period mentioned in paragraph 1(2)(b) and the period mentioned in paragraph 1(2)(c) were each treated as separate chargeable periods. First straddling period beginning on or after the relevant date 3 (1) This paragraph applies where no part of the first straddling period falls within paragraph 1(2)(a). (2) So far as concerns expenditure incurred before 1 January 2013, the maximum allowance under section 51A of CAA 2001 for the first straddling period is to be calculated as if the amendment made by section 7(1) had not been made. Chargeable periods which straddle 1 January 2015 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operation of annual investment allowance where restrictions apply 5 (1) Paragraphs 1 to 3 also apply for the purpose of determining the maximum allowance under section 51K of CAA 2001 (operation of annual investment allowance where restrictions apply) in a case where one or more chargeable periods in which the relevant AIA qualifying expenditure is incurred are chargeable periods within paragraph 1(1) .... (2) There is to be taken into account for those purposes only chargeable periods of one year or less (whether or not they are chargeable periods within paragraph 1(1) ...), and, if there is more than one such period, only that period which gives rise to the greatest maximum allowance. (3) For the purposes of sub-paragraph (2) any chargeable period which— (a) is longer than a year, and (b) ends in the tax year 2012-13, 2013-14, or 2014-15 , is to be treated as being a chargeable period of one year ending at the same time as it actually ends. (4) Section 11(11) of FA 2011 is repealed. (5) That repeal has effect in relation to cases where one or more chargeable periods in which the relevant AIA qualifying expenditure is incurred are chargeable periods within paragraph 1(1). (6) Nothing in this paragraph affects the operation of sections 51M and 51N of CAA 2001.

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SCHEDULE 2 Tax advantaged employee share schemes

Section 14 PART 1 Retirement of participants Introduction 1 Part 7 of ITEPA 2003 (employment income: income and exemptions relating to securities) is amended as follows. Share incentive plans 2 In section 498 (no charge on shares ceasing to be subject to plan in certain circumstances) in subsection (2)(e) omit the words from “on” to “2)”. 3 In Part 4 of Schedule 2 (types of shares that may be awarded) in paragraph 32 (provision for forfeiture) in sub-paragraph (2)(e) omit the words from “on” to “98)”. 4 Part 11 of Schedule 2 (supplementary provisions) is amended as follows. 5 Omit paragraph 98 (meaning of “specified retirement age”). 6 In paragraph 100 (index of defined expressions) omit the entry for “the specified retirement age”. SAYE option schemes 7 Part 6 of Schedule 3 (requirements etc relating to share options) is amended as follows. 8 In paragraph 27 (introduction) in sub-paragraph (1)— (a) omit the entry for paragraph 31, (b) after the entry for paragraph 32 insert “ and ”, and (c) omit the entry for paragraph 33 and the “and” after it. 9 In paragraph 30 (time for exercising options) in sub-paragraph (2)(a)— (a) for “32 to” substitute “ 32, ”, and (b) omit “reaching the specified age without retiring,”. 10 Omit paragraph 31 (requirement to have a “specified age”). 11 Omit paragraph 33 (exercise of options: reaching specified age without retiring). 12 In paragraph 34 (exercise of options: scheme-related employment ends) in sub-paragraph (2)(b) omit the words from “on” to “employment”. 13 In Part 9 of Schedule 3 (supplementary provisions) in paragraph 49 (index of defined expressions) omit the entry for “specified age”. CSOP schemes 14 In section 524 (no charge in respect of exercise of option) in subsection (2C) omit the definition of “retirement” and the “and” before it. 15 In Part 8 of Schedule 4 (supplementary provisions) omit paragraph 35A (retirement age). Transitional provision 16 The amendment made by paragraph 11 above has no effect in relation to options granted before the day on which this Act is passed; and the effect of the amendments made by paragraphs 8 to 10 and 13 above is limited accordingly. 17 (1) A SIP, SAYE option scheme or CSOP scheme approved before the day on which this Act is passed has effect with any modifications needed to reflect the amendments made by this Part of this Schedule. (2) In relation to any shares awarded under a SIP before that day which are subject to provision for forfeiture, that provision has effect with any modifications needed to reflect the amendment made by paragraph 3 above. (3) Because of paragraphs 48 and 58 below, that amendment is not relevant to shares awarded under a SIP on or after that day. PART 2 “Good leavers” (other than retirees) Introduction 18 Part 7 of ITEPA 2003 (employment income: income and exemptions relating to securities) is amended as follows. Share incentive plans 19 In section 498 (no charge on shares ceasing to be subject to plan in certain circumstances) after subsection (2) insert— (3) A participant is not liable to income tax on shares (“the relevant shares”) in a company (“the relevant company”) being withdrawn from the plan if— (a) the withdrawal of the relevant shares from the plan relates to— (i) a transaction resulting from a compromise, arrangement or scheme falling within subsection (9), (ii) an offer forming part of a general offer falling within subsection (10), or (iii) the application of sections 979 to 982 or 983 to 985 of the Companies Act 2006 in the case of a takeover offer (as defined in section 974 of that Act) falling within subsection (13), and (b) as a result of, as the case may be— (i) the transaction, (ii) the offer, or (iii) the application of sections 979 to 982 or 983 to 985 of the Companies Act 2006, the participant receives cash (and no other assets) in exchange for the relevant shares. (4) For the purposes of subsection (3)(b) it does not matter if the participant receives other assets in exchange for shares other than the relevant shares. (5) Subsection (3) does not apply to the relevant shares (or to a proportion of them) if in connection with, as the case may be— (a) the compromise, arrangement or scheme, (b) the general offer, or (c) the takeover offer, a course of action was open to the participant which, had it been followed, would have resulted in other assets being received in exchange for the relevant shares (or the proportion of them) instead of cash. (6) Subsection (3) does not apply to the relevant shares (or to a proportion of them) if it is reasonable to suppose that the relevant shares (or the proportion of them) would not have been awarded to the participant— (a) had, as the case may be— (i) the compromise, arrangement or scheme, (ii) the general offer, or (iii) the takeover offer, not been made, or (b) had any arrangements for the making of— (i) a compromise, arrangement or scheme which would fall within subsection (9), (ii) a general offer which would fall within subsection (10), or (iii) a takeover offer (as defined in section 974 of the Companies Act 2006) which would fall within subsection (13), which were in place or under consideration at any time not been in place or under consideration. (7) In subsection (6) the reference to shares being awarded to the participant is to be read, in the case of dividend shares, as a reference to the shares being acquired by the trustees on the participant's behalf. (8) In subsection (6)(b) “arrangements” includes any plan, scheme, agreement or understanding, whether or not legally enforceable. (9) A compromise, arrangement or scheme falls within this subsection if it is applicable to or affects— (a) all the ordinary share capital of the relevant company or all the shares of the same class as the relevant shares, or (b) all the shares, or all the shares of that same class, which are held by a class of shareholders identified otherwise than by reference to their employment or their participation in an approved SIP. (10) A general offer falls within this subsection if— (a) it is made to holders of shares of the same class as the relevant shares or to holders of shares in the relevant company, and (b) it is made in the first instance on a condition such that if it is satisfied the person making the offer will have control of the relevant company. (11) For the purposes of subsection (10) it does not matter if the general offer is made to different shareholders by different means. (12) In subsection (10)(b) “control” has the meaning given by sections 450 and 451 of CTA 2010. (13) A takeover offer falls within this subsection if— (a) it relates to the relevant company, and (b) where there is more than one class of share in the relevant company, the class or classes to which it relates is or include the class of the relevant shares. 20 (1) In Part 5 of Schedule 2 (free shares) in paragraph 37 (holding period: power of participant to direct trustees to accept general offers etc) after sub-paragraph (6) insert— (7) For the purposes of sub-paragraph (5) it does not matter if the general offer is made to different shareholders by different means. (8) If in the case of a takeover offer (as defined in section 974 of the Companies Act 2006) there arises a right under section 983 of that Act to require the offeror to acquire the participant's free shares, or such of them as are of a particular class, the participant may direct the trustees to exercise that right. (2) A SIP approved before the day on which this Act is passed has effect with any modifications needed to reflect the amendment made by this paragraph. SAYE option schemes 21 In section 519 (no charge in respect of exercise of option) after subsection (3) insert— (3A) In relation to any shares acquired by the exercise of the share option, no liability to income tax arises in respect of its exercise if— (a) the individual exercises the option before the third anniversary of the date on which the option was granted at a time when the SAYE option scheme is approved, (b) the option is exercised by virtue of a provision included in the scheme— (i) under paragraph 37(1) of Schedule 3 where the relevant date is the relevant date for the purposes of paragraph 37(2) or (4), or (ii) under paragraph 37(6) of Schedule 3, (c) as a result of, as the case may be— (i) the general offer, (ii) the compromise or arrangement, or (iii) the takeover offer, the individual receives cash (and no other assets) in exchange for the shares, (d) when the decision to grant the option was taken— (i) the general offer, (ii) the compromise or arrangement, or (iii) the takeover offer, as the case may be, had not been made, (e) when that decision was taken, no arrangements were in place or under consideration for— (i) the making of a general offer which would fall within subsection (3D), (ii) the making of any compromise or arrangement which would fall within subsection (3H), or (iii) the making of a takeover offer (as defined in section 974 of the Companies Act 2006) which would fall within subsection (3I), (f) if the scheme includes a provision under paragraph 38 of Schedule 3 (“the paragraph 38 provision”), in connection with— (i) the general offer, (ii) the compromise or arrangement, or (iii) the takeover offer, as the case may be, no course of action was open to the individual which, had it been followed, would have resulted in the individual making an agreement under the paragraph 38 provision which would have prevented the individual from acquiring the shares by the exercise of the option, and (g) the avoidance of tax or national insurance contributions is not the main purpose (or one of the main purposes) of any arrangements under which the option was granted or is exercised. (3B) In subsection (3A)(c)(iii), (d)(iii) and (f)(iii) “the takeover offer” means the takeover offer (as defined in section 974 of the Companies Act 2006) giving rise to the application of sections 979 to 982 or 983 to 985 of that Act. (3C) In subsection (3A)(e) “arrangements” includes any plan, scheme, agreement or understanding, whether or not legally enforceable. (3D) A general offer falls within this subsection if it is— (a) a general offer to acquire the whole of the issued ordinary share capital of the relevant company which is made on a condition such that, if it is met, the person making the offer will have control of the relevant company, or (b) a general offer to acquire all the shares in the relevant company which are of the same class as those acquired by the exercise of the option. (3E) In subsection (3D)(a) the reference to the issued ordinary share capital of the relevant company does not include any capital already held by the person making the offer or a person connected with that person and in subsection (3D)(b) the reference to the shares in the relevant company does not include any shares already held by the person making the offer or a person connected with that person. (3F) For the purposes of subsection (3D)(a) and (b) it does not matter if the general offer is made to different shareholders by different means. (3G) For the purposes of subsection (3D)(a) a person is to be treated as obtaining control of a company if that person and others acting in concert together obtain control of it. (3H) A compromise or arrangement falls within this subsection if it is applicable to or affects— (a) all the ordinary share capital of the relevant company or all the shares of the same class as those acquired by the exercise of the option, or (b) all the shares, or all the shares of that same class, which are held by a class of shareholders identified otherwise than by reference to their employment or directorships or their participation in an approved SAYE option scheme. (3I) A takeover offer falls within this subsection if— (a) it relates to the relevant company, and (b) where there is more than one class of share in the relevant company, the class or classes to which it relates is or include the class of the shares acquired by the exercise of the option. (3J) In subsections (3D), (3H) and (3I) “the relevant company” means the company whose shares are acquired by the exercise of the option. 22 Part 6 of Schedule 3 (requirements etc relating to share options) is amended as follows. 23 (1) Paragraph 34 (exercise of options: scheme-related employment ends) is amended as follows. (2) In sub-paragraph (2)— (a) omit the “or” after paragraph (a), and (b) after paragraph (b) insert— (c) a relevant transfer within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 2006, or (d) if P holds office or is employed in a company which is an associated company (as defined in paragraph 35(4)) of the scheme organiser, that company ceasing to be an associated company of the scheme organiser by reason of a change of control (as determined in accordance with sections 450 and 451 of CTA 2010), . (3) In sub-paragraphs (4) and (5A)(b) for “or (b)” substitute “ to (d) ”. (4) A SAYE option scheme approved before the day on which this Act is passed has effect with any modifications needed to reflect the amendments made by this paragraph. 24 (1) Paragraph 37 (exercise of options: company events) is amended as follows. (2) After sub-paragraph (3) insert— (3A) In sub-paragraph (3)(a) the reference to the issued ordinary share capital of the company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (3)(b) the reference to the shares in the company does not include any shares already held by the person making the offer or a person connected with that person. (3B) For the purposes of sub-paragraph (3)(a) and (b) it does not matter if the general offer is made to different shareholders by different means. (3) A SAYE option scheme approved before the day on which this Act is passed which contains provision under paragraph 37(1) of Schedule 3 to ITEPA 2003 by reference to paragraph 37(2) has effect with any modifications needed to reflect the amendment made by sub-paragraph (2). (4) In sub-paragraph (4) for the words from “proposed” to the end substitute applicable to or affecting— (a) all the ordinary share capital of the company or all the shares of the same class as the shares to which the option relates, or (b) all the shares, or all the shares of that same class, which are held by a class of shareholders identified otherwise than by reference to their employment or directorships or their participation in an approved SAYE option scheme. (5) A SAYE option scheme approved before the day on which this Act is passed which contains provision under paragraph 37(1) of Schedule 3 to ITEPA 2003 by reference to paragraph 37(4) has effect with any modifications needed to reflect the amendment made by sub-paragraph (4). (6) In sub-paragraph (6)— (a) after “982” insert “ or 983 to 985 ”, and (b) after “shareholder” insert “ etc ”. (7) A SAYE option scheme approved before the day on which this Act is passed which contains provision under paragraph 37(6) of Schedule 3 to ITEPA 2003 has effect with any modifications needed to reflect the amendments made by sub-paragraph (6). 25 (1) In Part 7 of Schedule 3 (exercise of share options) paragraph 38 (exchange of options on company reorganisation) is amended as follows. (2) In sub-paragraph (2)(c)— (a) after “982” insert “ or 983 to 985 ”, and (b) after “shareholder” insert “ etc ”. (3) After sub-paragraph (2) insert— (2A) In sub-paragraph (2)(a)(i) the reference to the issued ordinary share capital of the scheme company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (2)(a)(ii) the reference to the shares in the scheme company does not include any shares already held by the person making the offer or a person connected with that person. (2B) For the purposes of sub-paragraph (2)(a)(i) and (ii) it does not matter if the general offer is made to different shareholders by different means. (4) A SAYE option scheme approved before the day on which this Act is passed which contains provision under paragraph 38 of Schedule 3 to ITEPA 2003 has effect with any modifications needed to reflect the amendments made by this paragraph. CSOP schemes 26 (1) Section 524 (no charge in respect of exercise of option) is amended as follows. (2) In subsection (2B) for paragraph (a) substitute— (a) has ceased to be in qualifying employment because of— (i) injury, disability, redundancy or retirement, (ii) a relevant transfer within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 2006, or (iii) in the case of a group scheme where the qualifying employment is as a director or employee of a constituent company, that company ceasing to be controlled by the scheme organiser, and . (3) After subsection (2B) insert— (2BA) For the purposes of subsection (2B) an individual is in “qualifying employment” if the individual is a full-time director or qualifying employee (as defined in paragraph 8(2) of Schedule 4) of— (a) the scheme organiser, or (b) in the case of a group scheme, a constituent company. (4) In subsection (2C) for “(2B)” substitute “ (2B)(a)(i) ”. (5) After subsection (2C) insert— (2D) Subsection (2B)(a)(iii) does not cover a case where the constituent company was controlled by the scheme organiser by virtue of paragraph 34 of Schedule 4 (jointly owned companies). (2E) In relation to any shares acquired by the exercise of the share option, no liability to income tax arises in respect of its exercise if— (a) the individual exercises the option before the third anniversary of the date on which the option was granted at a time when the CSOP scheme is approved, (b) the option is exercised by virtue of a provision included in the scheme under paragraph 25A of Schedule 4, (c) as a result of, as the case may be— (i) the general offer, (ii) the compromise or arrangement, or (iii) the takeover offer, the individual receives cash (and no other assets) in exchange for the shares, (d) when the decision to grant the option was taken— (i) the general offer, (ii) the compromise or arrangement, or (iii) the takeover offer, as the case may be, had not been made, (e) when that decision was taken, no arrangements were in place or under consideration for— (i) the making of a general offer which would fall within subsection (2H), (ii) the making of any compromise or arrangement which would fall within subsection (2L), or (iii) the making of a takeover offer (as defined in section 974 of the Companies Act 2006) which would fall within subsection (2M), (f) if the scheme includes a provision under paragraph 26 of Schedule 4 (“the paragraph 26 provision”), in connection with— (i) the general offer, (ii) the compromise or arrangement, or (iii) the takeover offer, as the case may be, no course of action was open to the individual which, had it been followed, would have resulted in the individual making an agreement under the paragraph 26 provision which would have prevented the individual from acquiring the shares by the exercise of the option, and (g) the avoidance of tax or national insurance contributions is not the main purpose (or one of the main purposes) of any arrangements under which the option was granted or is exercised. (2F) In subsection (2E)(c)(iii), (d)(iii) and (f)(iii) “the takeover offer” means the takeover offer (as defined in section 974 of the Companies Act 2006) giving rise to the application of sections 979 to 982 or 983 to 985 of that Act. (2G) In subsection (2E)(e) “arrangements” includes any plan, scheme, agreement or understanding, whether or not legally enforceable. (2H) A general offer falls within this subsection if it is— (a) a general offer to acquire the whole of the issued ordinary share capital of the relevant company which is made on a condition such that, if it is met, the person making the offer will have control of the relevant company, or (b) a general offer to acquire all the shares in the relevant company which are of the same class as those acquired by the exercise of the option. (2I) In subsection (2H)(a) the reference to the issued ordinary share capital of the relevant company does not include any capital already held by the person making the offer or a person connected with that person and in subsection (2H)(b) the reference to the shares in the relevant company does not include any shares already held by the person making the offer or a person connected with that person. (2J) For the purposes of subsection (2H)(a) and (b) it does not matter if the general offer is made to different shareholders by different means. (2K) For the purposes of subsection (2H)(a) a person is to be treated as obtaining control of a company if that person and others acting in concert together obtain control of it. (2L) A compromise or arrangement falls within this subsection if it is applicable to or affects— (a) all the ordinary share capital of the relevant company or all the shares of the same class as those acquired by the exercise of the option, or (b) all the shares, or all the shares of that same class, which are held by a class of shareholders identified otherwise than by reference to their employment or directorships or their participation in an approved CSOP scheme. (2M) A takeover offer falls within this subsection if— (a) it relates to the relevant company, and (b) where there is more than one class of share in the relevant company, the class or classes to which it relates is or include the class of the shares acquired by the exercise of the option. (2N) In subsections (2H), (2L) and (2M) “the relevant company” means the company whose shares are acquired by the exercise of the option. 27 Part 5 of Schedule 4 (requirements etc relating to share options) is amended as follows. 28 In paragraph 21 (introduction) in sub-paragraph (2)— (a) after the entry for paragraph 24 omit “or”, and (b) after the entry for paragraph 25 insert , or paragraph 25A (exercise of options: company events) . 29 After paragraph 25 insert— Exercise of options: company events 25A (1) The scheme may provide that share options relating to shares in a company may be exercised within 6 months after the relevant date for the purposes of sub-paragraph (2) or (6). (2) The relevant date for the purposes of this sub-paragraph is the date when— (a) a person has obtained control of the company as a result of making an offer falling within sub-paragraph (3), and (b) any condition subject to which the offer is made has been satisfied. (3) An offer falls within this sub-paragraph if it is— (a) a general offer to acquire the whole of the issued ordinary share capital of the company which is made on a condition such that, if it is met, the person making the offer will have control of the company, or (b) a general offer to acquire all the shares in the company which are of the same class as the shares to which the option relates. (4) In sub-paragraph (3)(a) the reference to the issued ordinary share capital of the company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (3)(b) the reference to the shares in the company does not include any shares already held by the person making the offer or a person connected with that person. (5) For the purposes of sub-paragraph (3)(a) and (b) it does not matter if the general offer is made to different shareholders by different means. (6) The relevant date for the purposes of this sub-paragraph is the date when the court sanctions under section 899 of the Companies Act 2006 (court sanction for compromise or arrangement) a compromise or arrangement applicable to or affecting— (a) all the ordinary share capital of the company or all the shares of the same class as the shares to which the option relates, or (b) all the shares, or all the shares of that same class, which are held by a class of shareholders identified otherwise than by reference to their employment or directorships or their participation in an approved CSOP scheme. (7) The scheme may provide that share options relating to shares in a company may be exercised at any time when any person is bound or entitled to acquire shares in the company under sections 979 to 982 or 983 to 985 of the Companies Act 2006 (takeover offers: right of offeror to buy out minority shareholder etc). (8) For the purposes of this paragraph a person is to be treated as obtaining control of a company if that person and others acting in concert together obtain control of it. 30 (1) In Part 6 of Schedule 4 (exercise of share options) paragraph 26 (exchange of options on company reorganisation) is amended as follows. (2) In sub-paragraph (2)(c)— (a) after “982” insert “ or 983 to 985 ”, and (b) after “shareholder” insert “ etc ”. (3) After sub-paragraph (2) insert— (2A) In sub-paragraph (2)(a)(i) the reference to the issued ordinary share capital of the scheme company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (2)(a)(ii) the reference to the shares in the scheme company does not include any shares already held by the person making the offer or a person connected with that person. (2B) For the purposes of sub-paragraph (2)(a)(i) and (ii) it does not matter if the general offer is made to different shareholders by different means. (4) A CSOP scheme approved before the day on which this Act is passed which contains provision under paragraph 26 of Schedule 4 to ITEPA 2003 has effect with any modifications needed to reflect the amendments made by this paragraph. Enterprise management incentives 31 (1) In Part 6 of Schedule 5 (company reorganisations) in paragraph 39 (introduction) after sub-paragraph (3) insert— (4) In sub-paragraph (2)(a)(i) the reference to the issued share capital of the company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (2)(a)(ii) the reference to the shares in the company does not include any shares already held by the person making the offer or a person connected with that person. (5) For the purposes of sub-paragraph (2)(a)(i) and (ii) it does not matter if the general offer is made to different shareholders by different means. (2) The amendment made by this paragraph comes into force on such day as the Treasury may by order appoint. PART 3 Material interest rules Introduction 32 Part 7 of ITEPA 2003 (employment income: income and exemptions relating to securities) is amended as follows. Share incentive plans 33 Part 3 of Schedule 2 (eligibility of individuals) is amended as follows. 34 In paragraph 13 (introduction)— (a) after the entry for paragraph 18 insert “ and ”, and (b) omit the entry for paragraph 19 and the “and” before it. 35 In paragraph 14 (time of eligibility to participate) in sub-paragraph (7)— (a) after paragraph (b) insert “ and ”, and (b) omit paragraph (c) and the “and” before it. 36 Omit paragraphs 19 to 24 (the “no material interest” requirement). 37 In Part 11 of Schedule 2 (supplementary provisions) in paragraph 100 (index of defined expressions), in the entry for “close company”, omit “(and see paragraph 20(4))”. 38 (1) The amendments made by paragraphs 33 to 37 above have effect for the purpose of determining whether an individual is eligible to participate in an award of shares on the day on which this Act is passed or any later day. (2) A SIP approved before the day on which this Act is passed has effect accordingly with the omission of any provision falling within a provision of Schedule 2 to ITEPA 2003 omitted by those paragraphs. SAYE option schemes 39 Part 3 of Schedule 3 (eligibility of individuals) is amended as follows. 40 In paragraph 9 (introduction) omit the entry for paragraph 11 and the “and” before it. 41 Omit paragraphs 11 to 16 (the “no material interest” requirement). 42 In Part 9 of Schedule 3 (supplementary provisions) in paragraph 49 (index of defined expressions), in the entry for “close company”, omit “(and see paragraph 11(4))”. 43 (1) The amendments made by paragraphs 39 to 42 above have effect for the purpose of determining whether an individual is eligible to participate in a scheme on the day on which this Act is passed or any later day. (2) A SAYE option scheme approved before the day on which this Act is passed has effect accordingly with the omission of any provision falling within a provision of Schedule 3 to ITEPA 2003 omitted by those paragraphs. CSOP schemes 44 (1) In Part 3 of Schedule 4 (eligibility of individuals) in paragraphs 10(2) and (3), 11(3) and (4) and 13(2) (which relate to the “no material interest” requirement) for “25%” substitute “ 30% ”. (2) The amendments made by this paragraph have effect for the purpose of determining whether a person is eligible to participate in a scheme on the day on which this Act is passed or any later day (by altering what constitutes a material interest on that day and within the 12 months preceding that day). (3) A CSOP scheme approved before the day on which this Act is passed has effect with any modifications needed to reflect the amendments made by this paragraph. PART 4 Restricted shares Introduction 45 Part 7 of ITEPA 2003 (employment income: income and exemptions relating to securities) is amended as follows. Share incentive plans 46 Part 4 of Schedule 2 (types of shares that may be awarded) is amended as follows. 47 In paragraph 25 (introduction) in sub-paragraph (1)— (a) after the entry for paragraph 28 insert “ and ”, and (b) omit the entry for paragraph 30 and the “and” before it. 48 Omit paragraphs 30 to 33 (only certain kinds of restrictions allowed). 49 In Part 5 of Schedule 2 (free shares) in paragraph 35 (maximum annual award) omit sub-paragraphs (3) and (4). 50 In Part 6 of Schedule 2 (partnership shares) in paragraph 43 (introduction) after sub-paragraph (2) insert— (2A) The plan must provide that partnership shares are not to be subject to any provision for forfeiture. 51 In Part 7 of Schedule 2 (matching shares) in paragraph 59 (general requirement for matching shares) omit sub-paragraph (2). 52 In Part 9 of Schedule 2 (trustees) in paragraph 75 (duty to give notice of award of shares etc) in sub-paragraphs (2) and (3) after paragraph (a) insert— (aa) if the shares are subject to any restriction, giving details of the restriction, . 53 (1) In Part 10 of Schedule 2 (approval of plans) paragraph 84 (disqualifying events) is amended as follows. (2) In sub-paragraph (3)— (a) after paragraph (b) insert “ or ”, and (b) omit paragraph (c) and the “or” after it. (3) In sub-paragraph (4)(b) for “provision for forfeiture” substitute “ restriction ”. 54 Part 11 of Schedule 2 (supplementary provision) is amended as follows. 55 In paragraph 92 (determination of market value) for sub-paragraph (2) substitute— (2) For the purposes of this Schedule the market value of shares subject to a restriction is to be determined as if they were not subject to the restriction. 56 In paragraph 99 (minor definitions) after sub-paragraph (3) insert— (4) For the purposes of the SIP code— (a) shares are subject to a “restriction” if there is any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) of section 423 (restricted securities) would apply if the references in those subsections to the employment-related securities were to the shares, and (b) the “restriction” is that provision. 57 In paragraph 100 (index of defined expressions) at the appropriate place insert— restriction (in relation to shares) | paragraph 99(4) . 58 (1) The amendments made by paragraphs 46 to 48 and 50 to 52 above have effect in relation to awards of shares made on or after the day on which this Act is passed. (2) A SIP approved, or a trust instrument made, before that day has effect with any modifications needed to reflect the amendments made by paragraphs 46 to 57 above. (3) In particular, in relation to awards of shares on or after that day, such a SIP has effect with the omission of any provision falling within a provision of Schedule 2 to ITEPA 2003 omitted by paragraph 48 above. SAYE option schemes 59 Part 4 of Schedule 3 (shares to which schemes can apply) is amended as follows. 60 In paragraph 17 (introduction) in sub-paragraph (1)— (a) after the entry for paragraph 20 insert “ and ”, and (b) omit the entry for paragraph 21 and the “and” after it. 61 Omit paragraph 21 (only certain kinds of restrictions allowed). 62 In Part 6 of Schedule 3 (requirements etc relating to share options) in paragraph 28 (requirements as to price of acquisition of shares) after sub-paragraph (4) insert— (5) At the time a share option is granted— (a) it must be stated whether or not the shares which may be acquired by the exercise of the option may be subject to any restriction, and (b) if so, the details of the restriction must also be stated. (6) For the purposes of this paragraph the market value of shares subject to a restriction is to be determined as if they were not subject to the restriction. 63 In Part 7 of Schedule 3 (exchange of share options) in paragraph 39 (requirements about share options granted in exchange) after sub-paragraph (6) insert— (7) For the purposes of this paragraph the market value of shares subject to a restriction is to be determined as if they were not subject to the restriction. 64 Part 9 of Schedule 3 (supplementary provisions) is amended as follows. 65 In paragraph 48 (minor definitions) after sub-paragraph (2) insert— (3) For the purposes of the SAYE code— (a) shares are subject to a “restriction” if there is any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) of section 423 (restricted securities) would apply if the references in those subsections to the employment-related securities were to the shares, and (b) the “restriction” is that provision. 66 In paragraph 49 (index of defined expressions) at the appropriate place insert— restriction (in relation to shares) | paragraph 48(3) . 67 (1) The amendments made by paragraphs 59 to 62 above have effect in relation to options granted on or after the day on which this Act is passed. (2) The amendment made by paragraph 63 above has effect for cases where the old options are granted on or after that day. (3) A SAYE option scheme approved before that day has effect with any modifications needed to reflect the amendments made by paragraphs 59 to 66 above. (4) In particular, in relation to options granted on or after that day, such a SAYE option scheme has effect with the omission of any provision falling within a provision of Schedule 3 to ITEPA 2003 omitted by paragraph 61 above. CSOP schemes 68 In Part 2 of Schedule 4 (general requirements for approval) in paragraph 6 (limit on value of shares subject to options) after sub-paragraph (3) insert— (4) For the purposes of this paragraph the market value of shares subject to a restriction is to be determined as if they were not subject to the restriction. 69 Part 4 of Schedule 4 (shares to which schemes can apply) is amended as follows. 70 In paragraph 15 (introduction)— (a) after the entry for paragraph 18 insert “ and ”, and (b) omit the entry relating to paragraph 19 and the “and” after it. 71 Omit paragraph 19 (only certain kinds of restrictions allowed). 72 In Part 5 of Schedule 4 (requirements etc relating to share options) in paragraph 22 after sub-paragraph (4) insert— (5) At the time a share option is granted— (a) it must be stated whether or not the shares which may be acquired by the exercise of the option may be subject to any restriction, and (b) if so, the details of the restriction must also be stated. (6) For the purposes of this paragraph the market value of shares subject to a restriction is to be determined as if they were not subject to the restriction. 73 In Part 6 of Schedule 4 (exchange of share options) in paragraph 27 (requirements about share options granted in exchange) after sub-paragraph (6) insert— (7) For the purposes of this paragraph the market value of shares subject to a restriction is to be determined as if they were not subject to the restriction. 74 Part 8 of Schedule 4 (supplementary provisions) is amended as follows. 75 In paragraph 36 (minor definitions) after sub-paragraph (2) insert— (3) For the purposes of the CSOP code— (a) shares are subject to a “restriction” if there is any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) of section 423 (restricted securities) would apply if the references in those subsections to the employment-related securities were to the shares, and (b) the “restriction” is that provision. 76 In paragraph 37 (index of defined expressions) at the appropriate place insert— restriction (in relation to shares) | paragraph 36(3) . 77 (1) The amendment made by paragraph 68 above has effect for the purpose of determining whether options may be granted to an individual on or after the day on which this Act is passed; but the amendment is to be ignored in determining the market value of any shares to which an option granted before that day relates. (2) The amendments made by paragraphs 69 to 72 above have effect in relation to options granted on or after that day. (3) The amendment made by paragraph 73 above has effect for cases where the old options are granted on or after that day. (4) A CSOP scheme approved before that day has effect with any modifications needed to reflect the amendments made by paragraphs 68 to 76 above. (5) In particular, in relation to options granted on or after that day, such a CSOP scheme has effect with the omission of any provision falling within a provision of Schedule 4 to ITEPA 2003 omitted by paragraph 71 above. PART 5 Share incentive plans: partnership shares 78 Schedule 2 to ITEPA 2003 is amended as follows. 79 (1) In Part 6 (partnership shares) paragraph 52 (application of money deducted in accumulation period) is amended as follows. (2) After sub-paragraph (2) insert— (2A) The number of shares awarded to the employee must be determined in accordance with one of sub-paragraphs (3), (3A) and (3B) and the partnership share agreement must specify which one of those sub-paragraphs is to apply for the purposes of the agreement. (3) In sub-paragraph (3) for “The number of shares awarded to each” substitute “ If the agreement specifies that this sub-paragraph is to apply, the number of shares awarded to the ”. (4) After sub-paragraph (3) insert— (3A) If the agreement specifies that this sub-paragraph is to apply, the number of shares awarded to the employee must be determined in accordance with the market value of the shares at the beginning of the accumulation period. (3B) If the agreement specifies that this sub-paragraph is to apply, the number of shares awarded to the employee must be determined in accordance with the market value of the shares on the acquisition date. (5) In sub-paragraphs (4) and (5) for “and (3)” substitute “ to (3B) ”. 80 In Part 9 (trustees) in paragraph 75 (duty to give notice of award of shares etc) in sub-paragraph (3) for paragraph (c) substitute— (c) stating the market value in accordance with which the number of shares awarded to the employee was determined. 81 (1) The amendments made by paragraphs 79 and 80 above have effect in relation to partnership share agreements made on or after the day on which this Act is passed. (2) A trust instrument made before that day has effect with any modifications needed to reflect the amendment made by paragraph 80 above. PART 6 Share incentive plans: dividend shares Introduction 82 Part 8 of Schedule 2 to ITEPA 2003 (cash dividends and dividend shares) is amended as follows. Company's power to direct reinvestment of cash dividends 83 (1) Paragraph 62 (reinvestment of dividends) is amended as follows. (2) In sub-paragraph (1) for the first “all” substitute “ some or all of the ”. (3) After sub-paragraph (1) insert— (1A) The company's direction must set out— (a) the amount of the cash dividends to be applied as mentioned in sub-paragraph (1), or (b) how that amount is to be determined. (4) In sub-paragraph (4) after “may” insert “ modify or ”. 84 In paragraph 68 (reinvestment: amounts to be carried forward) for sub-paragraph (1) substitute— (1) This paragraph applies where an amount is not reinvested because it is not sufficient to acquire a share. 85 In paragraph 69 (cash dividends with no requirement to reinvest) in sub-paragraph (2) for “which” substitute “ so far as they ”. 86 (1) A SIP approved before the day on which this Act is passed which contains provision under paragraph 62(1) of Schedule 2 to ITEPA 2003 has effect with any modifications needed to reflect the amendments made by paragraphs 83 to 85 above. (2) Sub-paragraph (3) applies to a direction requiring the reinvestment of cash dividends which is given before that day. (3) For the purposes of paragraph 62(1A) of Schedule 2 to ITEPA 2003 the direction is to be treated as requiring the reinvestment of all the cash dividends, subject to any modification of the direction which is made on or after that day under paragraph 62(4) of that Schedule. Removal of limit on amount reinvested 87 In paragraph 63 (requirements to be met as regards cash dividends) in sub-paragraph (1) omit the entry for paragraph 64. 88 Omit paragraph 64 (limit on amount reinvested). 89 (1) The amendments made by paragraphs 87 and 88 above have effect in relation to the tax year 2013-14 and subsequent tax years. (2) A SIP approved before 6 April 2013 has effect accordingly with the omission of any provision falling within a provision of Schedule 2 to ITEPA 2003 omitted by paragraph 88 above. Amounts to be carried forward 90 (1) Paragraph 68 (reinvestment: amounts to be carried forward) is amended as follows. (2) In sub-paragraph (4)— (a) omit paragraph (a) and the “or” after it, and (b) in paragraphs (b) and (c) omit “during that period”. (3) Omit sub-paragraph (6). (4) The amendments made by this paragraph have effect in relation to amounts held by trustees on or after 6 April 2013 (including amounts originally retained before that date in relation to which an event falling within paragraph 68(4)(a) to (c) of Schedule 2 to ITEPA 2003 did not occur before that date). (5) A SIP approved before 6 April 2013 has effect accordingly with the omission of any provision falling within a provision of Schedule 2 to ITEPA 2003 omitted by this paragraph. PART 7 Share incentive plans: employee share ownership trusts 91 Part 9 of Schedule 2 to ITEPA 2003 (trustees) is amended as follows. 92 In paragraph 70 (introduction) in sub-paragraph (2)— (a) after the entry for paragraph 77 insert “ and ”, and (b) omit the entry for paragraph 78. 93 (1) Omit paragraph 78 (acquisition of shares from employee share ownership trusts). (2) A trust instrument made before the day on which this Act is passed has effect with the omission of any provision falling within a provision of Schedule 2 to ITEPA 2003 omitted by this paragraph. PART 8 Enterprise management incentives: consequences of disqualifying events 94 (1) In section 532 of ITEPA 2003 (modified tax consequences following disqualifying events) in subsection (1)(b) for “40” substitute “ 90 ”. (2) The amendment made by this paragraph has effect in relation to disqualifying events occurring on or after the day on which this Act is passed.

Propose a change

SCHEDULE 3 Limit on income tax reliefs

Section 16 The limit 1 In Chapter 3 of Part 2 of ITA 2007 (calculation of income tax liability) after section 24 insert— Limit on Step 2 deductions 24A (1) If the taxpayer is an individual, there is a limit on certain deductions which may be made for the tax year at Step 2. (2) The limit is determined as follows. (3) Amount A must not exceed amount B. (4) Amount A is— (a) the deductions for the tax year at Step 2 for the reliefs listed in subsection (6) taken together, less (b) so much of those deductions as fall within subsection (7). (5) Amount B is— (a) £50,000, or (b) if more, 25% of the taxpayer's adjusted total income for the tax year (see subsection (8)). (6) The reliefs are— (a) relief under section 64 (trade loss relief against general income); (b) relief under section 72 (early trade losses relief); (c) relief under section 96 (post-cessation trade relief); (d) relief under section 120 (property loss relief against general income); (e) relief under section 125 (post-cessation property relief); (f) relief under section 128 (employment loss relief against general income); (g) relief under Chapter 6 of Part 4 (share loss relief); (h) relief under Chapter 1 of Part 8 (interest payments); (i) relief under section 555 of ITEPA 2003 (deduction for liabilities relating to former employment); (j) relief under section 446 of ITTOIA 2005 (strips of government securities: relief for losses); (k) relief under section 454(4) of ITTOIA 2005 (listed securities held since 26 March 2003: relief for losses: persons other than trustees). (7) The deductions falling within this subsection are— (a) deductions for amounts of relief so far as attributable to allowances under Part 3A of CAA 2001 (business premises renovation allowances); (b) deductions for amounts of relief under a provision mentioned in subsection (6)(a) to (e) so far as made from profits of the trade or business to which the relief in question relates; (c) deductions for amounts of relief under the provision mentioned in subsection (6)(a) or (b) so far as attributable to a deduction allowed under section 205 or 220 of ITTOIA 2005 (deduction for overlap profit in final tax year or on change of accounting date); (d) deductions for amounts of relief under the provision mentioned in subsection (6)(g)— (i) where the shares in question fall within section 131(2)(a) (qualifying shares to which EIS relief is attributable), or (ii) where SEIS relief is attributable to the shares in question as determined in accordance with Part 5A (seed enterprise investment scheme). (8) The taxpayer's “adjusted total income” for the tax year is calculated as follows. Step 1 Take the amount of the taxpayer's total income for the tax year. Step 2 Add back the amounts of any deductions allowed under Part 12 of ITEPA 2003 (payroll giving) in calculating the taxpayer's income which is charged to tax for the tax year. Step 3 If the taxpayer is given relief in accordance with section 192 of FA 2004 (pension schemes: relief at source) in respect of any contribution paid in the tax year under a pension scheme, deduct the gross amount of the contribution. The “gross” amount of a contribution is the amount of the contribution before deduction of tax under section 192(1) of FA 2004. Step 4 If the taxpayer is entitled to a deduction for relief under section 193(4) or 194(1) of FA 2004 (pension schemes: excess relief under net payment arrangements or relief on making a claim) for the tax year, deduct the amount of the excess or contribution (as the case may be). The result is the taxpayer's adjusted total income for the tax year. Consequential amendments 2 (1) ITA 2007 is amended as follows. (2) In section 23 (calculation of income tax liability) at step 2 for “section 25” substitute “ sections 24A and 25 ”. (3) In the following provisions (which explain how certain reliefs work) for “section 25(4) and (5)” substitute “ sections 24A and 25(4) and (5) ” (a) section 65(1), (b) section 73, (c) section 121(1), (d) section 129(1), and (e) section 133(1). (4) In section 148 (share loss relief: disposal of shares forming part of mixed holding) in subsection (3)(b) before sub-paragraph (i) insert— (ai) shares to which SEIS relief is attributable (as determined in accordance with Part 5A), . Commencement and transitional provision 3 The amendments made by paragraphs 1 and 2 above have effect for the tax year 2013-14 and subsequent tax years. 4 (1) Sub-paragraph (2) applies to a claim which relates to the tax year 2013-14 or a subsequent tax year by virtue of paragraph 2 of Schedule 1B to TMA 1970 where the earlier year is a tax year before the tax year 2013-14. (2) The amount of the claim is to be determined as if the amendments made by paragraphs 1 and 2 above also have effect for tax years before the tax year 2013-14. (3) For this purpose, section 24A(6) of ITA 2007 (as inserted by paragraph 1 above) is treated as having effect for tax years before the tax year 2013-14 as if— (a) in paragraphs (a), (b), (f) and (g) the references to relief were limited to relief in respect of a loss made in the tax year 2013-14 or a subsequent tax year, and (b) all the other paragraphs were omitted. 5 In section 24A(6)(d) of ITA 2007 (as inserted by paragraph 1 above) the reference to relief does not include relief in respect of a loss made in the tax year 2012-13.

Propose a change

SCHEDULE 4 Cash basis for small businesses

Section 17 PART 1 Main provisions Introductory 1 Part 2 of ITTOIA 2005 (trading income) is amended as follows. Eligibility to calculate profits on cash basis 2 Chapter 3 (trade profits: basic rules) is amended as follows. 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 After Chapter 3 insert— CHAPTER 3A Trade profits: cash basis Eligibility Conditions to be met for profits to be calculated on cash basis 31A (1) A person may make an election under section 25A for a tax year if conditions A to C are met. (2) Condition A is that the aggregate of the cash basis receipts of each trade, profession or vocation carried on by the person during that tax year does not exceed any relevant maximum applicable for that tax year (see section 31B). (3) Condition B is that, in a case where the person is either an individual who controls a firm or a firm controlled by an individual— (a) the aggregate of the cash basis receipts of each trade, profession or vocation carried on by the individual or the firm during that tax year does not exceed any relevant maximum applicable for that tax year, and (b) the firm or the individual (as the case may be) has also made an election under section 25A for that tax year. (4) Condition C is that the person is not an excluded person in relation to the tax year (see section 31C). (5) For the purposes of this section, the “cash basis receipts” of a trade, profession or vocation, in relation to a tax year, are any receipts that— (a) are received during the basis period for the tax year, and (b) would be brought into account in calculating the profits of the trade, profession or vocation for that tax year on the cash basis. Relevant maximum 31B (1) For the purposes of section 31A there is a “relevant maximum” applicable for a tax year in relation to a trade, profession or vocation carried on by a person if any of conditions A to C is met. (2) Condition A is that an election under section 25A did not have effect in relation to the trade, profession or vocation for the previous tax year. (3) Condition B is that the aggregate of the cash basis receipts of each trade, profession or vocation carried on by the person during the previous tax year is greater than an amount equal to twice the VAT threshold for that previous tax year. (4) Condition C is that, in a case where the person is either an individual who controls a firm or a firm controlled by an individual, the aggregate of the cash basis receipts of each trade, profession or vocation carried on by the individual or the firm during the previous tax year is greater than an amount equal to twice the VAT threshold for that previous tax year. (5) If there is a relevant maximum applicable for a tax year, the amount of the relevant maximum is— (a) the VAT threshold, or (b) in the case where the person is an individual who is a universal credit claimant in the tax year, an amount equal to twice the VAT threshold. (6) For the purposes of this section, where the basis period for a tax year is less than 12 months, the VAT threshold is proportionately reduced. (7) In this section— “universal credit claimant”, in relation to a tax year, means a person who is entitled to universal credit under the relevant legislation for an assessment period (within the meaning of the relevant legislation) that falls within the basis period for the tax year, “the relevant legislation” means— Part 1 of the Welfare Reform Act 2012, or any provision made for Northern Ireland which corresponds to that Part of that Act, and “the VAT threshold”, in relation to a tax year, means the amount specified at the end of that tax year in paragraph 1(1)(a) of Schedule 1 to VATA 1994. (8) The Treasury may by order amend this section. (9) A statutory instrument containing an order under subsection (8) that restricts the circumstances in which an election may be made under section 25A may not be made unless a draft of the instrument containing the order has been laid before, and approved by a resolution of, the House of Commons. Excluded persons 31C (1) A person is an excluded person in relation to a tax year if the person meets any of conditions A to H. (2) Condition A is that— (a) the person is a firm, and (b) one or more of the persons who have been partners in the firm at any time during the basis period for the tax year was not an individual at that time. (3) Condition B is that the person was a limited liability partnership at any time during the basis period for the tax year. (4) Condition C is that the person is an individual who has been a Lloyd's underwriter at any time during the basis period for the tax year. (5) Condition D is that the person has made an election under Chapter 8 (trade profits: herd basis rules) that has effect in relation to the tax year. (6) Condition E is that the person has made a claim under section 221 (claim for averaging of fluctuating profits) in relation to the tax year. (7) Condition F is that, at any time within the period of 7 years ending immediately before the basis period for the tax year, the person obtained an allowance under Part 3A of CAA 2001 (business premises renovation allowances). (8) Condition G is that the person has carried on a mineral extraction trade at any time during the basis period for the tax year. In this subsection “mineral extraction trade” has the same meaning as in Part 5 of CAA 2001 (see section 394(2) of that Act). (9) Condition H is that— (a) at any time before the beginning of the basis period for the tax year the person obtained an allowance under Part 6 of CAA 2001 (research and development allowances) in respect of qualifying expenditure incurred by the person, and (b) the person owns an asset representing the expenditure. In this subsection “qualifying expenditure” has the same meaning as in Part 6 of CAA 2001. (10) The Treasury may by order amend this section. (11) A statutory instrument containing an order under subsection (10) that restricts the circumstances in which an election may be made under section 25A may not be made unless a draft of the instrument containing the order has been laid before, and approved by a resolution of, the House of Commons. Elections under section 25A Effect of election under section 25A 31D (1) An election made by a person under section 25A has effect— (a) for the tax year for which it is made, and (b) for every subsequent tax year. This is subject to subsections (2) and (3). (2) An election made by a person under section 25A ceases to have effect if any of conditions A to C in section 31A is not met for a subsequent tax year. (3) An election made by a person under section 25A ceases to have effect if— (a) there is a change of circumstances relating to any trade, profession or vocation carried on by the person which makes it more appropriate for its profits for a subsequent tax year to be calculated in accordance with generally accepted accounting practice, and (b) the person elects to calculate those profits in that way. (4) Neither subsection (2) nor subsection (3) prevents the person making an election under section 25A for any subsequent tax year. (5) An election that— (a) is made by a person under section 25A, and (b) has effect for a tax year, has effect in relation to every trade, profession or vocation carried on by the person during the tax year. (6) For provision prohibiting a person who has made an election under section 25A from claiming any capital allowances (other than in respect of expenditure incurred on the provision of a car), see section 1(4) of CAA 2001. Calculation of profits on cash basis Calculation of profits on cash basis 31E (1) This section applies to professions and vocations as it applies to trades. (2) To determine the profits of a trade for a tax year on the cash basis— Step 1 Calculate the total amount of receipts of the trade received during the basis period for the tax year. Step 2 Deduct from that amount the total amount of expenses of the trade paid during the basis period for the tax year. (3) Subsection (2) is subject to any adjustment required or authorised by law in calculating profits for income tax purposes. Overview of rest of Part 2 Overview of rest of Part 2 as it applies to cash basis 31F (1) For provision about the application of Chapters 4 to 6 (rules about deductions and receipts) in relation to the cash basis, see sections 32A, 56A and 95A. (2) For provision about the application of Chapter 11 (trade profits: other specific trades) in relation to the cash basis, see section 148K. (3) The following Chapters apply only where profits are calculated on the cash basis— Chapter 6A (trade profits: amounts not reflecting commercial transactions), Chapter 17A (cash basis: adjustments for capital allowances). (4) The following Chapters do not apply in relation to the cash basis— Chapter 8 (trade profits: herd basis rules), Chapter 9 (trade profits: sound recordings), Chapter 10 (trade profits: certain telecommunication rights), Chapter 10A (leases of plant or machinery: special rules for long funding leases), Chapter 11A (trade profits: changes in trading stock), Chapter 13 (deductions from profits: unremittable amounts), Chapter 14 (disposal and acquisition of know-how), Chapter 16 (averaging profits of farmers and creative artists), Chapter 16ZA (compensation for compulsory slaughter of animal), Chapter 16A (oil activities). Rules restricting deductions 6 Chapter 4 (trade profits: rules restricting deductions) is amended as follows. 7 After section 32 insert— Cash basis accounting Application of Chapter to the cash basis 32A (1) The following sections do not apply in calculating the profits of a trade on the cash basis— section 33 (capital expenditure), section 35 (bad and doubtful debts), sections 36 and 37 (unpaid remuneration), section 43 (employee benefit contributions: profits calculated before end of 9 month period), sections 48 to 50B (car hire). (2) For rules restricting deductions that apply only where profits are calculated on the cash basis, see the following— section 33A (cash basis: capital expenditure), section 51A (cash basis: interest payments on loans). 8 After section 33 insert— Cash basis: capital expenditure 33A (1) In calculating the profits of a trade on the cash basis, no deduction is allowed for items of a capital nature, other than expenditure that— (a) if it were not allowable as a deduction in calculating the profits of the trade, would be qualifying expenditure within the meaning of Part 2 of CAA 2001 (plant and machinery allowances), and (b) is not expenditure incurred on the provision of a car. (2) In this section “car” has the same meaning as in Part 2 of CAA 2001 (see section 268A of that Act). 9 In section 38 (restriction of deductions in respect of employee benefit contributions), after subsection (2) insert— (2A) In calculating for income tax purposes the profits of a trade on the cash basis, this section has effect as if— (a) in subsection (1), the words “or to be made” were omitted, and (b) in subsection (2), the words “or within 9 months from the end of it” were omitted (in both places). 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 (1) Section 55A (expenditure on integral features) is amended as follows. (2) The existing provision becomes subsection (1). (3) After that subsection insert— (2) But section 33A(3) of CAA 2001 does not apply in calculating the profits of a trade on the cash basis. Rules allowing deductions 12 Chapter 5 (trade profits: rules allowing deductions) is amended as follows. 13 After section 56 insert— Cash basis accounting Application of Chapter to the cash basis 56A (1) The following sections do not apply in calculating the profits of a trade on the cash basis— sections 60 to 67 (tenants under taxed leases), section 68 (replacement and alteration of trade tools). (2) For rules allowing deductions that apply only where profits are calculated on the cash basis, see the following— section 57B (cash basis: interest payments on loans). (3) In calculating the profits of a trade on the cash basis, any reference in this Chapter to the incurring of expenses is to be read as a reference to the paying of expenses. 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 In section 72 (payroll deduction schemes: contributions to agents' expenses), after subsection (2) insert— (2A) In calculating the profits of the employer's trade on the cash basis, subsection (2) has effect as if paragraph (b) were omitted. 17 In section 94A (costs of setting up SAYE option scheme or CSOP scheme), after subsection (4) insert— (5) But subsection (4) does not apply in calculating the profits of a trade on the cash basis. Receipts 18 Chapter 6 (trade profits: receipts) is amended as follows. 19 After section 95 insert— Cash basis accounting Application of Chapter to the cash basis 95A For rules about receipts that apply only for the purpose of calculating profits on the cash basis, see the following— section 96A (cash basis: capital receipts), section 97A (cash basis: value of trading stock on cessation of trade), section 97B (cash basis: value of work in progress on cessation of profession or vocation). 20 After section 96 insert— Cash basis: capital receipts 96A (1) This section applies if— (a) the whole or part of any expenditure incurred in acquiring, creating or improving an asset has been brought into account in calculating the profits of a trade of a person on the cash basis, or (b) the whole or part of any such expenditure would have been so brought into account if an election under section 25A had had effect in relation to the trade at the time the expenditure was paid. (2) The following amounts are to be brought into account as a receipt in calculating the profits of the trade on the cash basis— (a) any proceeds arising from the disposal of the asset or any part of it; (b) any proceeds arising from the grant of any right in respect of, or any interest in, the asset; (c) any amount of damages, proceeds of insurance or other compensation received in respect of the asset. (3) In a case where only part of the expenditure incurred in acquiring, creating or improving an asset has been, or would have been, brought into account as mentioned in subsection (1), the amount brought into account under subsection (2) is proportionately reduced. (4) If— (a) at any time the person ceases to use the asset or any part of it for the purposes of the trade, but (b) the person does not dispose of the asset (or that part) at that time, the person is to be regarded for the purposes of this section as disposing of the asset (or that part) at that time for an amount equal to the market value amount. (5) If at any time there is a material increase in the person's non-business use of the asset or any part of it, the person is to be regarded for the purposes of this section as disposing of the asset (or that part) at that time for an amount equal to the relevant proportion of the market value amount. (6) For the purposes of subsection (5)— (a) there is an increase in a person's non-business use of an asset (or part of an asset) if— (i) the proportion of the person's use of the asset (or that part) that is for the purposes of the trade decreases, and (ii) the proportion of the person's use of the asset (or that part) that is for other purposes (the “non-business use”) increases; (b) “the relevant proportion” is the difference between— (i) the proportion of the person's use of the asset (or part of the asset) that is non-business use, and (ii) the proportion of the person's use of the asset (or that part) that was non-business use before the increase mentioned in subsection (5). (7) In this section “the market value amount” means the amount that would be regarded as normal and reasonable— (a) in the market conditions then prevailing, and (b) between persons dealing with each other at arm's length in the open market. 21 After section 97 insert— Cash basis: value of stock and work in progress on cessation Cash basis: value of trading stock on cessation of trade 97A (1) This section applies if— (a) a person permanently ceases to carry on a trade in a tax year, and (b) an election under section 25A (cash basis for small businesses) has effect in relation to the trade for the tax year. (2) The value of any trading stock belonging to the trade at the time of the cessation is brought into account as a receipt in calculating the profits of the trade for the tax year. (3) The value is to be determined on a basis that is just and reasonable in all the circumstances. (4) If there is a change in the persons carrying on a trade, subsection (2) does not apply in relation to the trade so long as a person carrying on the trade immediately before the change continues to carry it on after the change. (5) In this section “trading stock” has the same meaning as in Chapter 12 (see section 174). (6) This section does not apply to professions or vocations. Cash basis: value of work in progress on cessation of profession or vocation 97B (1) This section applies if— (a) a person permanently ceases to carry on a profession or vocation in a tax year, and (b) an election under section 25A (cash basis for small businesses) has effect in relation to the profession or vocation for the tax year. (2) The value of any work in progress at the time of the cessation is brought into account as a receipt in calculating the profits of the profession or vocation for the tax year. (3) The value is to be determined on a basis that is just and reasonable in all the circumstances. (4) If there is a change in the persons carrying on a profession, subsection (2) does not apply in relation to the profession so long as a person carrying on the profession immediately before the change continues to carry it on after the change. (5) In this section “work in progress” has the same meaning as in Chapter 12 (see section 183). 22 (1) Section 105 (industrial development grants) is amended as follows. (2) In subsection (2), at the end of paragraph (a) insert “ (but see subsection (2A)) ”. (3) After that subsection insert— (2A) Subsection (2)(a) is to be disregarded in calculating the profits of a trade on the cash basis. Amounts not reflecting commercial transactions 23 After Chapter 6 insert— CHAPTER 6A Trade profits: amounts not reflecting commercial transactions Professions and vocations 106A The provisions of this Chapter apply to professions and vocations as they apply to trades. Application of Chapter 106B This Chapter applies in calculating the profits of a person's trade for a period on the cash basis. Amounts not reflecting commercial transactions 106C (1) This section applies if— (a) the person does anything in relation to the trade (“the relevant act”), (b) there is a difference between— (i) the amount (if any) that, as a result of the relevant act, would (apart from this section) be brought into account in calculating the profits of the trade for the period, and (ii) the amount (if any) that would have been so brought into account had the relevant act consisted of a transaction between the person and another person dealing with each other at arm's length in the open market (“the arm's length amount”), and (c) the profits of the trade for the period are less than they would have been if the arm's length amount had been so brought into account. (2) The amount to be brought into account in calculating the profits of the trade for the period is an amount that is just and reasonable in all the circumstances. Capital receipts 106D Section 106C does not apply in relation to the relevant act if subsection (4) or (5) of section 96A (cash basis: capital receipts) applies in relation to that act. Gifts to charities etc 106E Section 106C does not apply in relation to the relevant act if any of the provisions of Chapter 7 (trade profits: gifts to charities etc) applies in relation to that act. Herd basis rules 24 In Chapter 8 (trade profits: herd basis rules), after section 111 insert— Herd basis rules not to apply where cash basis used 111A Nothing in this Chapter applies in calculating the profits of a trade on the cash basis. Sound recordings 25 In Chapter 9 (trade profits: sound recordings), after section 130 insert— Chapter not to apply where cash basis used 130A Nothing in this Chapter applies in calculating the profits of a trade on the cash basis. Telecommunication rights 26 In Chapter 10 (trade profits: certain telecommunication rights), before section 145 insert— Chapter not to apply where cash basis used 144A Nothing in this Chapter applies in calculating the profits of a trade on the cash basis. Long funding leases 27 In Chapter 10A (leases of plant or machinery: special rules for long funding leases), before section 148A (and the italic heading preceding it) insert— Application of Chapter Chapter not to apply where cash basis used 148ZA Nothing in this Chapter applies in calculating the profits of a trade on the cash basis. Specific trades 28 In Chapter 11 (trade profits: other specific trades), before section 149 (and the italic heading preceding it) insert— Cash basis accounting Application of Chapter to the cash basis 148K The following sections do not apply in calculating the profits of a trade, profession or vocation on the cash basis— sections 149 to 154A (dealers in securities etc), section 157 (relief in respect of mineral royalties), section 158 (lease premiums etc: reduction of receipts), section 159 (ministers of religion), section 161 (mineral exploration and access), section 162 (payments by persons liable to pool betting duty), sections 163 and 164 (intermediaries treated as making employment payments), section 164A (managed service companies), sections 165 to 168 (waste disposal), sections 169 to 172ZE (cemeteries and crematoria). Changes in trading stock 29 In Chapter 11A (trade profits: changes in trading stock), after section 172A insert— Chapter not to apply where cash basis used 172AA Nothing in this Chapter applies in calculating the profits of a trade on the cash basis. Unremittable amounts 30 In Chapter 13 (deductions from profits: unremittable amounts), after section 188 insert— Chapter not to apply where cash basis used 188A Nothing in this Chapter applies in calculating the profits of a trade on the cash basis. Disposal and acquisition of know-how 31 In Chapter 14 (disposal and acquisition of know-how), before section 192 insert— Chapter not to apply where cash basis used 191A Nothing in this Chapter applies in calculating the profits of a trade on the cash basis. Averaging profits of farmers and creative artists 32 In Chapter 16 (averaging profits of farmers and creative artists), after section 221 insert— Claim not available where cash basis used 221A Nothing in this Chapter applies in calculating the profits of a trade on the cash basis. Compensation for compulsory slaughter of animal 33 In Chapter 16ZA (compensation for compulsory slaughter of animal), after section 225ZA insert— Chapter not to apply where cash basis used 225ZAA Nothing in this Chapter applies in calculating the profits of a trade on the cash basis. Oil activities 34 In Chapter 16A (oil activities), before section 225A (and the italic heading preceding it) insert— Application of Chapter Chapter not to apply where cash basis used 225ZH Nothing in this Chapter applies in calculating the profits of a trade on the cash basis. Adjustment income 35 Chapter 17 (adjustment income) is amended as follows. 36 After section 227 insert— Application of Chapter where cash basis used 227A (1) This Chapter applies if— (a) an election under section 25A (cash basis for small businesses) has effect in relation to a trade for a tax year but no such election has effect in relation to the trade for the following tax year, or (b) no such election has effect in relation to a trade for a tax year but such an election has effect in relation to the trade for the following tax year. (2) But this Chapter does not apply to income which is charged in accordance with section 832. 37 After section 239 insert— Spreading of adjustment income on leaving cash basis Spreading on leaving cash basis 239A (1) This section applies if— (a) an election under section 25A (cash basis for small businesses) has effect in relation to a trade for a tax year, and (b) no such election has effect in relation to the trade for the following tax year. (2) Any adjustment income is spread over 6 tax years as follows. (3) In each of the 6 tax years beginning with that in which the whole amount of the adjustment income would otherwise be chargeable to tax, an amount equal to one-sixth of the amount of the adjustment income is treated as arising and is charged to tax. (4) This section is subject to any election under section 239B (election to accelerate charge). Election to accelerate charge under section 239A 239B (1) A person who under section 239A is liable to tax for a tax year on an amount of adjustment income may elect for an additional amount to be treated as arising in the tax year. (2) The election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year. (3) The election must specify the amount to be treated as income arising in the tax year (which may be any amount of the adjustment income not previously charged to tax). (4) If an election is made, section 239A applies in relation to any subsequent tax year as if the amount of adjustment income (as reduced by any previous application of this section) were reduced by the amount given by the following formula— A × 6 T where— A is the additional amount treated as arising in the tax year for which the election is made, and T is the number of tax years remaining after that tax year in the period of 6 tax years referred to in section 239A. Adjustments for capital allowances 38 After Chapter 17 insert— CHAPTER 17A Cash basis: adjustments for capital allowances Introduction Professions and vocations 240A The provisions of this Chapter apply to professions and vocations as they apply to trades. Adjustments on entering cash basis “Entering the cash basis” 240B For the purposes of this Chapter a person carrying on a trade enters the cash basis for a tax year if— (a) an election under section 25A has effect in relation to the trade for the tax year, and (b) immediately before the beginning of the basis period for the tax year, such an election does not have effect in relation to the trade. Unrelieved qualifying expenditure 240C (1) This section applies if— (a) a person carrying on a trade enters the cash basis for a tax year (“the current tax year”), and (b) at the end of the basis period for the previous tax year, the person has unrelieved qualifying expenditure to carry forward from the chargeable period ending with that basis period. (2) But this section does not apply if section 240D (assets not fully paid for) applies. (3) In calculating the profits of the trade for the current tax year, a deduction is allowed for the relevant portion of the expenditure. (4) The “relevant portion” of the expenditure means the amount of the expenditure for which a deduction would be allowed in calculating the profits of the trade on the cash basis for a period if the expenditure was paid during that period. (5) The relevant portion of the expenditure is to be determined on such basis as is just and reasonable in all the circumstances. (6) Section 59(1) and (2) of CAA 2001 (unrelieved qualifying expenditure) has effect for the purposes of this section. Assets not fully paid for 240D (1) This section applies if— (a) a person carrying on a trade enters the cash basis for a tax year, (b) at any time before the beginning of the basis period for that tax year the person has obtained capital allowances in respect of expenditure on the provision of plant or machinery (“the relevant expenditure”), and (c) not all of the relevant expenditure has actually been paid by the person. (2) If the amount of the relevant expenditure that the person has actually paid exceeds the amount of capital allowances given in respect of the relevant expenditure, the difference is to be deducted in calculating the profits of the trade for the tax year. (3) If the amount of the relevant expenditure that the person has actually paid is less than the amount of capital allowances given in respect of the relevant expenditure, the difference is to be treated as a receipt in calculating the profits of the trade for the tax year. (4) The amount of any capital allowance obtained in respect of expenditure on the provision of any plant or machinery is to be determined on such basis as is just and reasonable in all the circumstances. (5) If the amount of capital allowances given in respect of the relevant expenditure has been reduced under section 205 or 207 of CAA 2001 (reduction where asset provided or used only partly for qualifying activity), the amount of the relevant expenditure that the person has actually paid is to be proportionately reduced for the purposes of this section. (6) This section does not apply where the relevant expenditure was incurred on the provision of a car. In this subsection “car” has the same meaning as in Part 2 of CAA 2001 (see section 268A of that Act). Successions where predecessor and successor are connected persons Effect of election where predecessor and successor are connected persons 240E (1) This section applies if— (a) a person carrying on a trade enters the cash basis for a tax year, (b) the person is the successor for the purposes of section 266 of CAA 2001, and (c) as a result of an election under section 267 of that Act, relevant plant or machinery is treated as sold by the predecessor to the successor at any time during the basis period for the tax year. (2) The provisions of this Chapter have effect in relation to the successor as if everything done to or by the predecessor had been done to or by the successor. (3) Any expenditure actually incurred by the successor on acquiring the relevant plant or machinery is to be ignored for the purposes of calculating the profits of the trade for the tax year. (4) In this section “the predecessor” and “relevant plant or machinery” have the same meaning as in section 267 of CAA 2001. Post-cessation receipts 39 (1) Chapter 18 (post-cessation receipts) is amended as follows. (2) In section 246 (basic meaning of “post-cessation receipt”), after subsection (2) insert— (2A) If, immediately before a person permanently ceases to carry on a trade, an election under section 25A (cash basis for small businesses) has effect in relation to the trade, a sum is to be treated as a post-cessation receipt only if it would have been brought into account in calculating the profits of the trade on the cash basis had it been received at that time. (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rent-a-room relief 40 In Chapter 1 of Part 7 of ITTOIA 2005 (rent-a-room relief), in section 786 (meaning of “rent-a-room receipts”), after subsection (4) insert— (5) Subsections (6) and (7) apply if— (a) the receipts would otherwise be brought into account in calculating the profits of a trade, and (b) an election under section 25A (cash basis for small businesses) has effect in relation to the trade. (6) Any amounts brought into account under section 96A (capital receipts) as a receipt in calculating the profits of the trade are to be treated as receipts within paragraph (a) of subsection (1) above. (7) The reference in subsection (1)(b) to receipts that accrue to an individual during the income period for those receipts is to be read as a reference to receipts that are received by the individual during that period. Qualifying care relief 41 Chapter 2 of Part 7 of ITTOIA 2005 (qualifying care relief) is amended as follows. 42 In section 805 (meaning of “qualifying care receipts”), after subsection (3) insert— (4) Subsections (5) and (6) apply if— (a) the receipts would otherwise be brought into account in calculating the profits of a trade, and (b) an election under section 25A (cash basis for small businesses) has effect in relation to the trade. (5) Any amounts brought into account under section 96A (capital receipts) as a receipt in calculating the profits of the trade are to be treated as receipts within paragraph (a) of subsection (1) above. (6) The reference in subsection (1)(b) to receipts that accrue to an individual during the income period for those receipts is to be read as a reference to receipts that are received by the individual during that period. 43 In section 820 (periods of account not ending on 5th April)— (a) the existing provision becomes subsection (1), and (b) after that subsection insert— (2) Where an election under section 25A (cash basis for small businesses) has effect in relation to the trade, any reference in this section or sections 821 to 823 to the period of account in which receipts accrue is to be read as a reference to the period of account in which receipts are received. PART 2 Consequential amendments TMA 1970 44 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TCGA 1992 45 After section 47 of TCGA 1992 insert— Cash basis accounting Exemption for disposals by persons using cash basis 47A (1) No chargeable gain shall accrue on the disposal of, or of an interest in, an asset if conditions A to D are met in relation to the asset. (2) Condition A is that the asset is— (a) tangible movable property, and (b) a wasting asset. (3) Condition B is that, at any time during the period of ownership of the person making the disposal, the asset has been used for the purposes of a trade, profession or vocation carried on by the person. (4) Condition C is that an election under section 25A of ITTOIA 2005 (cash basis for small businesses) has effect in relation to the trade, profession or vocation at the time of the disposal. (5) Condition D is that— (a) any expenditure attributable to the asset or interest under paragraph (a) or (b) of section 38(1) has been brought into account in calculating the profits of the trade, profession or vocation on the cash basis, or (b) any of that expenditure would have been so brought into account if an election under section 25A of ITTOIA 2005 had had effect in relation to the trade, profession or vocation at the time the expenditure was paid. (6) Subsection (7) applies in the case of the disposal of, or of an interest in, an asset which, in the period of ownership of the person making the disposal— (a) has been used partly for the purposes of the trade, profession or vocation and partly for other purposes, or (b) has been used for the purposes of the trade, profession or vocation for part of that period. (7) In such a case— (a) the consideration for the disposal, and any expenditure attributable to the asset or interest by virtue of section 38(1)(a) and (b), shall be apportioned by reference to the extent to which that expenditure was, or (as the case may be) would have been, brought into account as mentioned in subsection (5) above, (b) the computation of the gain shall be made separately in relation to the apportioned parts of the expenditure and consideration, and (c) subsection (1) above shall apply to any gain accruing by reference to the computation in relation to the part of the consideration apportioned to use for the purposes of the trade, profession or vocation. Disposals made by persons after leaving cash basis 47B (1) This section applies where— (a) a person disposes of, or of an interest in, an asset that has been used for the purposes of a trade, profession or vocation carried on by the person, and (b) conditions A and B are met in relation to the trade, profession or vocation. (2) Condition A is that— (a) any expenditure attributable to the asset or interest under paragraph (a) or (b) of section 38(1) was incurred at a time when an election under section 25A of ITTOIA 2005 (cash basis for small businesses) had effect in relation to the trade, profession or vocation, and (b) that expenditure (“the relevant expenditure”) has been brought into account in calculating the profits of the trade, profession or vocation on the cash basis. (3) Condition B is that no such election has effect in relation to the trade, profession or vocation at the time of the disposal. (4) Section 39 (exclusion of expenditure by reference to tax on income) does not apply in relation to the relevant expenditure. (5) Section 41 (restriction of losses by reference to capital allowances and renewals allowances) has effect as if— (a) the election mentioned in subsection (2)(a) above had not had effect at the time the relevant expenditure was incurred, and (b) the reference in subsection (7) to qualifying expenditure included a reference to expenditure which, if that election had not had effect at that time, would have been qualifying expenditure. (6) Section 45 (exemption for certain wasting assets) and section 47 (wasting assets qualifying for capital allowances) have effect as if the election mentioned in subsection (2)(a) above had not had effect at the time the relevant expenditure was incurred. Accordingly, any reference in those sections to expenditure qualifying for capital allowances is to be read as a reference to expenditure that would, in the absence of the election, have qualified for such allowances. CAA 2001 46 In section 1 of CAA 2001 (capital allowances), after subsection (3) insert— (4) But a person is not entitled to any allowance or liable to any charge under this Act in calculating the profits of a trade, profession or vocation of the person in relation to which an election under section 25A of ITTOIA 2005 (cash basis for small businesses) has effect, other than an allowance in respect of expenditure incurred on the provision of a car (or a charge in connection with such an allowance). (5) In subsection (4) “car” has the same meaning as in Part 2 (see section 268A). 47 In section 59 of CAA 2001 (unrelieved qualifying expenditure), after subsection (3) insert— (4) If a person carrying on a trade, profession or vocation enters the cash basis for a tax year, no amount may be carried forward as unrelieved qualifying expenditure from the chargeable period ending with the basis period for the previous tax year. (5) But subsection (4) does not apply to unrelieved qualifying expenditure incurred on the provision of a car. (6) Where a person has unrelieved qualifying expenditure to carry forward from a chargeable period that is not expenditure allocated to a single asset pool, the amount of unrelieved qualifying expenditure incurred on the provision of a car is to be determined on such basis as is just and reasonable in all the circumstances. (7) Section 240B of ITTOIA 2005 (meaning of “entering the cash basis”) applies for the purposes of this section as it applies for the purposes of Chapter 17A of Part 2 of that Act. 48 In Chapter 5 of Part 2 of CAA 2001 (plant and machinery allowances and charges), after section 66 insert— Application of Chapter to person leaving cash basis Persons leaving cash basis 66A (1) This section applies if— (a) a person carrying on a trade, profession or vocation leaves the cash basis in a chargeable period, and (b) the person has at any time incurred expenditure which, if an election under section 25A of ITTOIA 2005 (cash basis for small businesses) had not had effect at that time, would have been qualifying expenditure. (2) In this section— (a) the “relieved portion” of the expenditure is the amount of that expenditure for which— (i) a deduction was allowed in calculating the profits of the trade, profession or vocation, or (ii) a deduction would have been so allowed if the expenditure had been incurred wholly and exclusively for the purposes of the trade, profession or vocation; (b) the “unrelieved portion” of the expenditure is any remaining amount of the expenditure. (3) For the purposes of determining any entitlement of the person to an annual investment allowance or a first-year allowance, the person is to be treated as incurring the unrelieved portion of the expenditure in the chargeable period. (4) For the purposes of determining the person's available qualifying expenditure in a pool for the chargeable period (see section 58)— (a) the whole of the expenditure must be allocated to the appropriate pool (or pools) in that chargeable period, and (b) the available qualifying expenditure in a pool to which the expenditure (or some of it) is allocated is reduced by the relieved portion of that expenditure. (5) For the purposes of determining any disposal receipts (see section 60), the expenditure incurred by the person is to be regarded as qualifying expenditure. (6) For the purposes of this section a person carrying on a trade, profession or vocation leaves the cash basis in a chargeable period if— (a) immediately before the beginning of the chargeable period an election under section 25A had effect in relation to the trade, profession or vocation, and (b) such an election does not have effect in relation to the trade, profession or vocation for the chargeable period. ITTOIA 2005 49 In section 31 of ITTOIA 2005 (relationship between rules prohibiting and allowing deductions), in subsection (2), omit the “or” at the end of paragraph (b) and after paragraph (c) insert or (d) Chapter 17A, . 50 In section 56 of ITTOIA 2005 (rules allowing deductions: professions and vocations), after “marks)” insert “ and section 97A (cash basis: value of trading stock on cessation of trade) ”. 51 Omit section 160 of ITTOIA 2005 (cash basis of calculation for barristers and advocates in early years of practice). 52 (1) Chapter 17 of Part 2 of ITTOIA 2005 (adjustment income) is amended as follows. (2) In section 229(2)(a), for “sections 237 to 239” substitute “ sections 237 to 239B ”. (3) Omit sections 238 and 239 (spreading of adjustment income: barristers and advocates). 53 In Part 2 of Schedule 4 to ITTOIA 2005 (index of defined expressions), at the appropriate place insert— the cash basis (in Part 2) | section 25A”; “entering the cash basis (in Chapter 17A of Part 2) | section 240B . ITA 2007 54 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 (1) Chapter 1 of Part 8 of ITA 2007 (relief for interest payments) is amended as follows. (2) In section 383(5), after paragraph (a) insert— (aa) section 384B (restriction on relief where cash basis applies), . (3) After section 384A insert— Restriction on relief where cash basis applies 384B (1) Relief is not to be given under this Chapter for a tax year for interest paid by a person on a relevant loan if the partnership to which the loan relates has made an election under section 25A of ITTOIA 2005 (cash basis for small businesses) for the tax year. (2) A loan is a “relevant loan” if— (a) it is a loan to which section 388 applies (loan to buy plant or machinery for partnership use), or (b) it is a loan to which section 398 applies (loan to invest in partnership) and which is not used for purchasing a share in a partnership. PART 3 Commencement and transitional provision 56 Subject to paragraph 57, the amendments made by this Schedule have effect for the tax year 2013-14 and subsequent tax years. 57 (1) In a case where— (a) the profits of a barrister or advocate in independent practice for a period of account ending in the tax year 2012-13 have been calculated in accordance with section 160 of ITTOIA 2005 (barristers and advocates: alternative basis of calculation in early years of practice), and (b) if that section had not been repealed by this Schedule, the profits of the barrister or advocate for any subsequent period of account could have been calculated in accordance with that section, the profits of the barrister or advocate for that subsequent period of account may be calculated in accordance with that section. (2) The repeal of sections 238 and 239 of ITTOIA 2005 (spreading of adjustment income: barristers and advocates) does not have effect in relation to any individual whose profits for a period of account ending in or before the tax year 2012-13 have been calculated in accordance with section 160 of ITTOIA 2005.

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SCHEDULE 5 Deductions allowable at a fixed rate

Section 18 1 Part 2 of ITTOIA 2005 (trading income) is amended as follows. 2 After Chapter 5 insert— CHAPTER 5A Trade profits: deductions allowable at a fixed rate Introduction Professions and vocations 94B The provisions of this Chapter apply to professions and vocations as they apply to trades. Provisions not applicable to certain firms 94C The provisions of this Chapter do not apply in calculating the profits of a trade carried on by a firm for a period if one or more of the persons who have been partners in the firm at any time during the period was not an individual at that time. Expenditure on vehicles Expenditure on vehicles 94D (1) This section applies if, in calculating the profits of a trade of a person for a period— (a) a deduction would otherwise be allowable for the period in respect of qualifying expenditure incurred in relation to a relevant vehicle (see subsection (2)), or (b) a deduction would be so allowable in respect of such expenditure but for the fact it is capital expenditure. (2) In this section “relevant vehicle” means a car, motor cycle or goods vehicle that— (a) is used for the purposes of the trade, and (b) is not an excluded vehicle (see section 94E). (3) The person may make a deduction under this section for the period in respect of the qualifying expenditure. (4) If a deduction for a period is made under this section— (a) no other deduction is allowed (for that or any other period) in respect of the qualifying expenditure, and (b) this section applies in relation to the relevant vehicle for every subsequent period for which the vehicle is used for the purposes of the trade. (5) The amount of the deduction is the appropriate mileage amount in relation to the relevant vehicle for the period (see section 94F). (6) In this section “qualifying expenditure”, in relation to a vehicle, means any expenditure incurred in respect of the acquisition, ownership, hire, leasing or use of the vehicle, other than incidental expenses incurred in connection with a particular journey. (7) For provision preventing capital allowances from being claimed in respect of qualifying expenditure incurred in relation to a relevant vehicle, see section 38ZA of CAA 2001. Excluded vehicles 94E (1) A car, motor cycle or goods vehicle that is used for the purposes of a trade is an “excluded vehicle” for the purposes of section 94D if condition A or B is met in relation to the vehicle. (2) Condition A is that the person who is or has been carrying on the trade has at any time claimed any capital allowances under Part 2 of CAA 2001 in respect of any expenditure incurred on the provision of the vehicle. (3) Condition B is that— (a) the vehicle is a goods vehicle or a motor cycle, and (b) any of the expenditure incurred on acquiring the vehicle has been deducted in calculating the profits of the trade for a period on the cash basis (see section 25A). The appropriate mileage amount 94F (1) In calculating the profits of a trade for a period, the appropriate mileage amount in relation to a relevant vehicle for the period is— M × R where— M is the number of miles of business journeys made by a person (other than as a passenger) using that vehicle in the period, and R is the rate applicable to that kind of vehicle. (2) The rates applicable are as follows— Table Kind of vehicle | Rate per mile Car or goods vehicle | 45p for the first 10,000 miles 25p after that Motor cycle | 24p (3) In a case where the total number of miles of relevant business journeys made in the period is greater than 10,000, the rate of 45p per mile is available only in relation to 10,000 of those miles. (4) “Relevant business journey” means any business journey made in the period by a car or goods vehicle— (a) that is used for the purposes of the trade, and (b) in relation to which section 94D applies for the period. (5) In this section— “business journey”, in relation to a vehicle used for the purposes of a trade, means any journey, or any identifiable part or proportion of a journey, that is made wholly and exclusively for the purposes of the trade, and “relevant vehicle” has the same meaning as in section 94D. (6) The Treasury may by regulations amend subsection (2) so as to alter the rates or rate bands. Regulations under this subsection may also make consequential amendments to subsection (3). Definitions of types of vehicle 94G (1) This section applies for the purposes of sections 94D to 94F (and this section). (2) “Car” means a mechanically propelled road vehicle which is not— (a) a goods vehicle, (b) a motor cycle, (c) an invalid carriage, or (d) a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used. (3) “Goods vehicle” means a mechanically propelled road vehicle which— (a) is of a construction primarily suited for the conveyance of goods or burden of any description, and (b) is not a motor cycle. (4) “Motor cycle” has the meaning given by section 185(1) of the Road Traffic Act 1988. (5) For the purposes of this section “invalid carriage” has the meaning given by section 185(1) of the Road Traffic Act 1988. Use of home for business purposes Use of home for business purposes 94H (1) This section applies if, in calculating the profits of a trade of a person for a period, a deduction (“the standard deduction”) would otherwise be allowable for the period in respect of the use of the person's home for the purposes of the trade. (2) The person may, instead of making the standard deduction, make a deduction for the period under this section. (3) The amount of the deduction allowable for the period is the sum of the applicable amounts for each month, or part of a month, falling within the period. (4) The applicable amount for a month, or part of a month, is given by the following Table— Table Number of hours worked | Applicable amount 25 or more | £10.00 51 or more | £18.00 101 or more | £26.00 where the “number of hours worked” in a month (or part of a month) is the number of hours spent wholly and exclusively on work done by the person, or any employee of the person, in the person's home wholly and exclusively for the purposes of the trade. (5) If the person has more than one home, this section has effect as if those homes were a single home. (6) The Treasury may by regulations amend subsection (4) so as to alter the rates or rate bands. Premises used both as home and business premises Premises used both as a home and as business premises 94I (1) This section applies if— (a) a person carries on a trade at any premises, (b) the premises are used mainly for the purposes of carrying on the trade, but are also used by the person as a home, (c) the person incurs expenses in relation to the premises, (d) the expenses are incurred mainly (but not wholly and exclusively) for the purposes of the trade, and (e) in calculating the profits of the trade for a period, a deduction (“the standard deduction”) would otherwise be allowable for the period in respect of a part or proportion of the expenses in accordance with section 34(2). (2) The person may, instead of making the standard deduction, make a deduction for the period under this section. (3) The amount of the deduction allowable for the period is the amount of the expenses less the non-business use amount. (4) The non-business use amount is the sum of the applicable amounts for each month, or part of a month, falling within the period. (5) The applicable amount for a month, or part of a month, is given by the following Table— Table Number of relevant occupants | Applicable amount 1 | £350 2 | £500 3 or more | £650 (6) For the purposes of subsection (5) “relevant occupant”, in relation to a month (or part of a month), means an individual who, at any time during that month (or that part of a month)— (a) occupies the premises as a home, or (b) stays at the premises otherwise than in the course of the trade. (7) The Treasury may by regulations amend subsection (5) so as to alter the rates or rate bands. 3 In section 31 (relationship between rules prohibiting and allowing deductions), in subsection (2), after paragraph (a) insert— (aa) Chapter 5A, . 4 In Chapter 18 (post-cessation receipts), in section 254 (allowable deductions), after subsection (2A) (inserted by paragraph 39 of Schedule 4) insert— (2B) If— (a) the loss or expense is incurred, or the debit arises, in relation to a vehicle, and (b) immediately before the person permanently ceases to carry on the trade, section 94D (deduction allowable at fixed rate for expenditure on vehicles) applies in relation to the vehicle, assume for the purposes of subsection (2) that that section applies in relation to the vehicle. 5 (1) Part 2 of CAA 2001 (plant and machinery allowances) is amended as follows. (2) In Chapter 3 (qualifying expenditure), after section 38 insert— Vehicles for which deductions allowed at fixed rate under Part 2 of ITTOIA 2005 38ZA Expenditure is not qualifying expenditure if— (a) it is incurred in respect of a vehicle in a period, and (b) a deduction is made for the period in respect of the expenditure under section 94D of ITTOIA 2005 (deduction allowable at fixed rate for expenditure on vehicles). (3) In Chapter 5 (allowances and charges), in section 59 (unrelieved qualifying expenditure), at the end insert— (8) Subsection (9) applies if— (a) a person carrying on a trade, profession or vocation incurs expenditure in relation to a vehicle, (b) at the end of the basis period for a tax year, the person has unrelieved qualifying expenditure incurred in relation to the vehicle to carry forward from the chargeable period ending with that basis period (“the relevant chargeable period”), (c) in calculating the profits of a trade, profession or vocation of a person for the following tax year, a deduction is made under section 94D of ITTOIA 2005 in respect of expenditure incurred in relation to the vehicle, and (d) the person does not enter the cash basis for that tax year. (9) None of the unrelieved qualifying expenditure incurred in relation to the vehicle may be carried forward as unrelieved qualifying expenditure from the relevant chargeable period. (10) Where a person has unrelieved qualifying expenditure to carry forward from a chargeable period that is not expenditure allocated to a single asset pool, the amount of the unrelieved qualifying expenditure incurred in relation to the vehicle is to be determined on such basis as is just and reasonable in all the circumstances. 6 The amendments made by this Schedule have effect for the tax year 2013-14 and subsequent tax years.

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SCHEDULE 6 Employment income: duties performed in the UK and overseas

Section 19 PART 1 Apportionment of earnings 1 Part 2 of ITEPA 2003 (employment income: charge to tax) is amended as follows. 2 In section 15 (earnings for year when employee UK resident), as amended by Schedule 45 to this Act, in subsection (5)— (a) after paragraph (a) omit “and”, and (b) after paragraph (b) insert , and (c) section 41ZA (which is about determining the extent to which general earnings are in respect of United Kingdom duties). 3 In Chapter 5 (taxable earnings: remittance basis rules and rules for non-UK resident employees), after section 41 insert— Apportionment of earnings Basis of apportionment 41ZA The extent to which general earnings are in respect of duties performed in the United Kingdom is to be determined under this Chapter on a just and reasonable basis. PART 2 Remittance basis of taxation: special mixed fund rules 4 Chapter A1 of Part 14 of ITA 2007 (remittance basis) is amended as follows. 5 In section 809Q (sections 809L and 809P: transfers from mixed funds), after subsection (1) insert— (1A) But this section must be read subject to section 809RA. 6 After section 809R insert— Special mixed fund rules for certain employment cases 809RA (1) This section applies if— (a) an individual has general earnings from an employment for a tax year, (b) those earnings include both general earnings within section 15(1) of ITEPA 2003 (“section 15(1) earnings”) and general earnings within section 26(1) of that Act (“section 26(1) earnings”), (c) at least some of the section 15(1) earnings, or sums deriving (wholly or in part, and directly or indirectly) from at least some of the section 15(1) earnings, are paid into an account in that tax year at a time (a “relevant time”) when the account is a qualifying account of the individual, and (d) at least some of the section 26(1) earnings, or sums deriving (wholly or in part, and directly or indirectly) from at least some of the section 26(1) earnings, are also paid into the account in that tax year at a relevant time. (2) If this section applies, the composition of each transfer made from the account in that tax year at a relevant time is to be determined as follows— Step 1 Suppose that all the condition A transfers made from the account in the tax year at a relevant time had been a single transfer made from the account at the end of the tax year. Step 2 Suppose that all the other transfers made from the account in the tax year at a relevant time had been a single offshore transfer made at the end of the tax year immediately after the single transfer mentioned in step 1. Step 3 Applying those suppositions— find under section 809Q(3) the extent to which the single transfer mentioned in step 1 is of the individual's income or chargeable gains, and find under section 809R(4) the content of the single offshore transfer mentioned in step 2. Step 4 Each transfer made from the account in the tax year at a relevant time is to be treated as containing the specified proportion of each kind of income or capital contained in the relevant deemed transfer.“The specified proportion” is the amount of the transfer divided by the amount of the relevant deemed transfer.“The relevant deemed transfer” is— if the transfer is a condition A transfer, the single transfer mentioned in step 1, and otherwise, the single offshore transfer mentioned in step 2. (3) Subsection (2) applies in determining the composition of a transfer for the purposes of sections 809Q and 809R but it does not otherwise affect the date on which a transfer is considered to occur for the purposes of this Chapter. (4) If the tax year is the tax year in which the account becomes a qualifying account, for the purpose of applying section 809Q(3) in relation to the single transfer mentioned in step 1 of subsection (2), treat the part of the tax year falling before the qualifying date for the account as a separate tax year. (5) If the account ceases to be a qualifying account of the individual during the tax year other than as a result of a breach of the deposit rule— (a) subsection (2) has effect as if references to the end of the tax year were to the end of the day on which the account ceases to be a qualifying account, and (b) for the purpose of applying section 809Q(3) in relation to the single transfer mentioned in step 1 of subsection (2), treat the part of the tax year falling after the day mentioned in paragraph (a) as a separate tax year. (6) A transfer from the account is a “condition A transfer” if and to the extent that— (a) condition A in section 809L is met, and (b) either— (i) the property or consideration for the service is (wholly or in part), or derives (wholly or in part, and directly or indirectly) from, the transfer, or (ii) the transfer, or anything deriving (wholly or in part, and directly or indirectly) from the transfer, is used as mentioned in section 809L(3)(c). (7) A transfer from the account is an “other transfer” if and to the extent that it is not a condition A transfer. (8) Treat a transfer as an “other transfer” if and to the extent that, at the end of the tax year— (a) it is not a condition A transfer, and (b) on the basis of the best estimate that can reasonably be made at that time, it will not become a condition A transfer. (9) If the account ceases to be a qualifying account of the individual during the tax year other than as a result of a breach of the deposit rule, subsection (8) has effect as if the reference to the end of the tax year were to the end of the day on which the account ceases to be a qualifying account. (10) “Qualifying account” and “the qualifying date” for an account are defined in section 809RB. (11) For the purposes of this section and sections 809RB to 809RD— (a) “employment” is to be read in accordance with section 4(1) of ITEPA 2003, and includes an office (as read in accordance with section 5(3) of that Act), (b) whether general earnings are “for” a tax year is to be determined as for the purposes of the employment income Parts of ITEPA 2003 (see section 3(2) of that Act), (c) a reference to anything “paid into” an account includes anything credited to the account by whatever means, and (d) references to a breach of the deposit rule are to be read in accordance with section 809RC. Qualifying accounts 809RB (1) An individual may by notice to the Commissioners nominate an account to be a qualifying account of the individual for the purposes of section 809RA. (2) The notice must specify the qualifying date for the account. (3) “The qualifying date” for the account is the first date on which there is paid into the account sums falling within subsection (4) which (in total) are more than £10. (4) A sum falls within this subsection if it is, or derives wholly (whether directly or indirectly) from, general earnings of the individual from an employment for a tax year which is a relevant tax year in relation to the employment. (5) A tax year is a “relevant” tax year in relation to an employment if the general earnings which the individual has for the tax year from the employment include both general earnings within section 15(1) of ITEPA 2003 and general earnings within section 26(1) of that Act. (6) The individual may withdraw the nomination by giving a further notice to the Commissioners, specifying the date with effect from which the nomination is withdrawn. (7) A notice under subsection (1) or (6) must be in writing and include such information as the Commissioners may reasonably require. (8) A notice under subsection (1) or (6) must be given no later than— (a) 31 January in the tax year following the tax year in which falls, as the case may be— (i) the qualifying date for the account, or (ii) the date with effect from which the nomination is withdrawn, or (b) such later date as the Commissioners may allow. (9) If an individual nominates an account under this section, the account is a “qualifying account” of the individual throughout the period— (a) beginning with the qualifying date, and (b) ending with the date before the earliest of the following dates— (i) the date on which the account is closed or ceases to be an ordinary bank account held by and for the benefit of the individual (alone or jointly with others); (ii) the date with effect from which the nomination is withdrawn under this section; (iii) the qualifying date for another qualifying account of the individual; (iv) 6 April in a tax year in which there is a breach of the deposit rule which is not remedied or cannot be remedied; (v) 6 April in a tax year for which the individual has no general earnings within section 26(1) of ITEPA 2003. (10) The account is not to be a qualifying account at all if— (a) at any time on the qualifying date, the account is not an ordinary bank account held by and for the benefit of the individual (alone or jointly with others), or (b) immediately before the qualifying date, the account has a credit balance of more than £10. (11) The account is not to be a qualifying account at all if the qualifying date falls in a tax year— (a) for which the individual has no general earnings within section 26(1) of ITEPA 2003, or (b) in which there is a breach of the deposit rule which is not remedied or cannot be remedied. (12) Subsection (9)(b)(iv) or (11)(b) (as relevant) is to be ignored if the breach occurs on or after a date falling within subsection (9)(b)(i) to (iii). (13) If, apart from this subsection, an individual might have nominated two or more accounts for which the qualifying date would be the same, the individual may nominate only one of those accounts. (14) If, apart from this subsection, an account would be a qualifying account of two or more individuals at any time, it is not to be a qualifying account of either or any of them at that time or any other time. (15) For the purposes of this section an account is an “ordinary bank account” if it is a cash account in a bank (whether a current or savings account) where sums standing to the credit of the account from time to time represent a debt owed by the bank to the account-holder. Breaches of the deposit rule 809RC (1) There is a breach of the deposit rule if a prohibited sum is paid into the account on or after the qualifying date. (2) A breach of the deposit rule is remedied if, within 30 days beginning with the day on which the individual became or ought reasonably to have become aware of the payment of the prohibited sum, the required amount is transferred out of the account by way of a single one-off transfer. (3) “The required amount” is an amount equal to— (a) the prohibited sum, plus (b) all the other prohibited sums (if any) that have been paid into the account since that sum was paid in. (4) If there are 3 breaches of the deposit rule in any 12 month period, subsection (2) does not apply to the third breach and, accordingly, the third breach cannot be remedied. (5) The payment of a prohibited sum (“the later prohibited sum”) into the account does not result in a breach of the deposit rule if— (a) a breach resulting from an earlier payment of a prohibited sum into the account is remedied, and (b) the later prohibited sum is represented by the required amount in relation to that breach. (6) A “prohibited sum” is anything other than a sum that is, or derives wholly (whether directly or indirectly) from, any of the following kinds of income or capital— (a) general earnings of the individual from an employment for a tax year which is a relevant tax year in relation to the employment, (b) general earnings of the individual from an employment which consist of money and are paid in a tax year which is a relevant tax year in relation to the employment, (c) an amount of specific employment income which, by virtue of Part 6, 7 or 7A of ITEPA 2003 or any other enactment, counts as employment income of the individual in respect of an employment for a tax year which is a relevant tax year in relation to the employment, (d) interest on the account, or (e) consideration for the disposal of employment-related securities or employment-related securities options in the circumstances described in subsection (7). (7) The circumstances are— (a) the securities or options were acquired pursuant to a right or opportunity available by reason of an employment of the individual, (b) the disposal is or occurs in conjunction with, or as soon as reasonably practicable after, a relevant event involving those securities or options, and (c) the tax year in which the relevant event occurs is a relevant tax year in relation to the employment. (8) For the purposes of subsection (7) each of the following is a “relevant event”— (a) the acquisition mentioned in subsection (7)(a), and (b) any event on the occurrence of which an amount (if positive) counts as employment income by virtue of Part 7 of ITEPA 2003 or would do so but for— (i) section 421E or 474 of that Act (exclusions: residence etc), or (ii) an election under section 430 or 431 of that Act. (9) For the purposes of this section a tax year is a “relevant” tax year in relation to an employment if— (a) the individual has general earnings from the employment for the tax year, (b) those earnings include both general earnings within section 15(1) of ITEPA 2003 (“section 15(1) earnings”) and general earnings within section 26(1) of that Act (“section 26(1) earnings”), (c) at least some of the section 15(1) earnings, or sums deriving (wholly or in part, and directly or indirectly) from at least some of the section 15(1) earnings, are paid into the account in the tax year, and (d) at least some of the section 26(1) earnings, or sums deriving (wholly or in part, and directly or indirectly) from at least some of the section 26(1) earnings, are also paid into the account in the tax year. (10) For the purposes of this section— (a) “employment-related securities” has the meaning given in section 421B(8) of ITEPA 2003, and (b) “employment-related securities options” has the meaning given in section 471(5) of that Act. Effect where 30-day deadline is met 809RD (1) This section applies if the required amount in relation to a breach of the deposit rule was transferred out of the account in accordance with section 809RC(2). (2) Sections 809Q and 809R have effect as if— (a) the intervening transactions had never taken place, and (b) each prohibited sum represented by the required amount had instead been transferred directly (at the time that sum was paid into the qualifying account) into the account or other property into which the required amount was transferred by virtue of the single one-off transfer. (3) Each of the following is an “intervening transaction”— (a) each payment into the qualifying account of a prohibited sum represented by the required amount, and (b) the single one-off transfer out of the qualifying account. (4) If it is supposed under step 1 or 2 of section 809RA(2) that a single transfer had been made in the intervening period, re-apply section 809Q or 809R in relation to that transfer taking account of subsection (2). (5) “The intervening period” is the period— (a) beginning with the day on which the breach occurred, and (b) ending with the day on which the single one-off transfer was made in accordance with section 809RC(2). (6) If more than one transfer of a sum equal to the required amount was transferred out of the qualifying account within the 30-day grace period, the first of those transfers is assumed to be the single one-off transfer. (7) “The 30-day grace period” is the period of 30 days mentioned in section 809RC(2). PART 3 Commencement 7 The amendments made by Part 1 of this Schedule have effect in relation to earnings for the tax year 2013-14 and subsequent tax years. 8 The amendments made by Part 2 of this Schedule have effect in relation to transfers from a mixed fund that are made in the tax year 2013-14 or any subsequent tax year.

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SCHEDULE 7 Remittance basis: exempt property

Section 20 1 Chapter A1 of Part 14 of ITA 2007 (remittance basis) is amended as follows. 2 In section 809X(3) (exempt property: public access rule), for “sections 809Z and 809Z1)” substitute “ section 809Z) ”. 3 (1) Section 809Y (property that ceases to be exempt property treated as remitted) is amended as follows. (2) In subsection (2), for “either” substitute “ any ”. (3) After subsection (4) insert— (4A) Where exempt property has been lost, stolen or destroyed, the first and second cases do not apply in relation to the property during any period— (a) beginning with the time at which it was lost, stolen or destroyed, and (b) (if lost or stolen) ending with the time at which it is recovered. (4B) The third case is where a compensation payment is released in respect of exempt property that has been lost, stolen or destroyed. (4) In subsection (6), after “exempt property” insert “ by virtue of the first or second case ”. 4 After section 809YE insert— Exception to section 809Y: compensation taken offshore or invested 809YF (1) Section 809Y(1) does not apply to property if— (a) it ceases to be exempt property because a compensation payment in respect of it is released, and (b) conditions A and B are met. (2) Condition A is that the whole of the compensation payment is taken offshore or used by a relevant person to make a qualifying investment within the period of 45 days beginning with the day on which the payment is released. (3) Condition B is that, if Condition A is satisfied wholly or in part by using the compensation payment to make a qualifying investment, the remittance basis user makes a claim for relief under subsection (4) on or before the first anniversary of the 31 January following the tax year in which the payment is released. (4) If section 809Y(1) does not apply to property by virtue of subsection (1), the income and gains treated under section 809X as not remitted to the United Kingdom continue to be treated after the compensation payment is released as not remitted to the United Kingdom even though the property has ceased to be exempt property. (5) But nothing in subsection (4) prevents anything done in relation to any part of the compensation payment after that payment is taken offshore (or used to make a qualifying investment) from counting as a remittance of the underlying income or gains to the United Kingdom at the time when the thing is done. (6) Treat the compensation payment as containing or deriving from an amount of each kind of income and gain mentioned in section 809Q(4)(a) to (h) equal to the amount of that kind of income or gain contained in the exempt property when it was brought to, or received or used in, the United Kingdom (as mentioned in section 809X). (7) Where Condition A was met by using the compensation payment to make a qualifying investment— (a) the business investment provisions apply to the income and gains that continue, by virtue of subsection (4), to be treated as not remitted as they apply to income or gains that are treated under section 809VA(2) as not remitted, and (b) if the investment was made using more than just the compensation payment, treat only the part of the investment made using the payment as “the investment” for the purposes of those provisions. 5 (1) Section 809Z (public access rule: general) is amended as follows. (2) In subsection (1), for “A to D” substitute “ B and C ”. (3) Omit subsection (2). (4) After subsection (8) insert— (8A) But if the property is lost or stolen— (a) the relevant period ends with the time at which it is lost or stolen, and (b) a new relevant period begins with its importation or the time at which it is recovered. (5) Omit subsection (10). 6 Omit section 809Z1 (public access rule: relevant VAT relief). 7 (1) Section 809Z4 (temporary importation rule) is amended as follows. (2) In subsection (1), after “days” insert “ (subject to any increase under subsection (3B)) ”. (3) In subsection (3)— (a) before paragraph (a) insert— (za) the property meets the public access rule, , (b) after paragraph (b) insert— (ba) subsection (3A) applies to the property, , and (c) in paragraph (d) for “or 809YC(2)” substitute “ , 809YC(2) or 809YF(4) ”. (4) After that subsection insert— (3A) This subsection applies to the property if— (a) it is not available to be used or enjoyed in the United Kingdom by or for the benefit of a relevant person because it has been lost, stolen or destroyed, (b) (if lost or stolen) it has not been recovered, and (c) no compensation payment has been released in respect of it. (3B) If— (a) property that has been lost or stolen is recovered, (b) the first day after the day on which it is recovered is a countable day, and (c) excluding that countable day there have already been 231 or more countable days in relation to the property, the number of countable days specified in subsection (1) is read as being increased by the number necessary for there to be 45 countable days beginning with the countable day mentioned in paragraph (b). (5) Omit subsections (4) to (10). 8 In section 809Z6 (exempt property: other interpretation), after subsection (4) insert— (5) References to property being lost, stolen or destroyed are to the property being lost, stolen or destroyed whilst in the United Kingdom. (6) “Compensation payment”, in relation to property that has been lost, stolen or destroyed, means any payment of compensation (whether under an insurance policy or otherwise) in respect of the property. (7) A compensation payment is “released” on the day on which it first becomes available for use in the United Kingdom by or for the benefit of any relevant person. (8) Property that has been lost or stolen is “recovered” on the day on which it becomes available to be used or enjoyed in the United Kingdom by or for the benefit of a relevant person. 9 The amendments made by paragraphs 3, 4, 5(4), 7(2), (3)(b) and (c) and (4) and 8 have effect in relation to property that is lost, stolen or destroyed on or after 6 April 2013. 10 The other amendments made by this Schedule have effect— (a) in relation to property that is not in the United Kingdom on 6 April 2013, as from that date, and (b) in relation to property that is in the United Kingdom on that date, as from the time when it ceases to be in the United Kingdom or is lost or stolen. 11 In the case of property that falls within paragraph 10(b) by virtue of being lost or stolen, any period that is a period of importation in relation to the property for the purposes of section 809Z4 of ITA 2007 ends with the time at which it is lost or stolen.

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SCHEDULE 8 Gains from contracts for life insurance etc

Section 24 1 Chapter 9 of Part 4 of ITTOIA 2005 (gains from contracts for life insurance etc) is amended as follows. 2 In section 476 (special rules: foreign policies) in subsection (2)— (a) after the entry relating to section 474(3) to (5) insert “ and ”, (b) omit the entry relating to section 528, (c) omit the “and” after the entry relating to sections 531 to 534, and (d) omit the entry relating to section 536(6). 3 For section 528 substitute— Reduction in amount charged on basis of non-UK residence where individual liable for tax 528 (1) Subsection (2) applies if— (a) an individual is liable for tax charged on a gain from a policy of life insurance or a capital redemption policy, and (b) there are one or more days in the material interest period on which the individual is not UK resident. (2) In determining the individual's liability for tax, the gain on which the tax is charged in the case of the individual is to be reduced by the appropriate fraction. (3) The appropriate fraction is— A B where— A is the number of days in the material interest period which are days falling within subsection (1)(b), and B is the number of days in the material interest period. (4) In subsection (2) the reference to the gain is to be read in accordance with section 463A(4), 463D(4) or 463E(3) (which relates to restricted relief qualifying policies etc) if applicable. (5) In this section “the material interest period” means so much of the policy period as during which the individual meets condition A, B or C in section 465 in relation to the policy (subject to subsection (7)). (6) Subsections (7) and (8) apply if, before the chargeable event, there is an assignment falling within section 487(c) in relation to the policy where the individual is the assignee. (7) There is to be added to the material interest period any part of the policy period falling before the assignment— (a) during which the assignor meets condition A, B or C in section 465 in relation to the policy, and (b) which is not included in the material interest period under subsection (5). (8) In relation to any period added to the material interest period under subsection (7), in subsection (1)(b) the reference to the individual is to be read as a reference to the assignor. (9) For the purposes of subsections (5) and (7), in section 465(2) to (4) references to the rights under the policy are to be read as including references to a share of those rights. (10) In this section “the policy period” means the period for which the policy has run before the chargeable event occurs. (11) If the policy is a policy of life insurance which is a new policy in relation to another policy, for the purposes of subsection (10) the new policy is to be taken to have run— (a) from the issue of the other policy, or (b) if it also was a new policy in relation to an earlier policy, from the issue of the earlier policy, and so on; and in subsections (5) to (9) references to the policy are to be read accordingly as including any relevant earlier policy. (12) In subsection (11) “new policy” has the meaning given in paragraph 17 of Schedule 15 to ICTA. Reduction in amount charged on basis of non-UK residence of deceased person 528A (1) Subsection (3) applies if— (a) personal representatives are liable for tax charged on a gain from a policy of life insurance or a capital redemption policy under section 466, and (b) there were one or more days in the material interest period on which the deceased was not UK resident. (2) Subsection (3) also applies if— (a) trustees are liable for tax charged on a gain from a policy of life insurance or a capital redemption policy under section 467 where— (i) of conditions A to D in that section, only condition B is met, and (ii) the absent settlor condition which is met is the one in subsection (4)(b) of that section (deceased settlor), (b) there were one or more days in the material interest period on which the deceased was not UK resident, and (c) the deceased was UK resident when the deceased died. (3) In determining the liability for tax of the personal representatives or trustees, the gain on which the tax is charged in the case of the personal representatives or trustees is to be reduced by the appropriate fraction. (4) The appropriate fraction is— A B where— A is the number of days in the material interest period which are days falling within subsection (1)(b) or (2)(b) (as the case may be), and B is the number of days in the material interest period. (5) In subsection (3) the reference to the gain is to be read in accordance with section 463C(8) (which relates to restricted relief qualifying policies) if applicable. (6) In this section “the material interest period” means so much of the policy period falling before the deceased's death as during which the deceased met condition A, B or C in section 465 in relation to the policy (subject to subsection (8)). (7) Subsections (8) and (9) apply if, before the deceased's death, there was an assignment falling within section 487(c) in relation to the policy where the deceased was the assignee. (8) There is to be added to the material interest period any part of the policy period falling before the assignment— (a) during which the assignor met condition A, B or C in section 465 in relation to the policy, and (b) which is not included in the material interest period under subsection (6). (9) In relation to any period added to the material interest period under subsection (8), in subsection (1)(b) or (2)(b) the reference to the deceased is to be read as a reference to the assignor. (10) For the purposes of subsections (6) and (8), in section 465(2) to (4) references to the rights under the policy are to be read as including references to a share of those rights. (11) In this section “the policy period” means the period for which the policy has run before the chargeable event occurs. (12) If the policy is a policy of life insurance which is a new policy in relation to another policy, for the purposes of subsection (11) the new policy is to be taken to have run— (a) from the issue of the other policy, or (b) if it also was a new policy in relation to an earlier policy, from the issue of the earlier policy, and so on; and in subsections (6) to (10) references to the policy are to be read accordingly as including any relevant earlier policy. (13) In subsection (12) “new policy” has the meaning given in paragraph 17 of Schedule 15 to ICTA. 4 Omit section 529 (exceptions to section 528). 5 (1) Section 536 (top slicing relieved liability: one chargeable event) is amended as follows. (2) In subsection (6) for the words from “from” to the end substitute “ reduced under section 528 in the case of the individual. ” (3) For subsection (7) substitute— (7) If in the case of the individual the gain is reduced under section 528, for steps 1 and 3 in subsection (1) N is reduced by the number of complete years consisting wholly of days falling within section 528(1)(b) (including days falling within section 528(1)(b) by virtue of section 528(8)). 6 In section 552 of ICTA (information: duty of insurers) after subsection (13) insert— (14) For the purposes of this section no account is to be taken of the effect of sections 528 and 528A of ITTOIA 2005. 7 (1) The amendments made by this Schedule have effect in relation to— (a) any policy of life insurance issued in respect of an insurance made on or after 6 April 2013, or (b) any contract constituting a capital redemption policy made on or after that date. (2) The amendment made by paragraph 3 above has effect in relation to any insurance or contract made before 6 April 2013 if on or after that date— (a) the policy or contract is varied with the result that there is an increase in the benefits secured, (b) there is or was an assignment (or assignation) of rights, or a share of the rights, conferred by the policy or contract (whether or not for money's worth) to the individual or deceased, or (c) some or all of the rights conferred by the policy or contract become or became held as a security for a debt of the individual or deceased, and the other amendments made by this Schedule have effect in relation to the insurance or contract accordingly. (3) For the purposes of sub-paragraph (2)(a) an exercise of rights conferred by a policy or contract is to count as a variation of the policy or contract. (4) In the case of a policy or contract treated under section 473A of ITTOIA 2005 as a single policy or contract, for the purposes of sub-paragraphs (1) and (2) the date on which the insurance or contract is made is the date on which, as the case may be— (a) the first insurance is made in respect of which the connected policies are issued, or (b) the first of the connected contracts is made.

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SCHEDULE 9 Qualifying insurance policies

Section 25 PART 1 Amendments of Schedule 15 to ICTA etc 1 Schedule 15 to ICTA (qualifying insurance policies) is amended as follows. 2 Before Part 1 insert— PART A1 Premium limit for qualifying policies Premium limit for qualifying policies to apply from 6 April 2013 A1 (1) Sub-paragraph (2) applies if— (a) an event falling within sub-paragraph (3) occurs, (b) apart from sub-paragraph (2), the policy to which the event relates would be a qualifying policy after the event, and (c) an individual who is a beneficiary under that policy is in breach of the premium limit for qualifying policies. (2) That policy is not to be a qualifying policy after the event. (3) The events falling within this sub-paragraph are— (a) the issue of a policy in respect of an insurance made on or after 6 April 2013; (b) the variation of a policy on or after 6 April 2013 where as a result of the variation— (i) the period over which premiums are payable under the policy is or could be lengthened, or (ii) the total amount of the premiums payable under the policy in any relevant period is or could be increased, or both; (c) the assignment on or after 6 April 2013 of any rights, or any share in any rights, under a policy where the assignment falls within paragraph B2(3)(c) to (g) or (5) below; (d) a deceased beneficiary event on or after 6 April 2013; (e) the conditions in paragraph 24(3) below being fulfilled for the first time in respect of a new non-resident policy where— (i) the conditions are fulfilled for the first time on or after 6 April 2013, and (ii) but for the conditions being fulfilled, the policy could not be a qualifying policy because of paragraph 24(2). (4) An event does not fall within sub-paragraph (3) if— (a) the policy to which the event relates is— (i) a protected policy, (ii) a restricted relief qualifying policy, or (iii) a pure protection policy, (b) the event is the issue of a policy which is a new policy in relation to an earlier policy where— (i) the new policy is issued in substitution for the earlier policy (and not on its maturity), and (ii) the life assured under the new policy is different to the life assured under the earlier policy but that is the only difference to what the position would have been had the earlier policy continued to run, (c) paragraph 20ZA below applies to a policy and the event is the reinstatement or replacement of the policy as mentioned in paragraph 20ZA(4), (d) the event is the issue or variation of a policy in relation to which paragraph 29 of Schedule 39 to the Finance Act 2012 applies, or (e) the event is an assignment falling within paragraph B2(3)(e) below where the assignment is a mortgage endowment assignment. (5) In sub-paragraph (3)(b)(ii) “relevant period” means any period of 12 months beginning at or after the time of the variation. (6) A variation is to be ignored for the purposes of sub-paragraph (3)(b) if its effect is nullified before the end of the period of 3 months after the day on which the variation occurs. (7) Sub-paragraph (4)(a)(i) does not apply in the case of an event mentioned in sub-paragraph (3)(e). (8) Sub-paragraph (4)(a)(ii) does not apply in the case of— (a) an event mentioned in sub-paragraph (3)(c) or (d) occurring in relation to a restricted relief qualifying policy (“the assigned policy”), (b) any subsequent event relating to the assigned policy, or (c) any event relating to— (i) a later policy which is a new policy in relation to the assigned policy, or (ii) any policy which is a new policy in relation to the later policy, and so on. (9) In the case of an event mentioned in sub-paragraph (3)(b), sub-paragraph (4)(a)(iii) applies only if the policy is a pure protection policy both before and after the variation. (10) This paragraph is to be applied after all other provisions of this Schedule relevant to the question of whether a policy is a qualifying policy after an event have been applied. Restricted relief qualifying policies A2 (1) Sub-paragraph (2) applies if— (a) an event falling within sub-paragraph (3) occurs, (b) the policy to which the event relates is a qualifying policy after the event, and (c) an individual who is a beneficiary under that policy is in breach of the premium limit for qualifying policies. (2) That policy is to be a restricted relief qualifying policy after the event. (3) The events falling within this sub-paragraph are— (a) a premium limit event in relation to a protected policy on or after 21 March 2012; (b) the issue of a policy as mentioned in paragraph A4(2)(b) below if, assuming that the substitution of the protected policy were instead a variation of that policy, there would be a premium limit event in relation to that policy; (c) the assignment on or after 6 April 2013 of any rights, or any share in any rights, under a protected policy where the assignment falls within paragraph B2(3)(c) to (g) or (5) below; (d) a deceased beneficiary event on or after 6 April 2013 where the policy in question is a protected policy; (e) the issue of a policy in respect of an insurance made on or after 21 March 2012 but before 6 April 2013 otherwise than as mentioned in paragraph A4(2)(b) below; (f) the variation of a policy, other than a protected policy, on or after 21 March 2012 but before 6 April 2013 where as a result of the variation— (i) the period over which premiums are payable under the policy is or could be lengthened, or (ii) the total amount of the premiums payable under the policy in any relevant period is or could be increased, or both; (g) the conditions in either sub-paragraph (3) or sub-paragraph (4) of paragraph 24 below being fulfilled for the first time in respect of a new non-resident policy where— (i) the conditions are fulfilled for the first time on or after 21 March 2012 but before 6 April 2013, and (ii) but for the conditions being fulfilled, the policy could not be a qualifying policy because of sub-paragraph (2) of paragraph 24. (4) An event does not fall within sub-paragraph (3) if— (a) the policy to which the event relates is a pure protection policy, (b) the event is the issue of a policy which is a new policy in relation to an earlier policy where— (i) the new policy is issued in substitution for the earlier policy (and not on its maturity), and (ii) the life assured under the new policy is different to the life assured under the earlier policy but that is the only difference to what the position would have been had the earlier policy continued to run, (c) paragraph 20ZA below applies to a policy and the event is the reinstatement or replacement of the policy as mentioned in paragraph 20ZA(4), (d) the event is the issue or variation of a policy in relation to which paragraph 29 of Schedule 39 to the Finance Act 2012 applies, or (e) the event is an assignment falling within paragraph B2(3)(e) below where the assignment is a mortgage endowment assignment. (5) In sub-paragraph (3)(f)(ii) “relevant period” means any period of 12 months beginning at or after the time of the variation. (6) A premium limit event or a variation is to be ignored for the purposes of sub-paragraph (3)(a) or (f) if its effect is nullified before 6 July 2013. (7) In the case of a premium limit event which occurs on or after 6 April 2013, in sub-paragraph (6) the reference to 6 July 2013 is to be read as a reference to the end of the period of 3 months after the day on which the premium limit event occurs. (8) In the case of an event mentioned in sub-paragraph (3)(a) or (f), sub-paragraph (4)(a) applies only if the policy is a pure protection policy both before and after the premium limit event or variation. (9) A “premium limit event” occurs in relation to a protected policy if— (a) the policy is varied or a relevant option is exercised so as to change the terms of the policy, and (b) as a result of the variation or exercise of the relevant option— (i) the period over which premiums are payable under the policy is or could be lengthened, or (ii) the total amount of the premiums payable under the policy in any relevant period is or could be increased, or both. (10) A “premium limit event” also occurs in relation to a protected policy if on or after 6 April 2013— (a) the policy is varied or a relevant option is exercised so as to change the terms of the policy, and (b) as a result of the variation or exercise of the relevant option— (i) the period over which premiums are payable under the policy is or could be shortened, or (ii) the total amount of the premiums payable under the policy in any relevant period is or could be decreased, or both. (11) In sub-paragraphs (9)(b)(ii) and (10)(b)(ii) “relevant period” means any period of 12 months beginning at or after the time of the variation or exercise of the relevant option. (12) The variation of, or exercise of a relevant option under, a protected policy is not a premium limit event in relation to the policy if— (a) the policy secures a capital sum payable either— (i) on survival for a specified term, or (ii) on earlier death or on earlier death or disability, (b) the policy is issued and maintained for the sole purpose of ensuring that the borrower under an interest-only mortgage will have sufficient funds to repay the principal lent under the mortgage, and (c) the policy is varied, or the relevant option is exercised, for that sole purpose. (13) In sub-paragraph (3)(g) references to paragraph 24 below are to that paragraph as it has effect before the appointed date for the purposes of section 55 of the Finance Act 1995. (14) A qualifying policy which is a new policy in relation to an earlier policy is a restricted relief qualifying policy if the earlier policy is a restricted relief qualifying policy. (15) A policy which is a restricted relief qualifying policy remains a restricted relief qualifying policy so long as it is a qualifying policy. (16) Paragraph A1 above is to be ignored in determining for the purposes of sub-paragraph (14) or (15) if a policy is a qualifying policy. This is subject to paragraph A1(8). (17) For further provision about restricted relief qualifying policies, see sections 463A to 463D of ITTOIA 2005. The premium limit for qualifying policies A3 (1) For the purposes of paragraphs A1(1)(c) and A2(1)(c) above an individual is in breach of the premium limit for qualifying policies if the total amount of the premiums payable under relevant policies in any relevant period— (a) exceeds £3,600, or (b) could exceed £3,600 as a result of— (i) the exercise of any one or more relevant options conferred by one or more relevant policies, or (ii) so far as not covered by sub-paragraph (i), the application of one or more terms of one or more relevant policies relating to increases in premiums. (2) For the purposes of sub-paragraph (1)— (a) so much of a premium payable under a relevant policy as is charged on the grounds that an exceptional risk of death or disability is involved is to be left out of account in determining the premiums payable under the policy, (b) so much of the first premium payable under a relevant policy the liability for the payment of which— (i) is discharged in accordance with paragraph 15(2) below, or (ii) in the case of a policy in relation to which paragraph 3 below applies, is discharged under a provision of the policy falling within paragraph 3(4)(c), is to be left out of account in determining the premiums payable under the policy (subject to sub-paragraph (3) below), (c) in determining the premiums payable under a relevant policy any provision for the waiver of premiums by reason of a person's disability is to be ignored, and (d) “relevant period” means any period of 12 months beginning at or after the time when the event falling within paragraph A1(3) or A2(3) above (“the relevant event”) occurs. (3) The maximum amount that may be left out of account under sub-paragraph (2)(b) in the case of a relevant policy is— £ 3,600 × N where N is the number of complete years for which ran— the other policy involved, or if there is more than one other policy involved, the policy which ran for the most number of complete years. (4) For the purposes of this paragraph the following are “relevant policies”— (a) the policy to which the relevant event relates, and (b) any other policy— (i) which is a qualifying policy, and (ii) under which the individual is a beneficiary. (5) But neither a protected policy nor a pure protection policy is to be a relevant policy by virtue of sub-paragraph (4)(b). (6) Sub-paragraph (7) applies if this paragraph is to be applied in the case of an individual in consequence of two or more events occurring at the same time (including where one or more of the events falls within paragraph A1(3) above and one or more of the events falls within paragraph A2(3) above). (7) For the purpose of applying this paragraph in the case of the individual in consequence of any of the events, sub-paragraph (4)(a) has effect as if the reference to the policy to which the relevant event relates were a reference to all the policies to which the events, taken together, relate. (8) But sub-paragraph (7) does not apply, and sub-paragraph (9) applies instead, if— (a) all the policies in question are policies issued by the same issuer, and (b) each of them has an unique identifier in a series of unique identifiers which the issuer gives to policies issued by it. (9) For the purpose of applying this paragraph in the case of the individual in consequence of any of the events, an event relating to a policy (“policy A”) is treated as occurring before an event relating to another policy (“policy B”) if, in the issuer's series of unique identifiers, policy A's unique identifier comes before policy B's unique identifier. Protected policies A4 (1) This paragraph applies for the purposes of this Part of this Schedule. (2) A policy is “protected” if— (a) it is issued in respect of an insurance made before 21 March 2012, or (b) it is issued in respect of an insurance made on or after 21 March 2012 where— (i) it is a new policy in relation to an earlier policy, (ii) it is issued in substitution for the earlier policy (and not on its maturity), and (iii) the earlier policy is a protected policy (whether by virtue of paragraph (a) or this paragraph). (3) A policy which is protected ceases to be protected if it becomes a restricted relief qualifying policy. (4) A policy issued as mentioned in sub-paragraph (2)(b) is not protected if— (a) its issue is an event falling within paragraph A2(3) above, and (b) after that event it is a restricted relief qualifying policy. How to determine if an individual is a beneficiary under a policy A5 (1) This paragraph applies for the purposes of this Part of this Schedule in determining if an individual is a beneficiary under a policy. (2) An individual is a beneficiary under a policy if the individual beneficially owns— (a) any rights under the policy, or (b) any share in any rights under the policy. (3) An individual is a beneficiary under a policy if— (a) any rights under the policy are, or any share in any rights under the policy is, held on non-charitable trusts created by the individual, and (b) those rights are, or that share is, not beneficially owned by any individual. (4) The following provisions of ITTOIA 2005 apply for the purposes of sub-paragraph (3)(a)— (a) section 465(6), and (b) the definition of “non-charitable trust” in section 545(1). (5) An individual is a beneficiary under a policy if— (a) any rights under the policy are, or any share in any rights under the policy is, held as security for a debt of the individual, and (b) those rights are, or that share is, not beneficially owned by any individual. Further definitions A6 (1) In this Part of this Schedule— (a) “new policy” has the meaning given in paragraph 17 below, (b) references to the variation of a policy are to a variation in relation to which paragraph 18 below applies, (c) “pure protection policy” means a policy— (i) which has no surrender value and is not capable of acquiring a surrender value, or (ii) under which the benefits payable cannot exceed the amount of the premiums paid except on death or in respect of disability, and (d) “relevant option”, in relation to a policy, means an option conferred by the policy on the person to whom it is issued to have another policy substituted for it or to have any of its terms changed. (2) For the purposes of this Part of this Schedule a “deceased beneficiary event” occurs if, in connection with the death of an individual (“D”) who was a beneficiary under a policy, an individual (“B”) becomes a beneficiary under that policy by reference (wholly or partly) to any rights, or to any share in any rights, by reference to which D was a beneficiary (wholly or partly). For this purpose, it does not matter if B is already a beneficiary under the policy. (3) For the purposes of this Part of this Schedule an assignment is a “mortgage endowment assignment” if— (a) the policy to which the assignment relates secures a capital sum payable either— (i) on survival for a specified term, or (ii) on earlier death or on earlier death or disability, (b) the policy is issued and maintained for the sole purpose of ensuring that the borrower under an interest-only mortgage will have sufficient funds to repay the principal lent under the mortgage, and (c) when the assignment occurs, it is intended that the policy will continue to be maintained for that sole purpose. 3 At the beginning of Part 1 (qualifying conditions) insert— RULES FOR QUALIFYING POLICIES Rights to be beneficially owned by individuals only B1 (1) Sub-paragraph (2) applies in relation to a policy issued in respect of an insurance made on or after 6 April 2013. (2) In order for the policy to be a qualifying policy, when it is issued all the rights under it must be beneficially owned by (and only by)— (a) one individual, or (b) two or more individuals taken together. (This is the case notwithstanding any other provision of this Schedule.) (3) Sub-paragraph (2) does not apply if the policy is protected. (4) A policy is “protected” if it is a new policy (as defined in paragraph 17 below) in relation to— (a) a policy issued in respect of an insurance made before 21 March 2012, or (b) a policy which is protected (whether by virtue of paragraph (a) or this paragraph). Assignments B2 (1) Sub-paragraph (2) applies if any rights under a qualifying policy are, or any share in any rights under a qualifying policy is, assigned on or after 6 April 2013. (2) The policy is not to be a qualifying policy after the assignment (notwithstanding any other provision of this Schedule). (3) Sub-paragraph (2) does not apply if— (a) the assignment is from an individual by way of security for a debt of the individual, (b) the assignment is to an individual on the discharge of a debt of the individual secured by the rights or share, (c) the assignment is from an individual to the individual's spouse or civil partner, (d) the assignment is to an individual in pursuance of an order made by a court, (e) the assignment is to an individual in pursuance of a legally enforceable obligation relating to a divorce or the dissolution of a civil partnership, (f) the assignment is from an individual and, as a result of the assignment, the rights assigned are, or the share assigned is, held on trusts created by the individual, (g) the assignment is to an individual and, as a result of the assignment, the rights assigned are, or the share assigned is, no longer held on trusts, or (h) the assignment— (i) is to the personal representatives of a deceased individual, or (ii) is to an individual where, as a result of the assignment, a deceased beneficiary event (see paragraph A6(2) above) occurs. (4) Section 465(6) of ITTOIA 2005 applies for the purposes of sub-paragraph (3)(f). (5) The Commissioners for Her Majesty's Revenue and Customs may by regulations provide that sub-paragraph (2) does not apply if prescribed conditions are met in relation to the assignment. “Prescribed” means prescribed by the regulations. (6) Regulations under sub-paragraph (5) may— (a) make different provision for different cases or circumstances, and (b) contain incidental, supplementary, consequential, transitional, transitory or saving provision. (7) See paragraphs A1 and A2 above which may apply in consequence of an assignment falling within sub-paragraph (3) or (5). Required statements B3 (1) Sub-paragraph (2) applies if any of the following events occurs— (a) the issue of a policy in respect of an insurance made on or after 6 April 2013; (b) the variation of a policy on or after 6 April 2013 where paragraph 18 below applies in relation to the variation and as a result of the variation— (i) the period over which premiums are payable under the policy is or could be lengthened, or (ii) the total amount of the premiums payable under the policy in any relevant period is or could be increased, or both; (c) a premium limit event in relation to a protected policy on or after 6 April 2013 (see paragraph A2(9) to (12) above); (d) an event on or after 6 April 2013 which would be a premium limit event in relation to a protected policy but for paragraph A2(12) above; (e) the assignment on or after 6 April 2013 of any rights, or any share in any rights, under a policy where the assignment falls within paragraph B2(3)(c) to (g) or (5) above; (f) a deceased beneficiary event (see paragraph A6(2) above) on or after 6 April 2013; (g) the conditions in paragraph 24(3) below being fulfilled for the first time in respect of a new non-resident policy where— (i) the conditions are fulfilled for the first time on or after 6 April 2013, and (ii) but for the conditions being fulfilled, the policy could not be a qualifying policy because of paragraph 24(2). (2) Each individual who is a beneficiary under the policy must, before the end of the statement period, make to the issuer of the policy a statement dealing with the prescribed matters. (3) If an individual does not comply with sub-paragraph (2) the policy is not to be a qualifying policy after the event (notwithstanding any other provision of this Schedule). (4) In sub-paragraph (1)(b)(ii) “relevant period” means any period of 12 months beginning at or after the time of the variation. (5) Sub-paragraph (2)— (a) does not apply in the case of an event mentioned in sub-paragraph (1)(a), (e), (f) or (g) if the policy is a pure protection policy, and (b) does not apply in the case of an event mentioned in sub-paragraph (1)(b), (c) or (d) if the policy is a pure protection policy both before and after the event. “Pure protection policy” has the meaning given by paragraph A6(1)(c) above. (6) Sub-paragraph (2) does not apply in the case of an event mentioned in sub-paragraph (1)(e) where the assignment falls within paragraph B2(3)(e) above and is a mortgage endowment assignment. “Mortgage endowment assignment” is to be read in accordance with paragraph A6(3) above. (7) The Commissioners for Her Majesty's Revenue and Customs may by regulations provide that an individual is not required to comply with sub-paragraph (2) if prescribed conditions are met. “Prescribed” means prescribed by the regulations. (8) Accordingly, if by virtue of regulations under sub-paragraph (7) an individual is not required to comply with sub-paragraph (2), sub-paragraph (3) does not apply because that individual does not comply with sub-paragraph (2). (9) In sub-paragraph (2)— (a) the reference to an individual who is a beneficiary under the policy is to be read in accordance with paragraph A5 above, (b) “the statement period” means— (i) the period of 3 months after the day on which the event occurs, or (ii) if the event occurs before the day on which the first regulations under paragraph (c) below come into force, the period of 3 months after that day, or such longer period as an officer of Revenue and Customs may allow, and (c) “prescribed” means prescribed by regulations made by the Commissioners for Her Majesty's Revenue and Customs. (10) An officer of Revenue and Customs may allow a longer period for the purposes of sub-paragraph (9)(b) only if— (a) the individual in question has made a request in writing to an officer of Revenue and Customs for a longer period to be allowed, and (b) such an officer is satisfied— (i) that there is a reasonable excuse for the required statement not having been made within the period mentioned in sub-paragraph (9)(b)(i) or (ii), and (ii) that the request under paragraph (a) was made without unreasonable delay after the reasonable excuse ceased. (11) Sub-paragraph (12) applies in relation to a policy if the obligations under the policy of its issuer are at any time the obligations of another person (“the transferee”) to whom there has been a transfer of the whole or any part of a business previously carried on by the issuer. (12) In relation to that time, in sub-paragraph (2) the reference to the issuer of the policy is to be read as a reference to the transferee. (13) Regulations under sub-paragraph (7) or (9)(c) may— (a) make different provision for different cases or circumstances, and (b) contain incidental, supplementary, consequential, transitional, transitory or saving provision. 4 (1) Paragraph 17 (substitutions) is amended as follows. (2) In sub-paragraph (2) before paragraph (a) insert— (za) the new policy cannot be a qualifying policy if the old policy was not a qualifying policy by virtue of— (i) paragraph A1(2), B1(2), B2(2) or B3(3) above, or (ii) sub-paragraph (i) above or this sub-paragraph; . (3) In sub-paragraph (2)(a) after the first “not” insert “ and paragraph (za) above does not apply ”. (4) In sub-paragraph (4) for “(2)” substitute “ (2)(a) to (c) ”. (5) After sub-paragraph (4) insert— (5) In determining under sub-paragraph (2)(a) to (c) above whether the new policy would apart from this paragraph be a qualifying policy, paragraph A1 above is not to be applied in relation to the issue of the new policy; but this does not stop that paragraph being applied in relation to the issue of the new policy after this paragraph has been applied. 5 In paragraph 25 (application of paragraph 17 in cases involving new non-resident policies) after sub-paragraph (2) insert— (2A) In determining for the purposes of sub-paragraph (2)(a) above whether a policy would, apart from paragraph 24, have been a qualifying policy, paragraphs A1 and B1 to B3 above are to be ignored. (But this does not affect the application of any of those paragraphs in relation to the new policy.) . 6 (1) In section 55 of FA 1995 (qualifying life insurance policies: disapplication of paragraph 21 of Schedule 15 to ICTA from appointed date) in subsection (3) after “subject” insert “ to paragraphs A1(2), B2(2) and B3(3) of that Schedule and ”. (2) The amendment made by this paragraph is treated as having come into force on the appointed date (see section 55(9) of FA 1995). PART 2 Restricted relief qualifying policies 7 Chapter 9 of Part 4 of ITTOIA 2005 (gains from contracts for life insurance etc) is amended as follows. 8 After section 463 insert— Restricted relief qualifying policies: disapplication of section 485 etc 463A (1) This section applies for the purpose of determining if an individual is liable for tax charged under this Chapter. (2) In relation to an event occurring on or after 6 April 2013, section 485 (disregard of certain events in relation to qualifying policies) does not apply in relation to a policy (“policy X”) which is a restricted relief qualifying policy (see paragraph A2 of Schedule 15 to ICTA). (3) If an individual is liable for tax charged under this Chapter as a result of subsection (2), the gain on which the tax is charged in the case of the individual is reduced by the following amount— G × TAP TP where— G is the amount of the gain (apart from this subsection), TAP is the total amount of premiums payable under policy X during the policy X period so far as they are allowable premiums as determined in accordance with section 463B, and TP is the total amount of premiums payable under policy X during the policy X period. (4) If section 528 also applies in the case of the individual in relation to the gain, subsection (3) is to be applied to the gain before section 528 and, accordingly, the reduction to be made under section 528 is to be determined by reference to the gain as reduced by subsection (3). (5) The following subsections apply for the purposes of this section (except subsection (2)) and section 463B. (6) “The policy X period” means the period for which policy X has run before the chargeable event occurs. (7) Subsections (8) and (9) apply if policy X is a new policy in relation to another policy. (8) For the purposes of subsection (6) policy X is to be taken to have run— (a) from the issue of the other policy, or (b) if the other policy was also a new policy in relation to an earlier policy, from the issue of the earlier policy, and so on. (9) References to premiums payable under policy X are to be read as including references to premiums payable under any earlier policy taken into account under subsection (8). (10) The following are to be left out of account in determining the premiums payable under a policy— (a) so much of a premium as is charged on the grounds that an exceptional risk of death or disability is involved; (b) subject to subsection (11), so much of the first premium payable the liability for the payment of which— (i) is discharged in accordance with paragraph 15(2) of Schedule 15 to ICTA, or (ii) in the case of a policy in relation to which paragraph 3 of that Schedule applies, is discharged under a provision of the policy falling within paragraph 3(4)(c) of that Schedule. (11) The maximum amount that may be left out of account under subsection (10)(b) in the case of a policy is— £ 3,600 × N where N is the number of complete years for which ran— the other policy involved, or if there is more than one other policy involved, the policy which ran for the most number of complete years. (12) In determining the premiums payable under a policy any provision for the waiver of premiums by reason of a person's disability is to be ignored. (13) “New policy” has the meaning given in paragraph 17 of Schedule 15 to ICTA. Restricted relief qualifying policies: allowable premiums 463B (1) This section sets out how to determine the extent to which premiums payable under policy X during the policy X period are allowable premiums for the purposes of section 463A(3). (2) A premium payable under policy X is allowable if it is payable before the restricted relief date. (3) In this section “the restricted relief date” means— (a) 6 April 2013, or (b) if later, the date on which policy X became a restricted relief qualifying policy. (4) Premiums payable under policy X in a relevant premium period are allowable so far as they do not exceed in total the premium limit for the period. (5) In subsection (4) “relevant premium period” means— (a) any period of one year which— (i) begins with a relevant date, and (ii) ends in the policy X period, and (b) if it is not covered by paragraph (a), the period which— (i) begins with the last relevant date to fall within the policy X period, and (ii) ends at the end of the policy X period. (6) In subsection (5) “relevant date” means— (a) the restricted relief date, or (b) any anniversary of the restricted relief date. (7) For the purposes of subsection (4) “the premium limit” for a relevant premium period is determined in accordance with subsections (8) to (10). (8) Determine the premiums payable in the relevant premium period under policies related to policy X. (9) If the total of those premiums is £3,600 or more, the premium limit is nil (and, accordingly, no premiums payable under policy X in the relevant premium period are allowable). (10) If the total of those premiums is less than £3,600, the premium limit is the difference between that total and £3,600. (11) Subsection (4) does not apply if, at the time policy X became a restricted relief qualifying policy, any policy related to policy X was itself a restricted relief qualifying policy. (12) For the purposes of this section a policy is “related” to policy X if it met the following requirements at the time policy X became a restricted relief qualifying policy— (a) the policy is a qualifying policy under which the individual is a beneficiary (as determined in accordance with paragraph A5 of Schedule 15 to ICTA); (b) the policy is neither a protected policy nor a pure protection policy. (13) In subsection (12)(b)— “protected policy” is to be read in accordance with paragraph A4 of Schedule 15 to ICTA, and “pure protection policy” has the meaning given by paragraph A6(1)(c) of that Schedule. (14) A policy which is a new policy in relation to a policy “related” to policy X (whether by virtue of subsection (12) or this subsection) is also “related” to policy X if it meets the requirements of subsection (12)(a) and (b) when issued. (15) A policy ceases to be “related” to policy X if it ceases to meet those requirements. (16) If policy X is a restricted relief qualifying policy as provided for by paragraph A2(14) of Schedule 15 to ICTA, references in this section to policy X becoming a restricted relief qualifying policy are to be read as references to the policy determined under subsection (17) becoming a restricted relief qualifying policy. (17) The policy is— (a) the policy (“policy Y”) in relation to which policy X was the new policy, or (b) if policy Y was also a restricted relief qualifying policy as provided for by paragraph A2(14) of Schedule 15 to ICTA, the policy in relation to which policy Y was the new policy, and so on. (18) The following subsections apply for the purposes of this section if— (a) a premium (“premium A”) is payable under policy X on a day (“day A”) which is on or after 21 March 2012 but before 6 April 2013, and (b) the next premium payable under policy X is payable on a day (“day B”) which is— (i) on or after 6 April 2013, and (ii) more than one month after day A. (19) Premium A is to be treated as if, instead of being one premium payable on day A, it were a series of premiums payable at monthly intervals with the first premium in the series payable on day A. (20) The number of premiums in the series is equal to the number of complete months falling within the period beginning with day A and ending with day B. (21) The amount of each premium in the series is the amount of premium A divided by the number of premiums in the series. Restricted relief qualifying policies: personal representatives and trustees with deceased settlors 463C (1) This section applies for the purpose of determining if personal representatives are liable for tax charged under this Chapter as provided for by section 466. (2) This section also applies for the purpose of determining if trustees are liable for tax charged under this Chapter as provided for by section 467 where— (a) condition B in that section is met, and (b) the person who created the trusts has died. (3) In relation to an event occurring on or after 6 April 2013, section 485 (disregard of certain events in relation to qualifying policies) does not apply in relation to a policy if the policy is a restricted relief qualifying policy (see paragraph A2 of Schedule 15 to ICTA). (4) If any personal representatives or trustees are liable for tax charged under this Chapter as a result of subsection (3), section 463A(3) is to apply in the case of the personal representatives or the trustees— (a) as if the reference to the individual were to the personal representatives or to the trustees, and (b) as if the restricted relief qualifying policy were policy X. (5) For this purpose— (a) in section 463B(12)(a) the reference to the individual is to be read as a reference to the deceased, and (b) a policy— (i) which would otherwise have ceased to be “related” to policy X for the purposes of section 463B on the deceased's death, but (ii) which continues to run after the deceased's death, is to be treated as “related” to policy X after the deceased's death. (6) A policy which is a new policy (as defined in paragraph 17 of Schedule 15 to ICTA) in relation to a policy treated as “related” to policy X under subsection (5)(b) or this subsection is also to be treated as “related” to policy X if, apart from the deceased's death, it would meet the requirements of section 463B(12)(a) and (b) on its issue. (7) A policy treated as “related” to policy X under subsection (5)(b) or (6) ceases to be so treated if, apart from the deceased's death, it would cease to meet the requirements of section 463B(12)(a) and (b). (8) If section 528A also applies in the case of the personal representatives or the trustees in relation to the gain, section 463A(3) is to be applied to the gain before section 528A and, accordingly, the reduction to be made under section 528A is to be determined by reference to the gain as reduced by section 463A(3). Restricted relief qualifying policies: assignments and events following assignments etc 463D (1) This section applies if— (a) paragraph A1 of Schedule 15 to ICTA applies in relation to a policy by virtue of paragraph A1(8) in consequence of an event relating to the policy (“the relevant event”), (b) after the relevant event, the policy is not a qualifying policy by virtue of paragraph A1(2), and (c) in relation to an event occurring after the relevant event— (i) an individual is liable for tax charged under this Chapter on a gain from the policy, and (ii) but for the application of paragraph A1 in relation to the policy, section 463A(3) would have applied in the case of the individual so as to reduce the gain. (2) Section 463A(3) is to apply in the case of the individual in relation to the gain as if the policy were policy X. (3) But, for this purpose, section 463B(5) has effect as if the references to the policy X period were to the part of that period falling before the relevant event. (4) If section 528 also applies in the case of the individual in relation to the gain, section 463A(3) is to be applied to the gain before section 528 and, accordingly, the reduction to be made under section 528 is to be determined by reference to the gain as reduced by section 463A(3). Transitional protection for policies issued in respect of insurances made on or after 21 March 2012 but before 6 April 2013 463E (1) This section applies if— (a) a policy (“policy Z”) is issued, (b) the issue of policy Z is an event falling within paragraph A2(3) of Schedule 15 to ICTA by virtue of paragraph (e), (c) after its issue, policy Z is a qualifying policy but not a restricted relief qualifying policy, (d) policy Z is varied on or after 6 April 2013 and the variation is an event falling within paragraph A1(3) of Schedule 15, (e) after the variation, policy Z is not a qualifying policy by virtue of paragraph A1(2) of that Schedule, (f) in relation to an event occurring after the variation, an individual is liable for tax charged under this Chapter on a gain from policy Z, and (g) but for the application of paragraph A1 of Schedule 15 in relation to policy Z, the individual would not have been liable because of section 485. (2) The gain on which the tax is charged in the case of the individual is reduced by the following amount— G × TPV TP where— G is the amount of the gain (apart from this subsection), TPV is the total amount of premiums payable under policy Z before the variation, and TP is the total amount of premiums payable under policy Z before the chargeable event. (3) If section 528 also applies in the case of the individual in relation to the gain, subsection (2) is to be applied to the gain before section 528 and, accordingly, the reduction to be made under section 528 is to be determined by reference to the gain as reduced by subsection (2). (4) Section 463A(10) to (12) applies for the purposes of subsection (2). 9 In section 485 (disregard of certain events in relation to qualifying policies) after subsection (7) insert— (8) This section is subject to sections 463A and 463C. PART 3 Information powers 10 After section 552ZA of ICTA insert— Regulations in relation to qualifying policies 552ZB (1) The Commissioners for Her Majesty's Revenue and Customs may make regulations— (a) requiring relevant persons— (i) to provide prescribed information to persons who apply for the issue of qualifying policies or who are, or may be, required to make statements under paragraph B3(2) of Schedule 15; (ii) to provide to an officer of Revenue and Customs prescribed information about qualifying policies which have been issued by them or in relation to which they are or have been a relevant transferee; (b) making such provision (not falling within paragraph (a)) as the Commissioners think fit for securing that an officer of Revenue and Customs is able— (i) to ascertain whether there has been or is likely to be any contravention of the requirements of the regulations or of paragraph B3(2) of Schedule 15; (ii) to verify any information provided to an officer of Revenue and Customs as required by the regulations. (2) The provision that may be made by virtue of subsection (1)(b) includes, in particular, provision requiring relevant persons to make available books, documents and other records for inspection by or on behalf of an officer of Revenue and Customs. (3) The regulations may— (a) make different provision for different cases or circumstances, and (b) contain incidental, supplementary, consequential, transitional, transitory or saving provision. (4) In this section— “prescribed” means prescribed by the regulations, “qualifying policy” includes a policy which would be a qualifying policy apart from— paragraph A1(2), B1(2), B2(2) or B3(3) of Schedule 15, or paragraph 17(2)(za) of that Schedule (including as applied by paragraph 18), and “relevant person” means a person— who issues, or has issued, qualifying policies, or who is, or has been, a relevant transferee in relation to qualifying policies. (5) For the purposes of this section a person (“X”) is at any time a “relevant transferee” in relation to a qualifying policy if the obligations under the policy of its issuer are at that time the obligations of X as a result of there having been a transfer to X of the whole or any part of a business previously carried on by the issuer. 11 In section 552B of ICTA (duties of overseas insurers' tax representatives) in subsection (2)— (a) after paragraph (b) omit “and”, and (b) after paragraph (c) insert and (d) any duties imposed by regulations under section 552ZB, . 12 In section 98 of TMA 1970 (special returns etc), in the second column of the Table, after the entry for regulations under section 552ZA(6) of ICTA insert— “ regulations under section 552ZB; ”.

Propose a change

SCHEDULE 10 Transfer of assets abroad

Section 26 PART 1 Introduction 1 Chapter 2 of Part 13 of ITA 2007 (tax avoidance: transfer of assets abroad) is amended as follows. PART 2 New exemption for genuine transactions etc 2 (1) Section 718 (meaning of “person abroad” etc) is amended as follows. (2) For subsection (1) substitute— (1) In this Chapter “person abroad” means— (a) a person who is resident outside the United Kingdom, or (b) an individual who is domiciled outside the United Kingdom. (3) Omit subsection (2)(a). 3 In section 720 (charge to tax on income treated as arising under section 721) in subsection (7)— (a) for “742” substitute “ 742A ”, and (b) after “transaction” insert “ , etc ”. 4 In section 727 (charge to tax on income treated as arising under section 728) in subsection (5)— (a) for “742” substitute “ 742A ”, and (b) after “transaction” insert “ , etc ”. 5 In section 731 (charge to tax on income treated as arising under section 732) in subsection (4)— (a) for “742” substitute “ 742A ”, and (b) after “transaction” insert “ , etc ”. 6 (1) Section 736 (exemptions: introduction) is amended as follows. (2) In subsection (1) for “742” substitute “ 742A ”. (3) After subsection (2) insert— (2A) The exemption given by section 742A applies only in the case of a relevant transaction effected on or after 6 April 2012. 7 After section 742 insert— Post-5 April 2012 transactions: exemption for genuine transactions 742A (1) Subsection (2) applies for the purpose of determining the liability of an individual to tax under this Chapter by reference to a relevant transaction if— (a) the transaction is effected on or after 6 April 2012, and (b) conditions A and B are met. (2) Income is to be left out of account so far as the individual satisfies an officer of Revenue and Customs that it is attributable to the transaction. (3) Condition A is that— (a) were, viewed objectively, the transaction to be considered to be a genuine transaction having regard to any arrangements under which it is effected and any other relevant circumstances, and (b) were the individual to be liable to tax under this Chapter by reference to the transaction, the individual's liability to tax would, in contravention of a relevant treaty provision, constitute an unjustified and disproportionate restriction on a freedom protected under that relevant treaty provision. (4) In subsection (3) “relevant treaty provision” means— (a) Title II or IV of Part Three of the Treaty on the Functioning of the European Union, (b) Part II or III of the EEA agreement, or (c) the provision of any subsequent treaty replacing a provision mentioned in paragraph (a) or (b). (5) Condition B is that the individual satisfies an officer of Revenue and Customs that, viewed objectively, the transaction must be considered to be a genuine transaction having regard to any arrangements under which it is effected and any other relevant circumstances. (6) Without prejudice to the generality of subsection (3)(a) or (5), in order for the transaction to be considered to be a genuine transaction the transaction must not— (a) be on terms other than those that would have been made between persons not connected with each other dealing at arm's length, or (b) be a transaction that would not have been entered into between such persons so dealing, having regard to any arrangements under which the transaction is effected and any other relevant circumstances. (7) Subsection (8) applies if any asset or income falling within subsection (12) is used for the purposes of, or is received in the course of, activities carried on in a territory outside the United Kingdom by a person (“the relevant person”) through a business establishment which the relevant person has in that territory. (8) Without prejudice to the generality of subsection (3)(a) or (5), in order for the transaction to be considered to be a genuine transaction the activities mentioned in subsection (7) must consist of the provision by the relevant person of goods or services to others on a commercial basis and involve— (a) the use of staff in numbers, and with competence and authority, (b) the use of premises and equipment, and (c) the addition of economic value, by the relevant person, to those to whom the goods or services are provided, commensurate with the size and nature of those activities. (9) In subsection (8)(a) “staff” means employees, agents or contractors of the relevant person. (10) To determine if a person has a “business establishment” in a territory outside the United Kingdom, apply sections 1141, 1142(1) and 1143 of CTA 2010 as if in those provisions— (a) references to a company were to a person, and (b) references to a permanent establishment were to a business establishment. (11) Subsection (6) does not apply if— (a) the relevant transfer is made by an individual who makes it wholly— (i) for personal reasons (and not commercial reasons), and (ii) for the personal benefit (and not the commercial benefit) of other individuals, and (b) no consideration is given (directly or indirectly) for the relevant transfer or otherwise for any benefit received by any individual mentioned in paragraph (a)(ii), and all assets and income falling within subsection (12) are dealt with accordingly. (12) The assets and income falling within this subsection are— (a) any of the assets transferred by the relevant transfer; (b) any assets directly or indirectly representing any of the assets transferred; (c) any income arising from any assets within paragraph (a) or (b); (d) any assets directly or indirectly representing the accumulations of income arising from any assets within paragraph (a) or (b). (13) In subsections (11) and (12) references to the relevant transfer are to— (a) if the transaction mentioned in subsection (1) is a relevant transfer, the transfer, or (b) if the transaction so mentioned is an associated operation, the relevant transfer to which it relates. (14) Subsection (15) applies if— (a) subsection (2) would apply in relation to a transaction but for the individual being unable to satisfy an officer of Revenue and Customs for the purposes of condition B that the transaction meets the requirements set out in subsection (6), but (b) the individual does satisfy an officer of Revenue and Customs that those requirements are met in relation to a part of the transaction. (15) Subsection (2) applies as if the reference to the transaction were to that part of the transaction. 8 In section 751 (the Tribunal's jurisdiction on appeals) after paragraph (d) insert— (da) section 742A (post-5 April 2012 transactions: exemption for genuine transactions), . 9 (1) The amendments made by paragraph 2 above have effect in relation to times on or after 6 April 2012. (2) The amendments made by paragraphs 3 to 8 above have effect for the tax year 2012-13 and subsequent tax years. PART 3 Amendments relating to the charges under sections 720 and 727 Main provision 10 (1) Section 721 (individuals with power to enjoy income as a result of a relevant transaction) is amended as follows. (2) In subsection (3) after “the income” insert “ of the person abroad ”. (3) Before subsection (4) insert— (3B) The amount of the income treated as arising under subsection (1) is equal to the amount of the income of the person abroad (subject to sections 724 and 725). (3C) Subsection (1) does not apply if— (a) the individual is liable for income tax charged on the income of the person abroad by virtue of a charge not contained in this Chapter, and (b) all that income tax has been paid. (4) In subsection (4) after “the income” insert “ of the person abroad ”. (5) Omit subsection (5)(a). 11 (1) Section 724 (special rules where benefit provided out of income of person abroad) is amended as follows. (2) In subsection (2) after “on” insert “ an amount equal to ”. (3) In subsection (3)— (a) for “on” substitute “ by reference to ”, and (b) after “previous tax year” insert “ under this Chapter ”. 12 (1) Section 725 (reduction in amount charged where controlled foreign company involved) is amended as follows. (2) In subsection (1), as substituted by paragraph 22 of Schedule 20 to FA 2012, for paragraph (b) and the “ and ” before it substitute— (b) an amount of income is treated as arising to an individual under section 721 for a tax year, and (c) the income mentioned in section 721(2) is or includes a sum forming part of the CFC's chargeable profits for that accounting period. (3) After subsection (2) insert— (2A) In a case in which section 724 applies, the reference to S in the formula in subsection (2) is to be read as a reference to X% of S. (2B) “X%” is determined as follows— 100 % × A I where— A is the amount on which the individual is liable as determined under section 724(2), and I is the amount of the income mentioned in section 721(2). (4) In relation to cases in which the amendments made by paragraph 22 of Schedule 20 to FA 2012 are to be ignored in accordance with paragraph 50(9) of that Schedule, the amendment made by sub-paragraph (5) below has effect instead of the amendment made by sub-paragraph (2) above. (5) In subsection (1) for paragraph (c) and the “and” before it substitute— (c) an amount of income is treated as arising to an individual under section 721 for a tax year, and (d) the income mentioned in section 721(2) is or includes a sum forming part of the controlled foreign company's chargeable profits for that accounting period. 13 In section 726 (non-UK domiciled individuals to whom remittance basis applies) in subsection (2) for “the extent” substitute “ the corresponding extent ”. 14 (1) Section 728 (individuals receiving capital sums as a result of a relevant transaction) is amended as follows. (2) After subsection (1) insert— (1A) The amount of the income treated as arising under subsection (1) is equal to the amount of the income of the person abroad (subject to subsection (2)). (3) In subsection (2) for the words from “it applies” to the end substitute if— (a) in subsection (1) of that section— (i) the reference to section 721 were a reference to this section, and (ii) the reference to section 721(2) were a reference to subsection (1)(a) of this section, and (b) subsections (2A) and (2B) of that section were omitted. (4) After subsection (2) insert— (2A) Subsection (1) does not apply if— (a) the individual is liable for income tax charged on the income of the person abroad by virtue of a charge not contained in this Chapter, and (b) all that income tax has been paid. (5) Omit subsection (3)(a). 15 In section 730 (non-UK domiciled individuals to whom remittance basis applies) in subsection (2) for “the extent” substitute “ the corresponding extent ”. 16 (1) Section 743 (no duplication of charges) is amended as follows. (2) After subsection (2) insert— (2A) Subsection (2B) applies if— (a) in the case of an individual, an amount of income is taken into account in charging income tax under section 720 or 727, and (b) the individual subsequently receives that income. (2B) The income received is treated as not being the individual's income for income tax purposes. (3) In subsection (3) for “subsections (1) and (2)” substitute “ this section ”. (4) Omit subsection (4). 17 (1) Section 744 (meaning of taking income into account in charging income tax for section 743) is amended as follows. (2) In subsection (1) for “743(1) and (2)” substitute “ 743 ”. (3) In subsection (2)— (a) in paragraph (a) omit “or value of the benefit”, and (b) in paragraph (b) for “income charged” substitute “ the income mentioned in section 721(2) ”. (4) In subsection (3) for “that income” substitute “ the income mentioned in section 728(1)(a) ”. 18 (1) Section 745 (rates of tax applicable to income charged under sections 720 and 727 etc) is amended as follows. (2) In subsection (1) for “so far as it” substitute “ if (and to the corresponding extent that) the income mentioned in section 721(2) or 728(1)(a) ”. (3) For subsections (3) and (4) substitute— (3) Subsection (4) applies to income treated as arising to an individual under section 721 or 728 so far as subsection (1) does not apply to it. (4) The charge to income tax under section 720 or 727 operates by treating the income as if it were income within section 19(2) (meaning of “dividend income”) if the income mentioned in section 721(2) or 728(1)(a) would be dividend income were it the income of the individual. 19 In section 746 (deductions and reliefs where individual charged under section 720 or 727) for subsection (2) substitute— (2) For the purpose of determining the deductions and reliefs allowed to the individual, the individual is to be treated as if the individual had actually received the amount by reference to which the income treated as arising to the individual under section 721 or 728 is determined. Commencement and transitional provision 20 (1) The amendments made by this Part of this Schedule have effect for the tax year 2013-14 and subsequent tax years. (2) They have effect in relation to relevant transfers occurring before 6 April 2013 as well as relevant transfers occurring on or after that date. 21 (1) Sections 721(3C) and 728(2A) of ITA 2007 (as inserted by paragraphs 10(3) and 14(4) above) have effect only if the income of the person abroad arises to that person on or after 6 April 2013. (2) The amendments made by paragraphs 10(5) and 14(5) above have no effect in relation to income arising to a person abroad before 6 April 2013.

Propose a change

SCHEDULE 11 Deduction of income tax at source etc

Section 27 Deduction from interest payable on compensation 1 Chapter 3 of Part 15 of ITA 2007 (deduction from certain payments of yearly interest) is amended as follows. 2 In section 874 (duty to deduct from certain payments of yearly interest), after subsection (5) insert— (5A) For the purposes of subsection (1) a payment of interest which is payable to an individual in respect of compensation is to be treated as a payment of yearly interest (irrespective of the period in respect of which the interest is paid). (5B) But the Commissioners for Her Majesty's Revenue and Customs may make regulations which provide that subsection (5A) does not apply in the circumstances prescribed in the regulations. 3 In section 875 (interest paid by building societies), at the end insert “ unless it is treated as a payment of yearly interest by virtue of section 874(5A). ” 4 In section 878 (interest paid by banks), after subsection (1) insert— (1A) But that duty does apply to such a payment if it is treated as a payment of yearly interest by virtue of section 874(5A). Deduction from yearly interest: specialties 5 In section 874 of ITA 2007 (duty to deduct from certain payments of yearly interest), after subsection (6) insert— (6A) In determining for the purposes of subsection (1) whether a payment of interest arises in the United Kingdom no account is to be taken of the location of any deed which records the obligation to pay the interest. Payment of interest in kind 6 After section 370 of ITTOIA 2005 insert— Valuation of interest not paid in cash 370A (1) This section applies to the payment of an amount of interest in the form of— (a) goods or services, or (b) a voucher. (2) Where this section applies by virtue of subsection (1)(a), the amount of the payment is to be taken to be equal to the market value, at the time the payment is made, of the goods or services. (3) Where this section applies by virtue of subsection (1)(b), the amount of the payment is to be taken to be equal to whichever is the higher of— (a) the face value of the voucher, (b) the amount of money for which the voucher is capable of being exchanged, or (c) the market value, at the time the payment is made, of any goods or services for which the voucher is capable of being exchanged. (4) In this section references to a voucher are to a voucher, stamp or similar document or token which is capable of being exchanged for money, goods or services. 7 In section 380 of that Act (funding bonds), in subsection (3), at the end insert “ (but does not include any instrument providing for payment in the form of goods or services or a voucher) ”. 8 In section 939 of ITA 2007 (duty to retain bonds where issue treated as payment of interest), in subsection (6), at the end insert “ (but does not include any instrument providing for payment in the form of goods or services or a voucher) ”. 9 In section 975 of that Act (statements about deduction of income tax), in subsection (1)— (a) after “if” insert — (a) , and (b) at the end insert , and (b) the person is not under a duty to provide a statement under section 975A . 10 After section 975 of that Act insert— Statements about certain payments of interest 975A (1) Subsection (2) applies if a person makes a payment of interest of which the whole or part is in the form of goods or services or a voucher. (2) The person must provide the recipient of the payment with a statement showing— (a) the gross amount of the payment, (b) the amount of the sum deducted under any provision of Chapters 2 to 7 or under section 919 or 928 (if any), (c) the actual amount paid, and (d) the date on which the payment was made. (3) The amounts mentioned in paragraphs (a) to (c) of subsection (2) are to be calculated in accordance with section 370A of ITTOIA 2005. (4) Subsection (5) applies where a person— (a) is treated as making a payment of an amount of interest (“the deemed interest”) by virtue of section 413 of CTA 2009 or section 380 of ITTOIA 2005 (funding bonds), and (b) is under a duty under section 939(2) to retain funding bonds equal in value to income tax on the deemed interest at the basic rate. (5) The person must provide the recipient of the funding bonds with a statement showing— (a) the gross amount of the deemed interest, (b) the sum representing income tax which the person is treated under section 939(3) as having deducted by retaining funding bonds, (c) the amount of the deemed interest after the deduction of that sum, and (d) the date on which the deemed interest is treated as being paid. (6) The amount of the deemed interest is to be calculated in accordance with section 413 of CTA 2009 or section 380 of ITTOIA 2005, as the case may require. (7) A statement under this section must be provided in writing to the recipient on the date that the payment is made or (as the case may be) the date that the deemed interest is treated as being paid. (8) The duty to comply with this section is enforceable by the recipient. (9) In this section— (a) references to a voucher are to a voucher, stamp or similar document or token which is capable of being exchanged for money, goods or services, and (b) “funding bonds” has the same meaning as in Chapter 12 (see section 939(6)). 11 In section 413 of CTA 2009 (issue of funding bonds), in subsection (3), at the end insert “ (but does not include any instrument providing for payment in the form of goods or services or a voucher) ”. Commencement 12 (1) The amendments made by paragraphs 1 to 4 have effect— (a) in relation to any payment of interest by a building society which is made on or after 1 September 2013, and (b) in relation to any other payment of interest which is made on or after 1 October 2013. (2) The amendments made by paragraphs 5 to 11 have effect in relation to any payment of interest which is made on or after the day on which this Act is passed.

Propose a change

SCHEDULE 12 Disguised interest

Section 28 Key amendments to Part 4 of ITTOIA 2005 1 Part 4 of ITTOIA 2005 (savings and investment income) is amended in accordance with paragraphs 2 and 3. 2 In section 365(1) (overview of Part 4)— (a) after paragraph (a) insert— (aa) Chapter 2A (disguised interest), , and (b) omit paragraph (k). 3 After Chapter 2 insert— CHAPTER 2A Disguised interest Charge to tax on disguised interest 381A (1) This Chapter applies where a person is party to an arrangement which produces for the person a return in relation to any amount which is economically equivalent to interest. (2) Income tax is charged on the return if the return is not charged to income tax under or as a result of any other provision of this Act or any other Act. (3) Subsection (2) does not apply to a return that would be charged to income tax under or as a result of another provision but for an exemption. (4) For the purposes of this Chapter a return produced for a person by an arrangement in relation to any amount is “economically equivalent to interest” if (and only if)— (a) it is reasonable to assume that it is a return by reference to the time value of that amount of money, (b) it is at a rate reasonably comparable to what is (in all the circumstances) a commercial rate of interest, and (c) at the relevant time there is no practical likelihood that it will cease to be produced in accordance with the arrangement unless the person by whom it falls to be produced is prevented (by reason of insolvency or otherwise) from producing it. (5) In subsection (4)(c) “the relevant time” means the time when the person becomes party to the arrangement or, if later, when the arrangement begins to produce a return for the person. (6) In this Chapter “arrangement” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable). Income charged 381B Tax is charged under this Chapter on the full amount of the return, or any part of the return, arising in the tax year. Person liable 381C The person liable for any tax charged under this Chapter is the person receiving or entitled to the return or the part of the return. Avoidance of double taxation 381D (1) This section applies if at any time a tax other than income tax (“the other tax”) is charged in relation to a return on which income tax is charged under this Chapter. (2) In order to avoid a double charge to tax in respect of the return, a person may make a claim for one or more consequential adjustments to be made in respect of the other tax. (3) On a claim under this section an officer of Revenue and Customs must make such of the consequential adjustments claimed (if any) as are just and reasonable. (4) Consequential adjustments may be made— (a) in respect of any period, (b) by way of an assessment, the modification of an assessment, the amendment of a claim, or otherwise, and (c) despite any time limit imposed by or under any enactment. Exception for returns from certain shares 381E (1) This Chapter does not apply in relation to an arrangement that produces a return for a person, in relation to an amount, which is economically equivalent to interest where— (a) the arrangement involves only excluded shares, and (b) no relevant arrangement has been made (by any person) in relation to those excluded shares. (2) For the purposes of this section shares are excluded shares if they are admitted to trading on a regulated market and— (a) they were issued before 6 April 2013, or (b) if issued on or after that date, at the time of issue no arrangements involving only the shares would produce a return, in relation to an amount, which is economically equivalent to interest. (3) In subsection (2) “regulated market” has the same meaning as in Directive 2004/39/EC of the European Parliament and of the Council on markets in financial instruments (see Article 4.1(14)). (4) For the purposes of this section an arrangement is relevant, in relation to excluded shares, where— (a) the arrangement is made on or after 6 April 2013, and (b) it is reasonable to assume that the main purpose, or one of the main purposes, of the arrangement is to secure that arrangements involving only the shares produce a return, in relation to an amount, which is economically equivalent to interest. Consequential amendments 4 The following amendments are in consequence of the amendments made by paragraphs 2(a) and 3. TCGA 1992 5 TCGA 1992 is amended as follows. 6 In section 37 (consideration chargeable to tax on income), after subsection (2) insert— (2A) Subsection (1) is not to be taken as excluding from the consideration so taken into account any money or money's worth which is, or is taken into account in computing, a return on which income tax is charged under Chapter 2A of Part 4 of ITTOIA 2005 (disguised interest) (but see section 381D of that Act). 7 In section 39 (exclusion of expenditure by reference to tax on income), after subsection (3) insert— (3A) This section is not to be taken as excluding, from the sums allowable under section 38 as a deduction in the computation of the gain, expenditure allowable as a deduction in computing a return on which income tax is charged under Chapter 2A of Part 4 of ITTOIA 2005 (disguised interest) (but see section 381D of that Act). 8 Omit sections 148A to 148C (provision dealing with the capital gains tax consequences of Chapter 12 of Part 4 of ITTOIA 2005). 9 (1) Section 263A (agreements for sale and repurchase of securities) is amended as follows. (2) Before subsection (1) insert— (A1) For the purposes of this section there is a repo in respect of securities if— (a) a person (“the original owner”) has agreed to sell the securities to another person (“the interim holder”), and (b) the original owner or a person connected with the original owner— (i) is required to buy back the securities by the agreement or a related agreement, (ii) is required to buy back the securities as a result of the exercise of an option acquired under the agreement or a related agreement, or (iii) exercises an option to buy back the securities which was acquired under the agreement or a related agreement. (3) In subsection (1), for the words from “falling” to “repos)” substitute “ where under a repo in respect of securities the original owner has transferred the securities to the interim holder ”. (4) Omit subsection (5). 10 After section 263A insert— Section 263A: interpretation 263AA (1) Subsections (2) to (7) apply for the purposes of section 263A. (2) References to buying back securities include references to— (a) buying similar securities, and (b) in the case of a person connected with the person who is the original owner under the repo, buying the securities sold by the original owner or similar securities. (3) Subsection (2) applies even if the person buying the securities has not held them before. (4) References to repurchase or a repurchaser are to be read accordingly. (5) For the purposes of subsection (2) securities are similar if they give their holders— (a) the same rights against the same persons as to capital and distributions, interest and dividends, and (b) the same remedies to enforce those rights. (6) Subsection (5) applies even if there is a difference in— (a) the total nominal amounts of the securities, (b) the form in which they are held, or (c) the manner in which they can be transferred. (7) Agreements are related if they are entered into in pursuance of the same arrangement (regardless of the date on which either agreement is entered into). (8) In section 263A and this section “securities” means— (a) shares in a company wherever resident, (b) loan stock or other securities of— (i) the government of the United Kingdom, (ii) a local authority in the United Kingdom, (iii) another public authority in the United Kingdom, (iv) a company resident in the United Kingdom or other body resident in the United Kingdom, or (c) shares, loan stock, stock or other securities issued by— (i) a government, local authority or other public authority of a territory outside the United Kingdom, or (ii) another body of persons not resident in the United Kingdom. 11 (1) Section 263F (power to modify repo provisions: non-standard repo cases) is amended as follows. (2) In subsection (2), for the words from “cases” to the end substitute “ any case mentioned in section 263A(1). ” (3) For subsection (9) substitute— (9) Post-agreement fluctuations” are fluctuations in the value of— (a) securities transferred in pursuance of the original sale, or (b) representative securities, which occur in the period after the making of the agreement for the original sale. (10) “Representative securities” are securities which, for the purposes of the repurchase, are to represent securities transferred in pursuance of the original sale. 12 In section 263G (power to modify repo provisions: redemption arrangements)— (a) in subsection (2), for the words from “cases” to the end substitute “ any case mentioned in section 263A(1). ”, and (b) omit subsection (4). ITTOIA 2005 13 (1) ITTOIA 2005 is amended as follows. (2) Omit Chapter 12 of Part 4 (disposals of futures and options involving guaranteed returns). (3) In section 687(2) (application of charge to tax), at the end insert “ or to income falling within Chapter 2A of Part 4 ”. (4) In Schedule 1 (consequential amendments), omit paragraph 435. (5) In Schedule 2 (transitionals and savings), omit paragraph 95. (6) In Schedule 4 (abbreviations and defined expressions), omit the entry for “future (in Chapter 12 of Part 4)”. FA 2007 14 In Schedule 14 of FA 2007 (sale and repurchase of securities: minor and consequential amendments), omit paragraphs 22 and 23. ITA 2007 15 (1) ITA 2007 is amended as follows. (2) Omit the following provisions (which deal with deemed manufactured payments and repos)— (a) section 596(5), (b) sections 597 to 605, (c) section 606(1) to (7) and (9) and (10), and (d) sections 607 to 614. (3) In Schedule 1 (minor and consequential amendments), omit paragraphs 310, 543 and 544. (4) In Schedule 2 (transitionals and savings), omit paragraphs 112 to 124. (5) In Schedule 4 (index of defined expressions)— (a) omit the entries for— company UK REIT (in Chapter 4 of Part 11) , distribution (in Chapter 4 of Part 11) , gross amount (in Chapter 4 of Part 11) , group (in Chapter 4 of Part 11) , group UK REIT (in Chapter 4 of Part 11) , Manufactured dividend (in Chapter 4 of Part 11) , principal company (in Chapter 4 of Part 11) , property rental business (in Chapter 4 of Part 11) , and “the repurchase price of the securities (in Chapter 4 of Part 11) , and (b) in the entry for “distribution (except in Chapter 4 of Part 11)”, omit “(except in Chapter 4 of Part 11)”. CTA 2010 16 In Schedule 1 of CTA 2010 (minor and consequential amendments), omit paragraphs 540 to 543 and 544(a), (c) and (d). FA 2010 17 In Schedule 6 of FA 2010 (charities etc), omit paragraph 21(4). Commencement and transitional provision 18 (1) Subject to sub-paragraph (2), the amendments made by this Schedule have effect for the tax year 2013-2014 and subsequent tax years. (2) Chapter 2A of Part 4 of ITTOIA 2005 does not apply in relation to an arrangement that produces a return for a person, in relation to an amount, which is economically equivalent to interest if— (a) the person became party to the arrangement before 6 April 2013, and (b) none of the provisions repealed by paragraphs 13(2) and 15(2) applied in relation to the arrangement before that date.

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SCHEDULE 13 Change in ownership of shell company: restriction of relief

Section 33 Amendments of Part 14 of CTA 2010 1 (1) Part 14 of CTA 2010 (change in company ownership) is amended as follows. (2) In section 672 (overview of Part)— (a) after subsection (3) insert— (3A) Chapter 5A restricts relief for certain non-trading deficits and losses where there is a change of ownership of a shell company. ; (b) in subsection (7), omit the “and” at the end of paragraph (b) and after that paragraph insert— (ba) shell company”, see section 705A, and . (3) After Chapter 5 insert— CHAPTER 5A Shell companies: restrictions on relief Introduction Introduction to Chapter 705A (1) This Chapter applies where there is a change in the ownership of a shell company. (2) In this Chapter— “the change in ownership” means the change in ownership mentioned in subsection (1); “the company” means the company mentioned in subsection (1); “shell company” means a company that— is not carrying on a trade, is not a company with investment business, and is not carrying on a UK property business. Notional split of accounting period in which change in ownership occurs 705B (1) This section applies for the purposes of this Chapter. (2) The accounting period in which the change in ownership occurs (“the actual accounting period”) is treated as two separate accounting periods (“notional accounting periods”), the first ending with the change and the second consisting of the remainder of the period. (3) The amounts for the actual accounting period in column 1 of the table in section 705F(2) are apportioned to the two notional accounting periods in accordance with section 705F. (4) In this Chapter “the actual accounting period” and “notional accounting periods” have the same meaning as in this section. Restrictions on relief Restriction on debits to be brought into account 705C (1) This section has effect for the purpose of restricting the debits to be brought into account for the purposes of Part 5 of CTA 2009 (loan relationships) in respect of the company's loan relationships. (2) The debits to be brought into account for the purposes of Part 5 of CTA 2009 for— (a) the accounting period beginning immediately after the change in ownership, or (b) any subsequent accounting period, do not include relevant non-trading debits so far as amount A exceeds amount B. (3) Amount A is the sum of— (a) the amount of those relevant non-trading debits, and (b) the amount of any relevant non-trading debits which have been brought into account for the purposes of that Part for any previous accounting period ending after the change in ownership. (4) Amount B is the amount of the taxable total profits of the accounting period ending with the change in ownership. (5) For the meaning of “relevant non-trading debit”, see section 730. Restriction on carry forward of non-trading deficit from loan relationships 705D (1) This section has effect for the purpose of restricting the carry forward of a non-trading deficit from the company's loan relationships under Part 5 of CTA 2009 (loan relationships). (2) Subsection (3) applies if the non-trading deficit in column 1 of row 4 of the table in section 705F(2) is apportioned in accordance with section 705F to the first notional accounting period. (3) None of that non-trading deficit may be carried forward to— (a) the accounting period beginning immediately after the change in ownership, or (b) any subsequent accounting period. Restriction on relief for non-trading loss on intangible fixed assets 705E (1) This section has effect for the purpose of restricting relief under section 753 of CTA 2009 (treatment of non-trading losses) in respect of a non-trading loss on intangible fixed assets. (2) Relief under section 753 of CTA 2009 against the total profits of the same accounting period is available only in relation to each of the notional accounting periods considered separately. (3) A non-trading loss on intangible fixed assets for an accounting period beginning before the change in ownership may not be— (a) carried forward under section 753(3) of that Act to an accounting period ending after the change in ownership, or (b) treated under that section as if it were a non-trading debit of that period. Apportionment of amounts Apportionment of amounts 705F (1) This section applies for the purposes of this Chapter. (2) Any amount for the actual accounting period in column 1 of the following table is to be apportioned to the two notional accounting periods in accordance with the corresponding method of apportionment in column 2 of the table. Row | 1. Amount to be apportioned | 2. Method of apportionment 1 | The amount for the actual accounting period of any adjusted non-trading profits from the company's loan relationships (see section 705G(2))). | Apportion the amount in column 1 on a time basis according to the respective lengths of the two notional accounting periods. 2 | The amount for the actual accounting period of any adjusted non-trading deficit from the company's loan relationships (see section 705G(3)). | Apportion the amount in column 1 on a time basis according to the respective lengths of the two notional accounting periods. 3 | The amount of any non-trading debit that falls to be brought into account for the actual accounting period for the purposes of Part 5 of CTA 2009 (loan relationships) in respect of any debtor relationship of the company. | (1) If condition A in section 705G(4) is met, apportion the amount in column 1 by reference to the time of accrual of the amount to which the debit relates. (2) If condition B in section 705G(5) is met, apportion the amount in column 1 to the first notional accounting period. 4 | The amount of any non-trading deficit carried forward to the actual accounting period under section 457(1) of CTA 2009 (basic rule for deficits: carry forward to accounting periods after deficit period). | Apportion the whole of the amount in column 1 to the first notional accounting period. 5 | The amount of any non-trading credits or debits in respect of intangible fixed assets that fall to be brought into account for the actual accounting period under section 751 of CTA 2009 (non-trading gains and losses), but excluding any amount within column 1 of row 6. | Apportion to each notional accounting period the credits or debits that would fall to be brought into account in that period if it were a period of account for which accounts were drawn up in accordance with generally accepted accounting practice. 6 | The amount of any non-trading loss on intangible fixed assets carried forward to the actual accounting period under section 753(3) of CTA 2009 and treated under that section as if it were a non-trading debit of that period. | Apportion the whole of the amount in column 1 to the first notional accounting period. 7 | Any other amounts by reference to which the profits or losses of the actual accounting period would (but for this Chapter) be calculated. | Apportion the amount in column 1 on a time basis according to the respective lengths of the two notional accounting periods. (3) If any method of apportionment in column 2 of the table in subsection (2) would work unjustly or unreasonably in any case, such other method is to be used as is just and reasonable. (4) For the meaning of certain expressions used in this section, see section 705G. Meaning of certain expressions in section 705F 705G (1) This section applies for the purposes of the table in section 705F(2). (2) For the purposes of column 1 of row 1 of the table, the amount for the actual accounting period of any adjusted non-trading profits from the company's loan relationships is the amount which would be the amount of the profits from those relationships chargeable under section 299 of CTA 2009 (charge to tax on non-trading profits) if, in calculating that amount, amounts for that period within column 1 of row 3 or 4 of the table were disregarded. (3) For the purposes of column 1 of row 2 of the table, the amount for the actual accounting period of any adjusted non-trading deficit from the company's loan relationships is the amount which would be the amount of the non-trading deficit from those relationships if, in calculating that amount, amounts for that period within column 1 of row 3 or 4 of the table were disregarded. (4) Condition A is that— (a) the amount in column 1 of row 3 of the table is determined on an amortised cost basis of accounting, and (b) none of the following provisions applies— (i) section 373 of CTA 2009 (late interest treated as not accruing until paid in some cases), (ii) section 407 of that Act (postponement until redemption of debits for connected companies' deeply discounted securities), or (iii) section 409 of that Act (postponement until redemption of debits for close companies' deeply discounted securities). (5) Condition B is that— (a) the amount in column 1 of row 3 of the table is determined on an amortised cost basis of accounting, and (b) any of the provisions mentioned in subsection (4)(b) applies. (4) In section 721 (when things other than share capital may be taken into account: Chapters 2 to 5)— (a) in the heading, for “5” substitute “ 5A ”; (b) in subsection (1), for “5” substitute “ 5A ”; (c) in subsection (4), for “or 5” substitute “ , 5 or 5A ”. (5) In section 725 (provision applying for the purposes of Chapters 2 to 5)— (a) in the heading, for “5” substitute “ 5A ”; (b) in subsection (1), for “5” substitute “ 5A ”. (6) In section 730 (meaning of “relevant non-trading debit”)— (a) in subsection (1), for “and 696” substitute “ , 696 and 705C ”; (b) in subsections (3)(c), (4)(c) and (5)(b) for “or 696” substitute “ , 696 or 705C ”. Consequential amendments 2 In Schedule 4 to that Act (index of defined expressions) insert at the appropriate places— the actual accounting period (in Chapter 5A of Part 14) | section 705B(4) the change in ownership (in Chapter 5A of Part 14) | section 705A(2) the company (in Chapter 5A of Part 14) | section 705A(2) notional accounting periods (in Chapter 5A of Part 14) | section 705B(4) shell company (in Chapter 5A of Part 14) | section 705A(2) . Commencement 3 The amendments made by this Schedule have effect in relation to changes in ownership that occur on or after 20 March 2013.

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SCHEDULE 14 Transfer of deductions

Section 34 New Part 14A of CTA 2010 1 After Part 14 of CTA 2010 insert— PART 14A Transfer of deductions Overview 730A (1) This Part makes provision restricting the circumstances in which deductible amounts may be brought into account where there has been a qualifying change in relation to a company. (2) For the meaning of “deductible amount” and “qualifying change” see section 730B. Interpretation of Part 730B (1) In this Part— “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable), “C” means the company mentioned in section 730A(1), “deductible amount” means— an expense of a trade, an expense of a UK property business or an overseas property business, an expense of management of a company's investment business within the meaning of section 1219 of CTA 2009, a non-trading debit within the meaning of Parts 5 and 6 of CTA 2009 (loan relationships and derivative contracts) (see section 301(2) of that Act), or a non-trading debit within the meaning of Part 8 of CTA 2009 (intangible fixed assets) (see section 746 of that Act), but does not include any amount that has been taken into account in determining RTWDV within the meaning of Chapter 16A of Part 2 of CAA 2001 (restrictions on allowance buying) (see section 212K of that Act), “qualifying change”, in relation to a company, has the same meaning as in that Chapter, and “the relevant day” means the day on which the qualifying change in relation to C occurred. (2) In this Part, references to bringing an amount into account “as a deduction” in any period are to bringing it into account as a deduction in that period— (a) in calculating profits, losses or other amounts for corporation tax purposes, or (b) from profits or other amounts chargeable to corporation tax. Disallowance of deductible amounts: relevant claims 730C (1) This section applies where a relevant claim is made for an accounting period ending on or after the relevant day. (2) “Relevant claim” means a claim by C, or a company connected with C, under— (a) section 37 (relief for trade losses against total profits), or (b) Chapter 4 of Part 5 (group relief). (3) A deductible amount that meets conditions A and B may not be the subject of, or brought into account as a deduction in, the claim. (4) But subsection (3) does not exclude any amount which could have been the subject of, or brought into account as a deduction in, the claim in the absence of the qualifying change. (5) Condition A is that, on the relevant day, it is highly likely that the amount, or any part of it, would (disregarding this Part) be the subject of, or brought into account as a deduction in, a relevant claim for an accounting period ending on or after the relevant day. (6) Any question as to what is “highly likely” on the relevant day for the purposes of subsection (5) is to be determined having regard to— (a) any arrangements made on or before that day, and (b) any events that take place on or before that day. (7) Condition B is that the main purpose, or one of the main purposes, of change arrangements is for the amount (whether or not together with other deductible amounts) to be the subject of, or brought into account as a deduction in, a relevant claim for an accounting period ending on or after the relevant day. (8) “Change arrangements” means any arrangements made to bring about, or otherwise connected with, the qualifying change. (9) This section does not apply to a deductible amount if, and to the extent that— (a) section 730D(2) applies to it, or (b) for the purposes of section 432, a loss, or any part of a loss, to which section 433(2) applies derives from it. Disallowance of deductible amounts: profit transfers 730D (1) This section applies where arrangements (“the profit transfer arrangements”) are made which result in— (a) an increase in the total profits of C, or of a company connected with C, or (b) a reduction of any loss or other amount for which relief from corporation tax could (disregarding this section) have been given to C or a company connected with C, in any accounting period ending on or after the relevant day. (2) A deductible amount that meets conditions D and E may not be brought into account by C, nor any company connected with C, as a deduction in any accounting period ending on or after the relevant day. (3) Condition D is that, on the relevant day, it is highly likely that the amount, or any part of it, would (disregarding this Part) be brought into account by C, or any company connected with C, as a deduction in any accounting period ending on or after the relevant day. (4) Any question as to what is “highly likely” on the relevant day for the purposes of subsection (3) is to be determined having regard to— (a) any arrangements made on or before that day, and (b) any events that take place on or before that day. (5) Condition E is that the main purpose, or one of the main purposes, of the profit transfer arrangements is to bring the amount (whether or not together with other deductible amounts) into account as a deduction in any accounting period ending on or after the relevant day. (6) Subsection (7) applies if— (a) (disregarding subsection (7)) subsection (2) would prevent a deductible amount being brought into account by a company as a deduction in any accounting period ending on or after the relevant day, and (b) in the absence of the profit transfer arrangements and disregarding any deductible amounts, the company would have an amount of total profits for that accounting period. (7) Subsection (2) applies only in relation to such proportion of the deductible amount mentioned in subsection (6)(a) as is just and reasonable. Consequential amendments 2 (1) In section 1(4) of CTA 2010 (overview of Act), after paragraph (a) insert— (aa) transfer of deductions (see Part 14A), . (2) In section 432 of that Act (sale of lessors: restriction on relief for certain expenses), after subsection (1) insert— (1A) For the purposes of subsection (1), an expense is to be disregarded if, and to the extent that, section 730D(2) (disallowance of deductible amounts: profit transfers) applies to it. (3) In Schedule 4 to that Act (index of defined expressions), insert at the appropriate places— arrangements (in Part 14A) | section 730B as a deduction (in Part 14A) | section 730B C (in Part 14A) | section 730B deductible amount (in Part 14A) | section 730B qualifying change (in Part 14A) | section 730B the relevant day (in Part 14A) | section 730B . Commencement and transitional provision 3 (1) The amendments made by this Schedule have effect in relation to a qualifying change if the relevant day is on or after 20 March 2013. (2) But those amendments do not have effect if before that date— (a) the arrangements made to bring about the qualifying change were entered into, or (b) there was an agreement, or common understanding, between the parties to those arrangements as to the principal terms on which the qualifying change would be brought about. (3) If— (a) the relevant day in relation to a qualifying change is before 26 June 2013, or (b) paragraph (a) or (b) of sub-paragraph (2) was satisfied before that date, those amendments have effect in relation to the qualifying change as if section 730C(9)(b) were omitted.

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SCHEDULE 15 R&D expenditure credits

Section 35 PART 1 Amendments of CTA 2009 1 In Part 3 of CTA 2009 (trading income), after Chapter 6 insert— CHAPTER 6A Trade profits: R&D expenditure credits Claims for credits R&D expenditure credits 104A (1) A company carrying on a trade may make a claim for an amount (an “R&D expenditure credit”) to be brought into account as a receipt in calculating the profits of the trade for an accounting period. (2) The company is entitled to an R&D expenditure credit for the accounting period if the company has qualifying R&D expenditure which is allowable as a deduction in calculating for corporation tax purposes the profits of the trade for the accounting period. (3) In the case of a company that is a small or medium-sized enterprise in the accounting period, the company's “qualifying R&D expenditure” means— (a) its qualifying expenditure on sub-contracted R&D (see section 104C), (b) its subsidised qualifying expenditure (see section 104F), and (c) its capped R&D expenditure (see section 104I). (4) In the case of a company that is a large company throughout the accounting period, the company's “qualifying R&D expenditure” means— (a) its qualifying expenditure on in-house direct research and development (see section 104J), (b) its qualifying expenditure on contracted out research and development (see section 104K), and (c) its qualifying expenditure on contributions to independent research and development (see section 104L). (5) The amount of an R&D expenditure credit to which a company is entitled is determined in accordance with section 104M. (6) Section 104N contains provision about the effect of a successful claim for an R&D expenditure credit. (7) Sections 104U to 104W contain provision about insurance companies and group companies. (8) Section 104X contains anti-avoidance provision. (9) Section 104Y contains definitions. (10) For information about the procedure for making claims under this Chapter, see Schedule 18 to FA 1998, in particular Part 9A of that Schedule. Restriction on claiming relief under Part 13 and credit for same expenditure 104B A company may not make a claim for an R&D expenditure credit and for relief under Part 13 (additional relief for expenditure on research and development) in respect of the same expenditure. SMEs: qualifying expenditure on sub-contracted R&D Qualifying expenditure on sub-contracted R&D 104C (1) For the purposes of this Chapter a company's “qualifying expenditure on sub-contracted R&D” means expenditure incurred by it that meets conditions A and B. (2) Condition A is that the expenditure is incurred on research and development contracted out to the company by— (a) a large company, or (b) any person otherwise than in the course of carrying on a chargeable trade. (3) A “chargeable trade” is— (a) a trade, profession or vocation carried on wholly or partly in the United Kingdom, the profits of which are chargeable to income tax under Chapter 2 of Part 2 of ITTOIA 2005, or (b) a trade carried on wholly or partly in the United Kingdom, the profits of which are chargeable to corporation tax under Chapter 2 of this Part. (4) Condition B is that the expenditure is expenditure to which section 104D or 104E applies. Expenditure on sub-contracted R&D undertaken in-house 104D (1) This section applies to expenditure on research and development contracted out to a company if conditions A, B and C are met. (2) Condition A is that the research and development is undertaken by the company itself. (3) Condition B is that the expenditure is— (a) incurred on staffing costs (see section 1123), (b) incurred on software or consumable items (see section 1125), (c) qualifying expenditure on externally provided workers (see section 1127), or (d) incurred on relevant payments to the subjects of a clinical trial (see section 1140). (4) Condition C is that the expenditure is attributable to relevant research and development in relation to the company. (5) See sections 1124, 1126 and 1132 for provision about when expenditure within subsection (3)(a), (b) or (c) is attributable to relevant research and development. Expenditure on sub-contracted R&D not undertaken in-house 104E (1) This section applies to expenditure on research and development contracted out to a company if conditions A, B and C are met. (2) Condition A is that the expenditure is incurred in making payments to— (a) a qualifying body, (b) an individual, or (c) a firm, each member of which is an individual, in respect of research and development contracted out by the company to the body, individual or firm. (3) Condition B is that the research and development is undertaken by the body, individual or firm itself. (4) Condition C is that the expenditure is attributable to relevant research and development in relation to the company. (5) See sections 1124, 1126 and 1132 for provision about when particular kinds of expenditure are attributable to relevant research and development. SMEs: subsidised qualifying expenditure Subsidised qualifying expenditure 104F For the purposes of this Chapter a company's “subsidised qualifying expenditure” means— (a) its subsidised qualifying expenditure on in-house direct research and development (see section 104G), and (b) its subsidised qualifying expenditure on contracted out research and development (see section 104H). Subsidised qualifying expenditure on in-house direct R&D 104G (1) A company's “subsidised qualifying expenditure on in-house direct research and development” means expenditure incurred by it in relation to which each of conditions A to D is met. (2) Condition A is that the expenditure is subsidised. (3) Condition B is that the expenditure is— (a) incurred on staffing costs (see section 1123), (b) incurred on software or consumable items (see section 1125), (c) qualifying expenditure on externally provided workers (see section 1127), or (d) incurred on relevant payments to the subjects of a clinical trial (see section 1140). (4) Condition C is that the expenditure is attributable to relevant research and development undertaken by the company itself. (5) Condition D is that the expenditure is not incurred by the company in carrying on activities which are contracted out to the company by any person. (6) See sections 1124, 1126 and 1132 for provision about when expenditure within subsection (3)(a), (b) or (c) is attributable to relevant research and development. Subsidised qualifying expenditure on contracted out R&D 104H (1) A company's “subsidised qualifying expenditure on contracted out research and development” means expenditure— (a) which is incurred by it in making the qualifying element of a sub-contractor payment (see sections 1134 to 1136), and (b) in relation to which each of conditions A to E is met. (2) Condition A is that the expenditure is subsidised. (3) Condition B is that the sub-contractor is— (a) a qualifying body, (b) an individual, or (c) a firm, each member of which is an individual. (4) Condition C is that the body, individual or firm concerned undertakes the contracted out research and development itself. (5) Condition D is that the expenditure is attributable to relevant research and development in relation to the company. (6) Condition E is that the expenditure is not incurred by the company in carrying on activities which are contracted out to the company by any person. (7) See sections 1124, 1126 and 1132 for provision about when particular kinds of expenditure are attributable to relevant research and development. SMEs: capped R&D expenditure Capped R&D expenditure 104I For the purposes of this Chapter a company's “capped R&D expenditure” means any expenditure— (a) in respect of which the company is not entitled to relief under Chapter 2 of Part 13 merely because of section 1113 (cap on R&D aid), (b) which is not qualifying expenditure on sub-contracted R&D, and (c) which would have been qualifying R&D expenditure had the company been a large company throughout the accounting period in question. Large companies: qualifying R&D expenditure Qualifying expenditure on in-house direct R&D 104J (1) A company's “qualifying expenditure on in-house direct research and development” means expenditure incurred by it in relation to which conditions A, B and C are met. (2) Condition A is that the expenditure is— (a) incurred on staffing costs (see section 1123), (b) incurred on software or consumable items (see section 1125), (c) qualifying expenditure on externally provided workers (see section 1127), or (d) incurred on relevant payments to the subjects of a clinical trial (see section 1140). (3) Condition B is that the expenditure is attributable to relevant research and development undertaken by the company itself. (4) Condition C is that, if the expenditure is incurred in carrying on activities contracted out to the company, the activities are contracted out by— (a) a large company, or (b) any person otherwise than in the course of carrying on a chargeable trade. (5) A “chargeable trade” is— (a) a trade, profession or vocation carried on wholly or partly in the United Kingdom, the profits of which are chargeable to income tax under Chapter 2 of Part 2 of ITTOIA 2005, or (b) a trade carried on wholly or partly in the United Kingdom, the profits of which are chargeable to corporation tax under Chapter 2 of this Part. (6) See sections 1124, 1126 and 1132 for provision about when expenditure within subsection (2)(a), (b) or (c) is attributable to relevant research and development. Qualifying expenditure on contracted out R&D 104K (1) A company's “qualifying expenditure on contracted out research and development” means expenditure incurred by it in relation to which each of conditions A to D is met. (2) Condition A is that the expenditure is incurred in making payments to— (a) a qualifying body, (b) an individual, or (c) a firm, each member of which is an individual, in respect of research and development contracted out by the company to the body, individual or firm concerned (“the contracted out R&D”). (3) Condition B is that the body, individual or firm concerned undertakes the contracted out R&D itself. (4) Condition C is that the expenditure is attributable to relevant research and development in relation to the company. (5) Condition D is that, if the contracted out R&D is itself contracted out to the company, it is contracted out by— (a) a large company, or (b) any person otherwise than in the course of carrying on a chargeable trade. (6) A “chargeable trade” is— (a) a trade, profession or vocation carried on wholly or partly in the United Kingdom, the profits of which are chargeable to income tax under Chapter 2 of Part 2 of ITTOIA 2005, or (b) a trade carried on wholly or partly in the United Kingdom, the profits of which are chargeable to corporation tax under Chapter 2 of this Part. (7) See sections 1124, 1126 and 1132 for provision about when particular kinds of expenditure are attributable to relevant research and development. Qualifying expenditure on contributions to independent R&D 104L (1) A company's “qualifying expenditure on contributions to independent research and development” means expenditure incurred by it in relation to which each of conditions A to E is met. (2) Condition A is that the expenditure is incurred in making payments to— (a) a qualifying body, (b) an individual, or (c) a firm, each member of which is an individual, for the purpose of funding research and development carried on by the body, individual or firm concerned (“the funded R&D”). (3) Condition B is that the funded R&D is relevant research and development in relation to the company. (4) Condition C is that the funded R&D is not contracted out to the qualifying body, individual or firm concerned by another person. (5) Condition D is that, if the payment is made to an individual, the company is not connected with the individual when the payment is made. (6) Condition E is that, if the payment is made to a firm (other than a qualifying body), the company is not connected with any member of the firm when the payment is made. Amount of credit Amount of R&D expenditure credit 104M (1) The amount of the R&D expenditure credit to which a company is entitled for an accounting period is the relevant percentage of the amount of the company's qualifying R&D expenditure for the period. (2) In the case of a ring fence trade, the relevant percentage is 49%. In this subsection “ring fence trade” has the meaning given by section 277 of CTA 2010. (3) In any other case, the relevant percentage is 10%. (4) The Treasury may by order replace the percentage for the time being specified in subsection (2) or (3) with a different percentage. (5) An order under subsection (4) may contain incidental, supplemental, consequential and transitional provision and savings. Payment of credit Payment of R&D expenditure credit 104N (1) This section applies if a company is entitled to an R&D expenditure credit for an accounting period under this Chapter. (2) The amount to which the company is entitled in respect of the R&D expenditure credit (“the set-off amount”) is to be treated in the following way— Step 1 The set-off amount is to be applied in discharging any liability of the company to pay corporation tax for the accounting period. If any of the set-off amount is remaining, go to step 2. Step 2 If the amount remaining after step 1 is greater than the net value of the set-off amount (see subsection (3)), that amount is to be reduced to the net value of the set-off amount. For provision about the treatment of the amount deducted under this step from the amount remaining after step 1, see section 104O. Step 3 If the amount remaining after step 2 is greater than the company's total expenditure on workers for the accounting period (see section 104P)— that amount is to be reduced to the amount of that expenditure (which may be nil), and the amount deducted under paragraph (a) from the amount remaining after step 2 is to be treated for the purposes of this section as an amount of R&D expenditure credit to which the company is entitled for its next accounting period. If any of the set-off amount is remaining, go to step 4. Step 4 The amount remaining after step 3 is to be applied in discharging any liability of the company to pay corporation tax for any other accounting period. If any of the set-off amount is remaining, go to step 5. Step 5 If the company is a member of a group, it may surrender the whole or any part of the amount remaining after step 4 to any other member of the group (see section 104R). If no such surrender is made, or any of the set-off amount is otherwise remaining, go to step 6. Step 6 The amount remaining after step 5 is to be applied in discharging any other liability of the company to pay a sum to the Commissioners under or by virtue of an enactment or under a contract settlement. If any of the set-off amount is remaining, go to step 7. Step 7 The amount remaining after step 6 is payable to the company by an officer of Revenue and Customs. But this is subject to section 104S (restrictions on payment of R&D expenditure credit). (3) To determine the net value of the set-off amount for the purposes of step 2 in subsection (2), deduct from the set-off amount amount A and, in the case of a ring fence trade, amount B. Amount A is the amount equal to the corporation tax that would be chargeable on the set-off amount if— it did not include any amount treated as an amount of R&D expenditure credit for the accounting period by virtue of step 3 in subsection (2), and it was an amount of profits (or in the case of a ring fence trade, ring fence profits) of the company for the accounting period and corporation tax on such profits was chargeable at the main rate. Amount B is the amount equal to the supplementary charge that would be chargeable on the set-off amount if— it did not include any amount treated as an amount of R&D expenditure credit for the accounting period by virtue of step 3 in subsection (2), and it was an amount of adjusted ring fence profits for the accounting period. (4) In this section— “adjusted ring fence profits” has the meaning given by section 330(2) of CTA 2010, “the Commissioners” means the Commissioners for Her Majesty's Revenue and Customs, “contract settlement” means an agreement made in connection with any person's liability to make a payment to the Commissioners under or by virtue of an enactment, “ring fence profits” has the meaning given by section 276 of CTA 2010, and “ring fence trade” has the meaning given by section 277 of CTA 2010. Amounts deducted by way of tax adjustment 104O (1) This section applies if— (a) a company is entitled to an R&D expenditure credit for an accounting period under this Chapter, and (b) the amount of the set-off amount remaining after step 1 in section 104N(2) is greater than the net value of the set-off amount. (2) An amount equal to the difference between— (a) the amount remaining after step 1 in section 104N(2), and (b) the net value of the set-off amount, (“the step 2 amount”) is to be applied in discharging any liability of the company to pay corporation tax for any subsequent accounting period. This is subject to subsection (3). (3) If the company is a member of a group, it may surrender the whole or any part of the step 2 amount to any other member of the group (the “relevant group member”). In such a case, section 104R(3) applies to the amount surrendered as it applies to an amount of R&D expenditure credit surrendered under step 5 in section 104N(2). (4) If any of the amount surrendered under subsection (3) is remaining after the operation of step 3 in section 104R(3), it is to be treated for the purposes of this section as if it had not been surrendered to the relevant group member. (5) Any amounts to be applied under subsection (2) or (3) in discharging any liability of a company to pay corporation tax for an accounting period are to be so applied before any amounts that may be so applied under step 1, 4 or 5 in section 104N(2). (6) The surrender by a company of the whole or any part of the step 2 amount to another company under this section— (a) is not to be taken into account in determining the profits or losses of either company for corporation tax purposes, and (b) for corporation tax purposes is not to be regarded as the making of a distribution. (7) Any reference in this section to the set-off amount, or the net value of the set-off amount, is to be read in accordance with section 104N. Total expenditure on workers 104P (1) For the purposes of section 104N, the amount of a company's total expenditure on workers for an accounting period is the sum of— (a) the relevant portion of the company's staffing costs for the period (see subsection (2)), and (b) if the company is a member of a group and has incurred expenditure on any externally provided workers, the relevant portion of any staffing costs for the period incurred by another member of the group (the “relevant group company”) in providing any of those workers for the company (see subsection (3)). (2) The relevant portion of the company's staffing costs for an accounting period is the amount of those costs that— (a) are paid to, or in respect of, directors or employees who are directly and actively engaged in relevant research and development (whether they are wholly or partly so engaged), and (b) form part of the total amount of the company's PAYE and NIC liabilities for the accounting period (see section 104Q). (3) The relevant portion of any staffing costs for an accounting period incurred by a relevant group company in providing externally provided workers for the company is the sum of the amounts to be determined in the case of each of those workers as follows— Step 1 Calculate the amount of expenditure that— has been incurred by the relevant group company in providing the externally provided worker for the company, has been incurred on staffing costs, and forms part of the total amount of the relevant group company's PAYE and NIC liabilities for the accounting period (see section 104Q). Step 2 Calculate the percentage (the “appropriate percentage”) given by— R T × 100 where— R is the amount of the company's qualifying expenditure on the externally provided worker that has been taken into account in calculating the amount of the company's qualifying R&D expenditure for the period, and T is the total amount of the company's qualifying expenditure on the externally provided worker. Step 3 The amount to be determined in the case of the externally provided worker is the appropriate percentage of the amount given by step 1. Total amount of company's PAYE and NIC liabilities 104Q (1) For the purposes of section 104P the total amount of a company's PAYE and NIC liabilities for an accounting period is the sum of— (a) amount A, and (b) amount B. (2) Amount A is the total amount of income tax for which the company is required to account to an officer of Revenue and Customs under PAYE regulations for the accounting period. (3) In calculating amount A disregard any deduction the company is authorised to make in respect of child tax credit or working tax credit. (4) Amount B is the total amount of Class 1 national insurance contributions for which the company is required to account to an officer of Revenue and Customs for the accounting period. (5) In calculating amount B disregard any deduction the company is authorised to make in respect of payments of statutory sick pay, statutory maternity pay, child tax credit or working tax credit. (6) In a case where the company is required to account for any amount of income tax or Class 1 national insurance contributions for a payment period that does not fall wholly within the accounting period, the portion of that amount to be included in the total amount of the company's PAYE and NIC liabilities for the accounting period is to be determined on such basis as is just and reasonable in all the circumstances. Surrender of credit to other group companies 104R (1) This section applies if— (a) a company is entitled to an R&D expenditure credit under this Chapter for an accounting period (“the surrender period”), and (b) the company surrenders the whole or any part of the credit to another member of the group (the “relevant group member”) under step 5 in section 104N(2). (2) In this section an accounting period of a relevant group member is a “relevant accounting period” if there is a period (“the overlapping period”) that is common to the accounting period and the surrender period. (3) The amount surrendered is to be applied in discharging any liability of the relevant group member to pay corporation tax for any relevant accounting period as follows— Step 1 Take the proportion of the relevant accounting period included in the overlapping period. Apply that proportion to the amount of corporation tax payable by the relevant group member for the relevant accounting period. Step 2 Take the proportion of the surrender period included in the overlapping period. Apply that proportion to the amount surrendered to the relevant group member. Step 3 The amount given by step 2 is to be applied in discharging the amount given by step 1. (4) If any of the amount surrendered is remaining after the operation of step 3 in subsection (3), it is to be treated for the purposes of section 104N as if it had not been surrendered to the relevant group member. (5) The surrender by a company of the whole or any part of an R&D expenditure credit to another company under step 5 in section 104N(2)— (a) is not to be taken into account in determining the profits or losses of either company for corporation tax purposes, and (b) for corporation tax purposes is not to be regarded as the making of a distribution. Restrictions on payment of R&D expenditure credit 104S (1) This section applies if— (a) a company is entitled to an R&D expenditure credit for an accounting period under this Chapter, and (b) an amount of the R&D expenditure credit is payable to the company under step 7 of section 104N(2). (2) If at the time of claiming the credit the company was not a going concern (see section 104T)— (a) the company is not entitled to be paid that amount, and (b) that amount is extinguished. (3) But if the company becomes a going concern on or before the last day on which an amendment of the company's tax return for the accounting period could be made under paragraph 15 of Schedule 18 to FA 1998, the company is entitled to be paid that amount. (4) If the company's tax return for the accounting period is enquired into by an officer of Revenue and Customs— (a) no payment of that amount need be made before the officer's enquiries are completed (see paragraph 32 of Schedule 18 to FA 1998), but (b) the officer may make a payment on a provisional basis of such amount as the officer thinks fit. (5) No payment of that amount need be made if the company has outstanding PAYE and NIC liabilities for the period. (6) A company has outstanding PAYE and NIC liabilities for an accounting period if it has not paid to an officer of Revenue and Customs any amount that it is required to pay— (a) under PAYE regulations, or (b) in respect of Class 1 national insurance contributions, for payment periods ending in the accounting period. “Going concern” 104T (1) For the purposes of section 104S(2) and (3) a company is a going concern if— (a) its latest published accounts were prepared on a going concern basis, and (b) nothing in those accounts indicates that they were only prepared on that basis because of an expectation that the company would receive R&D expenditure credits under this Chapter. This is subject to subsection (2). (2) A company is not a going concern at any time if it is in administration or liquidation at that time. (3) For the purposes of this section a company is in administration if— (a) it is in administration under Part 2 of the Insolvency Act 1986 or Part 3 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or (b) a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company. (4) For the purposes of this section a company is in liquidation if— (a) it is in liquidation within the meaning of section 247 of that Act or Article 6 of that Order, or (b) a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company. (5) Section 436(2) of the Companies Act 2006 (meaning of “publication” of documents) has effect for the purposes of this section. Insurance companies Insurance companies treated as large companies 104U (1) This section applies if an insurance company— (a) carries on life assurance business in an accounting period, and (b) is a small or medium-sized enterprise in the period. (2) For the purposes of this Chapter the company is to be treated as if it were not such an enterprise in the period (and accordingly is to be treated as a large company for the purposes of this Chapter). (3) Section 1119 (meaning of “small or medium-sized enterprise”), as it has effect for the purposes of this Chapter (see section 104Y), is to be read subject to this section. Entitlement to credit: I minus E basis 104V (1) This section applies if— (a) for an accounting period, an insurance company is charged to tax in respect of its basic life assurance and general annuity business in accordance with the I-E rules, and (b) the calculation of the company's charge to tax for the period in respect of that business does not involve the calculation of any BLAGAB trade profit or loss of the company. (2) Section 104A has effect as if— (a) the reference in subsection (1) to calculating the profits of a trade were a reference to calculating the I-E profit of the basic life assurance and general annuity business carried on by the company, and (b) the reference in subsection (2) to qualifying R&D expenditure allowable as a deduction in calculating the profits of a trade for an accounting period were a reference to any such expenditure that would be allowable as such a deduction if the company were to calculate its BLAGAB trade profit or loss for the period. (3) Any receipt to be brought into account by virtue of this section is to be treated for the purposes of section 92 of FA 2012 (certain BLAGAB trading receipts to count as deemed I-E receipts) as if it had been taken into account in calculating the company's BLAGAB trade profit or loss for the period. (4) In this section “BLAGAB trade profit” and “BLAGAB trade loss” have the meaning given by section 136 of FA 2012. Group companies R&D expenditure of group companies 104W (1) This section applies if— (a) a company (“A”) incurs expenditure on making a payment to another company (“B”) in respect of activities contracted out by A to B, (b) the activities would, if carried out by A, be research and development of A (taken together with A's other activities), and (c) A and B are members of the same group at the time the payment is made. (2) If the activities are undertaken by B itself, they are to be treated for the purposes of this Chapter (so far as it would not otherwise be the case) as research and development undertaken by B itself. (3) If B makes a payment to a third party (“C”), any of the activities— (a) contracted out by B to C, and (b) undertaken by C itself, are to be treated for the purposes of this Chapter (so far as it would not otherwise be the case) as research and development contracted out by B to C. Anti-avoidance Artificially inflated claims for credit 104X (1) To the extent that a transaction is attributable to arrangements entered into wholly or mainly for a disqualifying purpose, it is to be disregarded for the purpose of determining for an accounting period R&D expenditure credits to which a company is entitled under this Chapter. (2) Arrangements are entered into wholly or mainly for a “disqualifying purpose” if their main object, or one of their main objects, is to enable a company to obtain— (a) an R&D expenditure credit under this Chapter to which it would not otherwise be entitled, or (b) an R&D expenditure credit under this Chapter of a greater amount than that to which it would otherwise be entitled. (3) In this section “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable. Interpretation Interpretation 104Y (1) In this Chapter the following terms have the same meaning as they have in Part 13 (additional relief for expenditure on R&D)— “large company” (see section 1122), “payment period” (see section 1141), “qualifying body” (see section 1142), “relevant research and development” (see section 1042), “research and development” (see section 1041), “small or medium-sized enterprise” (see section 1119). (2) The following sections apply for the purposes of this Chapter as they apply for the purposes of Part 13— sections 1123 and 1124 (staffing costs), sections 1125 and 1126 (software or consumable items), sections 1127 to 1132 (qualifying expenditure on externally provided workers), sections 1133 to 1136 (sub-contractor payments), section 1138 (“subsidised expenditure”), section 1140 (relevant payments to the subjects of a clinical trial). (3) For the purposes of this Chapter two companies are members of the same group if they are members of the same group of companies for the purposes of Part 5 of CTA 2010 (group relief). 2 (1) Part 13 of CTA 2009 (additional relief for expenditure on research and development) is amended as follows. (2) After section 1040 (and before the cross-heading “Interpretation”) insert— R&D expenditure credits 1040A (1) For provision enabling a company carrying on a trade to make a claim for an amount in respect of expenditure on research and development (an “R&D expenditure credit”) to be brought into account as a receipt in calculating the profits of the trade for an accounting period, see Chapter 6A of Part 3. (2) For provision prohibiting a company from making a claim for an R&D expenditure credit and for relief under this Part in respect of the same expenditure, see section 104B. (3) In section 1138 (meaning of “subsidised expenditure”), in subsection (3), omit the “and” at the end of paragraph (a) and after paragraph (b) insert— (c) R&D expenditure credits under Chapter 6A of Part 3. 3 In Schedule 4 to CTA 2009 (index of defined expressions), at the appropriate place insert— capped R&D expenditure (in Chapter 6A of Part 3) | section 104I ; large company (in Chapter 6A of Part 3) | section 1122 (as applied by section 104Y) ; payment period (in Chapter 6A of Part 3) | section 1141 (as applied by section 104Y) ; qualifying body (in Chapter 6A of Part 3) | section 1142 (as applied by section 104Y) ; qualifying expenditure on sub-contracted R&D (in Chapter 6A of Part 3) | section 104C ; qualifying R&D expenditure (in Chapter 6A of Part 3) | section 104A ; relevant payment to the subject of a clinical trial (in Chapter 6A of Part 3) | section 1140 (as applied by section 104Y) ; relevant research and development (in Chapter 6A of Part 3) | section 1042 (as applied by section 104Y) ; research and development (in Chapter 6A of Part 3) | section 1041 (as applied by section 104Y) ; small or medium-sized enterprise (in Chapter 6A of Part 3) | section 1119 (as applied by section 104Y) ; software or consumable items (in Chapter 6A of Part 3) | section 1125 (as applied by section 104Y) ; staffing costs (in Chapter 6A of Part 3) | section 1123 (as applied by section 104Y) ; subsidised qualifying expenditure (in Chapter 6A of Part 3) | section 104F . PART 2 Consequential amendments FA 1998 4 Schedule 18 to FA 1998 (company tax returns, assessments and related matters) is amended as follows. 5 In paragraph 10(2) (other claims and elections to be included in return), after “first-year tax credits” insert “ , R&D expenditure credits ”. 6 (1) Paragraph 52 (recovery of excessive repayments etc) is amended as follows. (2) In sub-paragraph (2), after paragraph (b) insert— (bza) R&D expenditure credit under Chapter 6A of Part 3 of the Corporation Tax Act 2009, . (3) In sub-paragraph (5)— (a) after paragraph (a) insert— (aa) an amount of R&D expenditure credit paid to a company for an accounting period, ; (b) after “paragraph (a),” insert “ (aa), ”. 7 (1) Part 9A (claims for R&D tax relief) is amended as follows. (2) In paragraph 83A (introduction), for the words after “applies” substitute to— (a) claims for R&D expenditure credits under Chapter 6A of Part 3 of the Corporation Tax Act 2009, and (b) claims for R&D tax relief under Part 13 of that Act. (3) In paragraph 83C (content of claim), before “relief” insert “ credit or ”. (4) Accordingly, the heading of the Part becomes “ CLAIMS FOR R&D EXPENDITURE CREDITS OR R&D TAX RELIEF ”. FA 2007 8 In Schedule 24 to FA 2007 (penalties for errors), in paragraph 28(fa) (definition of “corporation tax credit”), after sub-paragraph (i) insert— (ia) an R&D expenditure credit under Chapter 6A of Part 3 of CTA 2009, . CTA 2010 9 Part 8A of CTA 2010 (profits arising from the exploitation of patents etc) is amended as follows. 10 In section 357CG (adjustments in calculating profits of trade), in subsection (4), after “amounts to be deducted are” insert — (a) the amount of any R&D expenditure credits (within the meaning of Chapter 6A of Part 3 of CTA 2009) brought into account in calculating the profits of the trade for the accounting period, and (b) . 11 In section 357CK (deductions that are not routine deductions), in subsection (3)— (a) in paragraph (a), the words from “for which” to the end become sub-paragraph (i); (b) after that sub-paragraph insert , or (ii) in respect of which the company is entitled to an R&D expenditure credit for the accounting period under Chapter 6A of Part 3 of CTA 2009, ; (c) at the beginning of paragraph (b) insert “ where the company obtains an additional deduction as mentioned in paragraph (a)(i), ”. PART 3 Abolition of certain relief under Part 13 of CTA 2009 Amendments of Part 13 of CTA 2009 12 Part 13 of CTA 2009 (additional relief for expenditure on research and development) is amended as follows. 13 (1) Section 1039 (overview of Part) is amended as follows. (2) In subsection (3)— (a) for “Chapters 2 to 4” substitute “ Chapter 2 ”; (b) omit paragraphs (b) and (c). (3) Omit subsection (4). (4) In subsection (5)— (a) for “Chapters 2 to 5” substitute “ Chapter 2 ”; (b) omit paragraphs (b) and (c). 14 Omit Chapter 3 (relief for SMEs: R&D sub-contracted to SME). 15 Omit Chapter 4 (relief for SMEs: subsidised and capped expenditure on R&D). 16 Omit Chapter 5 (relief for large companies). 17 (1) Section 1081 (insurance companies treated as large companies) is amended as follows. (2) In subsection (2), for “Chapters 2 to 5” substitute “ Chapter 2 ”. (3) Omit subsection (3). 18 Omit section 1082 (R&D expenditure of group companies). 19 Omit section 1083 (refunds of expenditure treated as income chargeable to tax). 20 (1) Section 1084 (artificially inflated claims for relief or tax credit) is amended as follows. (2) In subsection (2)(a), for “Chapters 2 to 5” substitute “ Chapter 2 ”. (3) In subsection (3)(a) and (b), for “Chapters 2 to 5” substitute “ Chapter 2 ”. 21 In section 1119 (meaning of “small or medium-sized enterprise”), in subsection (3), for “Chapters 2 to 5” substitute “ Chapter 2 ”. 22 In section 1133 (meaning of “sub-contractor” etc), in subsection (3), omit “section 1072(1)(a),”. Consequential amendments 23 In Schedule 4 to CTA 2009 (index of defined expressions), omit the following entries— “ capped R&D expenditure (in Part 13) ”, “ qualifying Chapter 3 expenditure (in Part 13) ”, “ qualifying Chapter 4 expenditure (in Part 13) ”, and “ qualifying Chapter 5 expenditure (in Part 13) ”. 24 (1) CTA 2010 is amended as follows. (2) In section 312 (ring fence expenditure supplement: qualifying pre-commencement expenditure), omit subsections (8) and (9). (3) In section 1173, in Part 1 of the table in subsection (2), omit the entry relating to section 1083(5) of CTA 2009. (4) In Schedule 1, omit paragraph 671. 25 In section 13 of F(No.3)A 2010, omit subsections (4) and (5). 26 (1) FA 2012 is amended as follows. (2) In section 78(3), omit the entry relating to section 1080(2) of CTA 2009. (3) In Schedule 16, omit paragraph 190. PART 4 Commencement and transitional provision 27 The amendments made by Parts 1 and 2 of this Schedule have effect in relation to expenditure incurred on or after 1 April 2013. 28 Subject to paragraph 29, the amendments made by Part 3 of this Schedule have effect in relation to expenditure incurred on or after 1 April 2016. 29 (1) If a company claims an R&D expenditure credit under section 104A of CTA 2009 for an accounting period beginning before 1 April 2016, the amendments made by Part 3 of this Schedule are treated as having effect in relation to expenditure incurred by the company on or after the first day of that accounting period. (2) But in a case where the accounting period includes 1 April 2013, those amendments are treated as having effect in relation to expenditure incurred by the company on or after that day.

Propose a change

SCHEDULE 16 Tax relief for television production

Section 36 PART 1 Amendments of CTA 2009 1 After Part 15 of CTA 2009 insert— PART 15A Television production CHAPTER 1 Introduction Introductory Overview of Part 1216A (1) This Part is about television production. (2) Sections 1216AA to 1216AJ contain definitions and other provisions about interpretation that apply for the purposes of this Part. See, in particular— (a) section 1216AB, which explains what is meant by a “relevant programme”, and (b) section 1216AE, which explains how a company comes to be treated as the television production company in relation to a relevant programme. (3) Chapter 2 is about the taxation of the activities of a television production company and includes— (a) provision for the company's activities in relation to its relevant programme to be treated as a separate trade, and (b) provision about the calculation of the profits and losses of that trade. (4) Chapter 3 is about relief (called “television tax relief”) which can be given to a television production company— (a) by way of additional deductions to be made in calculating the profits or losses of the company's separate trade, or (b) by way of a payment (a “television tax credit”) to be made on the company's surrender of losses from that trade. (5) Chapter 4 is about the relief which can be given for losses made by a television production company in its separate trade, including provision for certain such losses to be transferred to other separate trades. (6) Chapter 5 provides— (a) for relief under Chapters 3 and 4 to be given on a provisional basis, and (b) for such relief to be withdrawn if it turns out that conditions that must be met for such relief to be given are not actually met. Meaning of “television programme”, “relevant programme” etc “Television programme” 1216AA (1) This section applies for the purposes of this Part. (2) “Television programme” means any programme (with or without sounds) which— (a) is produced to be seen on television, and (b) consists of moving or still images or of legible text or of a combination of those things. (3) In subsection (2) “television” includes the internet. (4) Any television programmes that are commissioned together under the same agreement are treated as a single television programme. (5) A television programme is completed when it is first in a form in which it can reasonably be regarded as ready for broadcast to the general public. “Relevant programme” 1216AB (1) This section applies for the purposes of this Part. (2) A television programme is a “relevant programme” if— (a) conditions A and B are met, and (b) in the case of a television programme that is not animation, conditions C and D are met. (3) Condition A is that the programme is— (a) a drama, (b) a documentary, or (c) animation. For further provision about these terms, see section 1216AC. (4) Condition B is that the programme is not an excluded programme (see section 1216AD). (5) Condition C is that the slot length in relation to the programme is greater than 30 minutes. (6) Condition D is that the average core expenditure per hour of slot length in relation to the programme is not less than £1 million. For the meaning of “core expenditure”, see section 1216AG. (7) “Slot length”, in relation to a television programme, means the period of time which the programme is commissioned to fill. Types of programme eligible to be relevant programmes 1216AC (1) This section applies for the purposes of this Part. (2) A programme is a “drama” if— (a) it consists wholly or mainly of a depiction of events, (b) the events are depicted (wholly or mainly) by one or more persons performing, and (c) the whole or a major proportion of what is done by the person or persons performing, whether by way of speech, acting, singing or dancing, involves the playing of a role, and for these purposes “drama” includes comedy. (3) A drama or documentary that includes animation is to be treated as animation if the core expenditure on the completed animation constitutes at least 51% of the total core expenditure on the completed programme. Excluded programmes 1216AD (1) For the purposes of this Part a television programme is an excluded programme if it falls within any of the Heads set out in the following subsections— (a) subsection (2) (advertisements etc), (b) subsection (3) (current affairs etc), (c) subsection (4) (entertainment shows), (d) subsection (5) (competitions), (e) subsection (6) (live performances), (f) subsection (7) (training programmes). (2) Head 1 is any advertisement or other promotional programme. (3) Head 2 is any news or current affairs programme or discussion programme. (4) Head 3 is any quiz show, game show, panel show, variety show, chat show or similar entertainment. (5) Head 4 is any programme consisting of or including— (a) a competition or contest, or (b) the results of a competition or contest. (6) Head 5 is any broadcast of a live event or of a theatrical or artistic performance given otherwise than for the purpose of being filmed. (7) Head 6 is any programme produced for training purposes. Other interpretation Television production company 1216AE (1) For the purposes of this Part “television production company” is to be read in accordance with this section. (2) There cannot be more than one television production company in relation to a relevant programme. (3) A company is the television production company in relation to a relevant programme if the company (otherwise than in partnership)— (a) is responsible— (i) for pre-production, principal photography and post- production of the programme, and (ii) for delivery of the programme, (b) is actively engaged in production planning and decision-making during pre-production, principal photography and post-production, and (c) directly negotiates, contracts and pays for rights, goods and services in relation to the programme. (4) A company is the television production company in relation to a relevant programme that is a qualifying co-production if the company (otherwise than in partnership)— (a) is a co-producer, and (b) makes an effective creative, technical and artistic contribution to the programme. (5) If there is more than one company meeting the description in subsection (3) or (4), the company that is most directly engaged in the activities referred to in that subsection is the television production company in relation to the relevant programme. (6) If there is no company meeting the description in subsection (3) or (4), there is no television production company in relation to the relevant programme. (7) A company may elect to be regarded as a company which does not meet the description in subsection (3) or (4). (8) The election— (a) must be made by the company by being included in its company tax return for an accounting period (and may be included in the return originally made or by amendment), and (b) may be withdrawn by the company only by amending its company tax return for that accounting period. (9) The election has effect in relation to relevant programmes which commence principal photography in that or any subsequent accounting period. “Television production activities” etc 1216AF (1) In this Part “television production activities”, in relation to a relevant programme, means the activities involved in development, pre-production, principal photography and post-production of the programme. (2) If all or any of the images in a relevant programme are generated by computer, references in this Part to principal photography are to be read as references to, or as including, the generation of those images. (3) The Treasury may by regulations— (a) amend subsections (1) and (2), (b) provide that specified activities are or are not to be regarded as television production activities or as television production activities of a particular description, and (c) provide that, in relation to a specified description of relevant programme, references to television production activities of a particular description are to be read as references to such activities as may be specified. “Specified” means specified in the regulations. “Production expenditure” and “core expenditure” 1216AG (1) This section applies for the purposes of this Part. (2) “Production expenditure”, in relation to a relevant programme, means expenditure on television production activities in connection with the programme. (3) “Core expenditure”, in relation to a relevant programme, means production expenditure on pre-production, principal photography and post-production of the programme. “UK expenditure” etc 1216AH (1) In this Part “UK expenditure”, in relation to a relevant programme, means expenditure on goods or services that are used or consumed in the United Kingdom. (2) Any apportionment of expenditure as between UK expenditure and non-UK expenditure for the purposes of this Part is to be made on a just and reasonable basis. (3) The Treasury may by regulations amend subsection (1). “Qualifying co-production” and “co-producer” 1216AI In this Part— (a) “qualifying co-production” means a relevant programme that is eligible to be certified as a British programme under section 1216CB as a result of an agreement between Her Majesty's Government in the United Kingdom and any other government, international organisation or authority, and (b) “co-producer” means a person who is a co-producer for the purposes of the agreement mentioned in paragraph (a). “Company tax return” 1216AJ In this Part “company tax return” has the same meaning as in Schedule 18 to FA 1998 (see paragraph 3(1)). CHAPTER 2 Taxation of activities of television production company Separate programme trade Activities of television production company treated as a separate trade 1216B (1) This Chapter applies for corporation tax purposes to a company that is the television production company in relation to a relevant programme. (2) The company's activities in relation to the programme are treated as a trade separate from any other activities of the company (including any activities in relation to any other television programme). (3) In this Chapter the separate trade is called “the separate programme trade”. (4) The company is treated as beginning to carry on the separate programme trade— (a) when pre-production begins, or (b) if earlier, when any income from the relevant programme is received by the company. Calculation of profits or losses of separate programme trade 1216BA (1) This section applies for the purpose of calculating the profits or losses of the separate programme trade. (2) For the first period of account the following are brought into account— (a) as a debit, the costs of the relevant programme incurred (and represented in work done) to date, and (b) as a credit, the proportion of the estimated total income from the relevant programme treated as earned at the end of that period. (3) For subsequent periods of account the following are brought into account— (a) as a debit, the difference between the amount of the costs of the relevant programme incurred (and represented in work done) to date and the corresponding amount for the previous period, and (b) as a credit, the difference between the proportion of the estimated total income from the relevant programme treated as earned at the end of that period and the corresponding amount for the previous period. (4) The proportion of the estimated total income treated as earned at the end of a period of account is given by— C T × I where— C is the total to date of costs incurred (and represented in work done), T is the estimated total cost of the relevant programme, and I is the estimated total income from the relevant programme. Supplementary Income from the relevant programme 1216BB (1) References in this Chapter to income from the relevant programme are to any receipts by the company in connection with the making or exploitation of the programme. (2) This includes— (a) receipts from the sale of the programme or rights in it, (b) royalties or other payments for use of the programme or aspects of it (for example, characters or music), (c) payments for rights to produce games or other merchandise, and (d) receipts by the company by way of a profit share agreement. (3) Receipts that (apart from this subsection) would be regarded as of a capital nature are treated as being of a revenue nature. Costs of the relevant programme 1216BC (1) References in this Chapter to the costs of the relevant programme are to expenditure incurred by the company on— (a) television production activities in connection with the programme, or (b) activities with a view to exploiting the programme. (2) This is subject to any provision of the Corporation Tax Acts prohibiting the making of a deduction, or restricting the extent to which a deduction is allowed, in calculating the profits of a trade. (3) Expenditure that (apart from this subsection) would be regarded as of a capital nature by reason only of being incurred on the creation of an asset (the relevant programme) is treated as being of a revenue nature. When costs are taken to be incurred 1216BD (1) For the purposes of this Chapter costs are incurred when they are represented in the state of completion of the work in progress. (2) Accordingly— (a) payments in advance for work to be done are ignored until the work has been carried out, and (b) deferred payments are recognised to the extent that the work is represented in the state of completion. (3) The costs incurred on the relevant programme are taken to include an amount that has not been paid only if it is the subject of an unconditional obligation to pay. (4) If an obligation is linked to income being earned from the relevant programme, no amount is to be brought into account in respect of the costs of the obligation unless an appropriate amount of income is or has been brought into account. Pre-trading expenditure 1216BE (1) This section applies if, before the company began to carry on the separate programme trade, it incurred expenditure on development of the relevant programme. (2) The expenditure may be treated as expenditure of the separate programme trade and as if incurred immediately after the company began to carry on that trade. (3) If expenditure so treated has previously been taken into account for other tax purposes, the company must amend any relevant company tax return accordingly. (4) Any amendment or assessment necessary to give effect to subsection (3) may be made despite any limitation on the time within which an amendment or assessment may normally be made. Estimates 1216BF Estimates for the purposes of this Chapter must be made as at the balance sheet date for each period of account, on a just and reasonable basis taking into consideration all relevant circumstances. CHAPTER 3 Television tax relief Introductory Availability and overview of television tax relief 1216C (1) This Chapter applies for corporation tax purposes to a company that is the television production company in relation to a relevant programme. (2) Relief under this Chapter (“television tax relief”) is available to the company if the conditions specified in the following sections are met in relation to the programme— (a) section 1216CA (intended for broadcast), (b) section 1216CB (British programme), and (c) section 1216CE (UK expenditure). (3) Television tax relief is given by way of— (a) additional deductions (see sections 1216CF and 1216CG), and (b) television tax credits (see sections 1216CH to 1216CJ). (4) But television tax relief is not available in respect of any expenditure if— (a) the company is entitled to an R&D expenditure credit under Chapter 6A of Part 3 in respect of the expenditure, or (b) the company has obtained relief under Part 13 (additional relief for expenditure on research and development) in respect of the expenditure. (5) Sections 1216CK to 1216CN contain provision about unpaid costs, artificially inflated claims and confidentiality of information. (6) In this Chapter “the separate programme trade” means the company's separate trade in relation to the relevant programme (see section 1216B). (7) See Schedule 18 to FA 1998 (in particular, Part 9D) for information about the procedure for making claims for television tax relief. “Intended for broadcast” Intended for broadcast 1216CA (1) The relevant programme must be intended for broadcast to the general public. (2) Whether this condition is met is determined when television production activities begin, so that— (a) where a relevant programme is originally intended for broadcast, this condition continues to be met even if that ceases to be the intention, and (b) where a relevant programme is not originally intended for broadcast, this condition is not met even if that becomes the intention. British programmes British programme 1216CB (1) The relevant programme must be certified by the Secretary of State as a British programme. (2) The Secretary of State, with the approval of the Treasury, may by regulations specify conditions which must be met by a relevant programme before it may be certified as a British programme. These conditions are known as the “cultural test”. (3) Regulations under subsection (2) may— (a) specify different conditions in relation to different descriptions of relevant programme, (b) provide that specified descriptions of programme may not be certified as a British programme, and (c) enable the Secretary of State to direct that any provision made by virtue of paragraph (b) does not apply to a programme that meets specified conditions. “Specified” means specified in the regulations. (4) Regulations under subsection (2) are to be made by statutory instrument. (5) A statutory instrument containing regulations under subsection (2) is subject to annulment in pursuance of a resolution of the House of Commons. (6) Sections 1216CC and 1216CD contain further provision about certification of programmes as British programmes, including provision about applications for, and withdrawal of, certification. Applications for certification 1216CC (1) An application for certification of a relevant programme as a British programme is to be made to the Secretary of State by the television production company. (2) The application may be for an interim or final certificate. (3) An interim certificate is a certificate that— (a) is granted before the programme is completed, and (b) states that the programme, if completed in accordance with the proposals set out in the application, will be a British programme. (4) A final certificate is a certificate that— (a) is granted after the programme is completed, and (b) states that the programme is a British programme. (5) The applicant must provide the Secretary of State with any documents or information which the Secretary of State requires in order to determine the application. (6) The Secretary of State may require information provided for the purposes of the application to be accompanied by a statutory declaration, made by the person providing it, as to the truth of the information. (7) The Secretary of State may by regulations make provision supplementing this section, including— (a) provision about the form of applications, (b) provision about the particulars and evidence necessary for satisfying the Secretary of State that a programme meets the cultural test, and (c) provision that any statutory declaration which is required by subsection (6) to be made by any person may be made on the person's behalf by such person as is specified in the regulations. (8) Regulations under subsection (7) are to be made by statutory instrument. (9) A statutory instrument containing regulations under subsection (7) is subject to annulment in pursuance of a resolution of the House of Commons. Certification and withdrawal of certification 1216CD (1) If the Secretary of State is satisfied that the requirements are met for interim or final certification of a relevant programme as a British programme, the Secretary of State must certify the programme accordingly. (2) If the Secretary of State is not satisfied that those requirements are met, the Secretary of State must refuse the application. (3) An interim certificate— (a) may be given subject to conditions, and (unless the Secretary of State directs otherwise) is of no effect if the conditions are not met, and (b) may be expressed to expire after a specified period, and (unless the Secretary of State directs otherwise) ceases to have effect at the end of that period. (4) An interim certificate ceases to have effect when a final certificate is issued. (5) If it appears to the Secretary of State that a relevant programme certified under this Part ought not to have been certified, the Secretary of State may revoke its certification. (6) Unless the Secretary of State directs otherwise, a certificate that is revoked is treated as never having had effect. UK expenditure UK expenditure 1216CE (1) At least 25% of the core expenditure on the relevant programme incurred— (a) in the case of a British programme that is not a qualifying co-production, by the company, and (b) in the case of a qualifying co-production, by the co-producers, must be UK expenditure. (2) The Treasury may by regulations amend the percentage specified in subsection (1). Additional deductions Additional deduction for qualifying expenditure 1216CF (1) If television tax relief is available to the company, it may (on making a claim) make an additional deduction in respect of qualifying expenditure on the relevant programme. (2) The deduction is made in calculating the profit or loss of the separate programme trade. (3) In this Chapter “qualifying expenditure” means core expenditure on the relevant programme that falls to be taken into account under Chapter 2 in calculating the profit or loss of the separate programme trade for tax purposes. (4) The Treasury may by regulations— (a) amend subsection (3), and (b) provide that expenditure of a specified description is or is not to be regarded as qualifying expenditure. Amount of additional deduction 1216CG (1) For the first period of account during which the separate programme trade is carried on, the amount of the additional deduction is— E where E is— so much of the qualifying expenditure as is UK expenditure, or if less, 80% of the total amount of qualifying expenditure. (2) For any period of account after the first, the amount of the additional deduction is given by— E − P where— E is— so much of the qualifying expenditure incurred to date as is UK expenditure, or if less, 80% of the total amount of qualifying expenditure incurred to date, and P is the total amount of the additional deductions given for previous periods. (3) The Treasury may by regulations amend this section. Television tax credits Television tax credit claimable if company has surrenderable loss 1216CH (1) If television tax relief is available to the company, it may claim a television tax credit for an accounting period in which it has a surrenderable loss. (2) The company's surrenderable loss in an accounting period is— (a) the company's available loss for the period in the separate programme trade (see subsection (3)), or (b) if less, the available qualifying expenditure for the period (see subsections (5) and (6)). (3) The company's available loss for an accounting period is given by— L + RUL where— L is the amount of the company's loss for the period in the separate programme trade, and RUL is the amount of any relevant unused loss of the company (see subsection (4)). (4) The “relevant unused loss” of a company is so much of any available loss of the company for the previous accounting period as has not been— (a) surrendered under section 1216CI(1), or (b) carried forward under section 45 of CTA 2010 and set against profits of the separate programme trade. (5) For the first period of account during which the separate programme trade is carried on, the available qualifying expenditure is the amount that is E for that period for the purposes of section 1216CG(1). (6) For any period of account after the first, the available qualifying expenditure is given by— E − S where— E is the amount that is E for that period for the purposes of section 1216CG(2), and S is the total amount previously surrendered under section 1216CI(1). (7) If a period of account of the separate programme trade does not coincide with an accounting period, any necessary apportionments are to be made by reference to the number of days in the periods concerned. Surrendering of loss and amount of television tax credit 1216CI (1) The company may surrender the whole or part of its surrenderable loss in an accounting period. (2) If the company surrenders the whole or part of that loss, the amount of the television tax credit to which it is entitled for the accounting period is 25% of the amount of the loss surrendered. (3) The company's available loss for the accounting period is reduced by the amount surrendered. Payment in respect of television tax credit 1216CJ (1) If the company— (a) is entitled to a television tax credit for a period, and (b) makes a claim, the Commissioners for Her Majesty's Revenue and Customs (“the Commissioners”) must pay to the company the amount of the credit. (2) An amount payable in respect of— (a) a television tax credit, or (b) interest on a television tax credit under section 826 of ICTA, may be applied in discharging any liability of the company to pay corporation tax. To the extent that it is so applied the Commissioners' liability under subsection (1) is discharged. (3) If the company's company tax return for the accounting period is enquired into by the Commissioners, no payment in respect of a television tax credit for that period need be made before the Commissioners' enquiries are completed (see paragraph 32 of Schedule 18 to FA 1998). In those circumstances the Commissioners may make a payment on a provisional basis of such amount as they consider appropriate. (4) No payment need be made in respect of a television tax credit for an accounting period before the company has paid to the Commissioners any amount that it is required to pay for payment periods ending in that accounting period— (a) under PAYE regulations, (b) under section 966 of ITA 2007 (visiting performers), or (c) in respect of Class 1 national insurance contributions under Part 1 of the Social Security Contributions and Benefits Act 1992 or Part 1 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992. (5) A payment in respect of a television tax credit is not income of the company for any tax purpose. Miscellaneous No account to be taken of amount if unpaid 1216CK (1) In determining for the purposes of this Chapter the amount of costs incurred on a relevant programme at the end of a period of account, ignore any amount that has not been paid 4 months after the end of that period. (2) This is without prejudice to the operation of section 1216BD (when costs are taken to be incurred). Artificially inflated claims for additional deduction or tax credit 1216CL (1) So far as a transaction is attributable to arrangements entered into wholly or mainly for a disqualifying purpose, it is to be ignored in determining for any period— (a) any additional deduction which a company may make under this Chapter, and (b) any television tax credit to be given to a company. (2) Arrangements are entered into wholly or mainly for a disqualifying purpose if their main object, or one of their main objects, is to enable a company to obtain— (a) an additional deduction under this Chapter to which it would not otherwise be entitled or of a greater amount than that to which it would otherwise be entitled, or (b) a television tax credit to which it would not otherwise be entitled or of a greater amount than that to which it would otherwise be entitled. (3) “Arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable. Confidentiality of information 1216CM (1) Section 18(1) of the Commissioners for Revenue and Customs Act 2005 (restriction on disclosure by Revenue and Customs officials) does not prevent disclosure to the Secretary of State for the purposes of the Secretary of State's functions under any of the provisions listed in subsection (2). (2) The provisions referred to in subsection (1) are— (a) sections 1216CB to 1216CD (certification of relevant programmes as British), (b) sections 1217CB to 1217CD (certification of video games as British), and (c) Schedule 1 to the Films Act 1985 (certification of films as British). (3) Information so disclosed may be disclosed to the British Film Institute. (4) The Treasury may by order amend subsection (3)— (a) so as to substitute for the person or body specified in that subsection a different person or body, or (b) in consequence of a change in the name of the person or body so specified. (5) A person to whom information is disclosed under subsection (1) or (3) may not otherwise disclose it except— (a) for the purposes of the Secretary of State's functions under any of the provisions listed in subsection (2), (b) if the disclosure is authorised by an enactment, (c) in pursuance of an order of a court, (d) for the purposes of a criminal investigation or legal proceedings (whether civil or criminal) connected with the operation of any of Parts 15 to 15B of this Act or Schedule 1 to the Films Act 1985, (e) with the consent of the Commissioners for Her Majesty's Revenue and Customs, or (f) with the consent of each person to whom the information relates. Wrongful disclosure 1216CN (1) A person (“X”) commits an offence if— (a) X discloses revenue and customs information relating to a person (as defined in section 19(2) of the Commissioners for Revenue and Customs Act 2005), (b) the identity of the person to whom the information relates is specified in the disclosure or can be deduced from it, and (c) the disclosure contravenes section 1216CM(5). (2) If a person (“Y”) is charged with an offence under subsection (1), it is a defence for Y to prove that Y reasonably believed— (a) that the disclosure was lawful, or (b) that the information had already and lawfully been made available to the public. (3) A person guilty of an offence under subsection (1) is liable— (a) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine or both, or (b) on summary conviction, to imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum or both. (4) A prosecution for an offence under subsection (1) may be brought in England and Wales only— (a) by the Director of Revenue and Customs Prosecutions, or (b) with the consent of the Director of Public Prosecutions. (5) A prosecution for an offence under subsection (1) may be brought in Northern Ireland only— (a) by the Commissioners for Her Majesty's Revenue and Customs, or (b) with the consent of the Director of Public Prosecutions for Northern Ireland. (6) In the application of this section— (a) in England and Wales, in relation to an offence committed before the commencement of section 282 of the Criminal Justice Act 2003, or (b) in Northern Ireland, the reference in subsection (3)(b) to 12 months is to be read as a reference to 6 months. CHAPTER 4 Programme losses Application of sections 1216DA and 1216DB 1216D (1) Sections 1216DA and 1216DB apply to a company that is the television production company in relation to a relevant programme. (2) In those sections— “the completion period” means the accounting period of the company— in which the relevant programme is completed, or if the company does not complete the relevant programme, in which it abandons television production activities in relation to the programme, “loss relief” includes any means by which a loss might be used to reduce the amount in respect of which the company, or any other person, is chargeable to tax, “pre-completion period” means an accounting period of the company before the completion period, and “the separate programme trade” means the company's separate trade in relation to the relevant programme (see section 1216B). Restriction on use of losses while programme in production 1216DA (1) This section applies if in a pre-completion period a loss is made in the separate programme trade. (2) The loss is not available for loss relief except to the extent that it may be carried forward under section 45 of CTA 2010 to be set against profits of the separate programme trade in a subsequent period. Use of losses in later periods 1216DB (1) This section applies to the following accounting periods of the company (“relevant later periods”)— (a) the completion period, and (b) any subsequent accounting period during which the separate programme trade continues. (2) Subsection (3) applies if a loss made in the separate programme trade is carried forward under section 45 of CTA 2010 from a pre-completion period to a relevant later period. (3) So much (if any) of the loss as is not attributable to television tax relief (see subsection (6)) may be treated for the purposes of loss relief as if it were a loss made in the period to which it is carried forward. (4) Subsection (5) applies if in a relevant later period a loss is made in the separate programme trade. (5) The amount of the loss that may be— (a) deducted from total profits of the same or an earlier period under section 37 of CTA 2010, or (b) surrendered as group relief under Part 5 of that Act, is restricted to the amount (if any) that is not attributable to television tax relief (see subsection (6)). (6) The amount of a loss in any period that is attributable to television tax relief is calculated by deducting from the total amount of the loss the amount there would have been if there had been no additional deduction under Chapter 3 in that or any earlier period. (7) This section does not apply to a loss to the extent that it is carried forward or surrendered under section 1216DC. Terminal losses 1216DC (1) This section applies if— (a) a company (“company A”) is the television production company in relation to a qualifying programme, (b) company A ceases to carry on its separate trade in relation to that programme (“trade X”) (see section 1216B), and (c) if company A had not ceased to carry on trade X, it could have carried forward an amount under section 45 of CTA 2010 to be set against profits of trade X in a later period (“the terminal loss”). (2) If on cessation of trade X company A— (a) is the television production company in relation to another qualifying programme, and (b) is carrying on its separate trade in relation to that programme (“trade Y”), it may (on making a claim) make an election under subsection (3). (3) The election is to have the terminal loss (or a part of it) treated as if it were a loss brought forward under section 45 of CTA 2010 to be set against the profits of trade Y in the first accounting period beginning after the cessation and so on. (4) Subsection (5) applies if on cessation of trade X— (a) there is another company (“company B”) that is the television production company in relation to a qualifying programme, (b) company B is carrying on its separate trade in relation to that programme (“trade Z”), and (c) company B is in the same group as company A for the purposes of Part 5 of CTA 2010 (group relief). (5) Company A may surrender the terminal loss (or a part of it) to company B. (6) On the making of a claim by company B the amount surrendered is treated as if it were a loss brought forward by company B under section 45 of CTA 2010 to be set against the profits of trade Z of the first accounting period of that company beginning after the cessation and so on. (7) The Treasury may, in relation to the surrender of a loss under subsection (5) and the resulting claim under subsection (6), make provision by regulations corresponding, subject to such adaptations or other modifications as appear to them to be appropriate, to that made by Part 8 of Schedule 18 to FA 1998 (company tax returns: claims for group relief). (8) “Qualifying programme” means a relevant programme in relation to which the conditions for television tax relief are met (see 1216C(2)). CHAPTER 5 Provisional entitlement to relief Introduction 1216E (1) In this Chapter— “the company” means the television production company in relation to a relevant programme, “the completion period” means the accounting period of the company— in which the relevant programme is completed, or if the company does not complete the relevant programme, in which it abandons television production activities in relation to it, “interim accounting period” means any earlier accounting period of the company during which television production activities are carried on in relation to the relevant programme, “interim certificate” and “final certificate” have the meaning given by section 1216CC, “the separate programme trade” means the company's separate trade in relation to the relevant programme (see section 1216B), and “special television relief” means— television tax relief, or relief under section 1216DC (transfer of terminal losses from one relevant programme to another). (2) The company's company tax return for the completion period must state that the relevant programme has been completed or that the company has abandoned television production activities in relation to it (as the case may be). Certification as a British programme 1216EA (1) The company is not entitled to special television relief for an interim accounting period unless its company tax return for the period is accompanied by an interim certificate. (2) If an interim certificate ceases to be in force (otherwise than on being superseded by a final certificate) or is revoked, the company— (a) is not entitled to special television relief for any period for which its entitlement depended on the certificate, and (b) must amend accordingly its company tax return for any such period. (3) If the relevant programme is completed by the company— (a) its company tax return for the completion period must be accompanied by a final certificate, (b) if that requirement is met, the final certificate has effect for the completion period and for any interim accounting period, and (c) if that requirement is not met, the company— (i) is not entitled to special television relief for any period, and (ii) must amend accordingly its company tax return for any period for which such relief was claimed. (4) If the company abandons television production activities in relation to the relevant programme— (a) its company tax return for the completion period may be accompanied by an interim certificate, and (b) the abandonment of television production activities does not affect any entitlement to special television relief in that or any previous accounting period. (5) If a final certificate is revoked, the company— (a) is not entitled to special television relief for any period, and (b) must amend accordingly its company tax return for any period for which such relief was claimed. The UK expenditure condition 1216EB (1) The company is not entitled to special television relief for an interim accounting period unless— (a) its company tax return for the period states the amount of planned core expenditure on the relevant programme that is UK expenditure, and (b) that amount is such as to indicate that the condition in section 1216CE (the UK expenditure condition) will be met on completion of the programme. If those requirements are met, the company is provisionally treated in relation to that period as if that condition was met. (2) If such a statement is made but it subsequently appears that the condition will not be met on completion of the programme, the company— (a) is not entitled to special television relief for any period for which its entitlement depended on such a statement, and (b) must amend accordingly its company tax return for any such period. (3) When the relevant programme is completed or the company abandons television production activities in relation to it (as the case may be), the company's company tax return for the completion period must be accompanied by a final statement of the amount of core expenditure on the programme that is UK expenditure. (4) If that statement shows that the condition in section 1216CE is not met, the company— (a) is not entitled to special television relief for any period, and (b) must amend accordingly its company tax return for any period for which such relief was claimed. Time limit for amendments and assessments 1216EC Any amendment or assessment necessary to give effect to the provisions of this Chapter may be made despite any limitation on the time within which an amendment or assessment may normally be made. PART 2 Commencement 2 (1) Any power conferred on the Secretary of State or the Treasury by virtue of this Schedule to make regulations or an order comes into force on the day on which this Act is passed. (2) So far as not already brought into force by sub-paragraph (1), the amendments made by this Schedule come into force in accordance with provision contained in an order made by the Treasury. (3) An order under sub-paragraph (2)— (a) may make different provision for different purposes; (b) may make such adaptations of Part 15A of CTA 2009 as appear to be necessary or expedient in consequence of other provisions of this Act not yet having come into force. 3 (1) The amendments made by this Schedule have effect in relation to accounting periods beginning on or after 1 April 2013. (2) Sub-paragraph (3) applies where a company has an accounting period beginning before 1 April 2013 and ending on or after that date (“the straddling period”). (3) For the purposes of Part 15A of CTA 2009— (a) so much of the straddling period as falls before 1 April 2013, and so much of that period as falls on or after that date, are treated as separate accounting periods, and (b) any amounts brought into account for the purposes of calculating for corporation tax purposes the profits of any trade of the company for the straddling period are apportioned to the two separate accounting periods on such basis as is just and reasonable.

Propose a change

SCHEDULE 17 Tax relief for video games development

Section 36 PART 1 Amendments of CTA 2009 1 After Part 15A of CTA 2009 (inserted by Schedule 16 above) insert— PART 15B Video games development CHAPTER 1 Introduction Introductory Overview of Part 1217A (1) This Part is about video games development. (2) Sections 1217AA to 1217AF contain definitions and other provisions about interpretation that apply for the purposes of this Part. See, in particular— (a) section 1217AA, which contains provision about the meaning of “video game”, and (b) section 1217AB, which explains how a company comes to be treated as the video games development company in relation to a video game. (3) Chapter 2 is about the taxation of the activities of a video games development company and includes— (a) provision for the company's activities in relation to its video game to be treated as a separate trade, and (b) provision about the calculation of the profits and losses of that trade. (4) Chapter 3 is about relief (called “video games tax relief”) which can be given to a video games development company— (a) by way of additional deductions to be made in calculating the profits or losses of the company's separate trade, or (b) by way of a payment (a “video game tax credit”) to be made on the company's surrender of losses from that trade. (5) Chapter 4 is about the relief which can be given for losses made by a video games development company in its separate trade, including provision for certain such losses to be transferred to other separate trades. (6) Chapter 5 provides— (a) for relief under Chapters 3 and 4 to be given on a provisional basis, and (b) for such relief to be withdrawn if it turns out that conditions that must be met for such relief to be given are not actually met. Interpretation “Video game” etc 1217AA (1) This section applies for the purposes of this Part. (2) “Video game” does not include— (a) anything produced for advertising or promotional purposes, or (b) anything produced for the purposes of gambling (within the meaning of the Gambling Act 2005). (3) References to a video game include the game's soundtrack. (4) A video game is completed when it is first in a form in which it can reasonably be regarded as ready for copies of it to be made and made available to the general public. Video games development company 1217AB (1) For the purposes of this Part “video games development company” is to be read in accordance with this section. (2) There cannot be more than one video games development company in relation to a video game. (3) A company is the video games development company in relation to a video game if the company (otherwise than in partnership)— (a) is responsible for designing, producing and testing the video game, (b) is actively engaged in planning and decision-making during the design, production and testing of the video game, and (c) directly negotiates, contracts and pays for rights, goods and services in relation to the video game. (4) If there is more than one company meeting the description in subsection (3), the company that is most directly engaged in the activities referred to in that subsection is the video games development company in relation to the video game. (5) If there is no company meeting the description in subsection (3), there is no video games development company in relation to the video game. (6) A company may elect to be regarded as a company which does not meet the description in subsection (3). (7) The election— (a) must be made by the company by being included in its company tax return for an accounting period (and may be included in the return originally made or by amendment), and (b) may be withdrawn by the company only by amending its company tax return for that accounting period. (8) The election has effect in relation to video games which begin to be produced in that or any subsequent accounting period. “Video game development activities” etc 1217AC (1) In this Part “video game development activities”, in relation to a video game, means the activities involved in designing, producing and testing the video game. (2) The Treasury may by regulations— (a) amend subsection (1), (b) provide that specified activities are or are not to be regarded as video game development activities or as video game development activities of a particular description, and (c) provide that, in relation to a specified description of video game, references to video game development activities of a particular description are to be read as references to such activities as may be specified. “Specified” means specified in the regulations. “Core expenditure” 1217AD (1) In this Part “core expenditure”, in relation to a video game, means expenditure on designing, producing and testing the video game. (2) But the following descriptions of expenditure are not to be regarded as core expenditure for the purposes of this Part— (a) any expenditure incurred in designing the initial concept for a video game; (b) any expenditure incurred in debugging a completed video game or carrying out any maintenance in connection with such a video game. “UK expenditure” etc 1217AE (1) In this Part “UK expenditure”, in relation to a video game, means expenditure on goods or services that are used or consumed in the United Kingdom. (2) Any apportionment of expenditure as between UK expenditure and non-UK expenditure for the purposes of this Part is to be made on a just and reasonable basis. (3) The Treasury may by regulations amend subsection (1). “Company tax return” 1217AF In this Part “company tax return” has the same meaning as in Schedule 18 to FA 1998 (see paragraph 3(1)). CHAPTER 2 Taxation of activities of video games development company Separate video game trade Activities of video games development company treated as a separate trade 1217B (1) This Chapter applies for corporation tax purposes to a company that is the video games development company in relation to a video game. (2) The company's activities in relation to the video game are treated as a trade separate from any other activities of the company (including any activities in relation to any other video game). (3) In this Chapter the separate trade is called “the separate video game trade”. (4) The company is treated as beginning to carry on the separate video game trade— (a) when the design of the video game begins, or (b) if earlier, when any income from the video game is received by the company. Calculation of profits or losses of separate video game trade 1217BA (1) This section applies for the purpose of calculating the profits or losses of the separate video game trade. (2) For the first period of account the following are brought into account— (a) as a debit, the costs of the video game incurred (and represented in work done) to date, and (b) as a credit, the proportion of the estimated total income from the video game treated as earned at the end of that period. (3) For subsequent periods of account the following are brought into account— (a) as a debit, the difference between the amount of the costs of the video game incurred (and represented in work done) to date and the corresponding amount for the previous period, and (b) as a credit, the difference between the proportion of the estimated total income from the video game treated as earned at the end of that period and the corresponding amount for the previous period. (4) The proportion of the estimated total income treated as earned at the end of a period of account is given by— C T × I where— C is the total to date of costs incurred (and represented in work done), T is the estimated total cost of the video game, and I is the estimated total income from the video game. Supplementary Income from the video game 1217BB (1) References in this Chapter to income from the video game are to any receipts by the company in connection with the production or exploitation of the video game. (2) This includes— (a) receipts from the sale of the video game or rights in it, (b) royalties or other payments for use of the video game or aspects of it (for example, characters or music), (c) payments for rights to produce games or other merchandise, and (d) receipts by the company by way of a profit share agreement. (3) Receipts that (apart from this subsection) would be regarded as of a capital nature are treated as being of a revenue nature. Costs of the video game 1217BC (1) References in this Chapter to the costs of the video game are to expenditure incurred by the company on— (a) video game development activities in connection with the video game, or (b) activities with a view to exploiting the video game. (2) This is subject to any provision of the Corporation Tax Acts prohibiting the making of a deduction, or restricting the extent to which a deduction is allowed, in calculating the profits of a trade. (3) Expenditure that (apart from this subsection) would be regarded as of a capital nature by reason only of being incurred on the creation of an asset (the video game) is treated as being of a revenue nature. When costs are taken to be incurred 1217BD (1) For the purposes of this Chapter costs are incurred when they are represented in the state of completion of the work in progress. (2) Accordingly— (a) payments in advance for work to be done are ignored until the work has been carried out, and (b) deferred payments are recognised to the extent that the work is represented in the state of completion. (3) The costs incurred on the video game are taken to include an amount that has not been paid only if it is the subject of an unconditional obligation to pay. (4) If an obligation is linked to income being earned from the video game, no amount is to be brought into account in respect of the costs of the obligation unless an appropriate amount of income is or has been brought into account. Estimates 1217BE Estimates for the purposes of this Chapter must be made as at the balance sheet date for each period of account, on a just and reasonable basis taking into consideration all relevant circumstances. CHAPTER 3 Video games tax relief Introductory Availability and overview of video games tax relief 1217C (1) This Chapter applies for corporation tax purposes to a company that is the video games development company in relation to a video game. (2) Relief under this Chapter (“video games tax relief”) is available to the company if the conditions specified in the following sections are met in relation to the video game— (a) section 1217CA (intended for supply), (b) section 1217CB (British video game), and (c) section 1217CE (UK expenditure). (3) Video games tax relief is given by way of— (a) additional deductions (see sections 1217CF and 1217CG), and (b) video game tax credits (see sections 1217CH to 1217CJ). (4) But video games tax relief is not available in respect of any expenditure if— (a) the company is entitled to an R&D expenditure credit under Chapter 6A of Part 3 in respect of the expenditure, or (b) the company has obtained relief under Part 13 (additional relief for expenditure on research and development) in respect of the expenditure. (5) Sections 1217CK to 1217CN contain provision about unpaid costs, artificially inflated claims and confidentiality of information. (6) In this Chapter “the separate video game trade” means the company's separate trade in relation to the video game (see section 1217B). (7) See Schedule 18 to FA 1998 (in particular, Part 9D) for information about the procedure for making claims for video games tax relief. “Intended for supply” Intended for supply 1217CA (1) The video game must be intended for supply to the general public. (2) Whether this condition is met is determined when video game production activities begin, so that— (a) where a video game is originally intended for supply, this condition continues to be met even if that ceases to be the intention, and (b) where a video game is not originally intended for supply, this condition is not met even if that becomes the intention. British video games British video game 1217CB (1) The video game must be certified by the Secretary of State as a British video game. (2) The Secretary of State, with the approval of the Treasury, may by regulations specify conditions which must be met by a video game before it may be certified as a British video game. These conditions are known as the “cultural test”. (3) Regulations under subsection (2) may— (a) specify different conditions in relation to different descriptions of video game, (b) provide that specified descriptions of video game may not be certified as a British video game, and (c) enable the Secretary of State to direct that any provision made by virtue of paragraph (b) does not apply to a video game that meets specified conditions. “Specified” means specified in the regulations. (4) Regulations under subsection (2) are to be made by statutory instrument. (5) A statutory instrument containing regulations under subsection (2) is subject to annulment in pursuance of a resolution of the House of Commons. (6) Sections 1217CC and 1217CD contain further provision about certification of video games as British video games, including provision about applications for, and withdrawal of, certification. Applications for certification 1217CC (1) An application for certification of a video game as a British video game is to be made to the Secretary of State by the video games development company. (2) The application may be for an interim or final certificate. (3) An interim certificate is a certificate that— (a) is granted before the video game is completed, and (b) states that the video game, if completed in accordance with the proposals set out in the application, will be a British video game. (4) A final certificate is a certificate that— (a) is granted after the video game is completed, and (b) states that the video game is a British video game. (5) The applicant must provide the Secretary of State with any documents or information which the Secretary of State requires in order to determine the application. (6) The Secretary of State may require information provided for the purposes of the application to be accompanied by a statutory declaration, made by the person providing it, as to the truth of the information. (7) The Secretary of State may by regulations make provision supplementing this section, including— (a) provision about the form of applications, (b) provision about the particulars and evidence necessary for satisfying the Secretary of State that a video game meets the cultural test, and (c) provision that any statutory declaration which is required by subsection (6) to be made by any person may be made on the person's behalf by such person as is specified in the regulations. (8) Regulations under subsection (7) are to be made by statutory instrument. (9) A statutory instrument containing regulations under subsection (7) is subject to annulment in pursuance of a resolution of the House of Commons. Certification and withdrawal of certification 1217CD (1) If the Secretary of State is satisfied that the requirements are met for interim or final certification of a video game as a British video game, the Secretary of State must certify the video game accordingly. (2) If the Secretary of State is not satisfied that those requirements are met, the Secretary of State must refuse the application. (3) An interim certificate— (a) may be given subject to conditions, and (unless the Secretary of State directs otherwise) is of no effect if the conditions are not met, and (b) may be expressed to expire after a specified period, and (unless the Secretary of State directs otherwise) ceases to have effect at the end of that period. (4) An interim certificate ceases to have effect when a final certificate is issued. (5) If it appears to the Secretary of State that a video game certified under this Part ought not to have been certified, the Secretary of State may revoke its certification. (6) Unless the Secretary of State directs otherwise, a certificate that is revoked is treated as never having had effect. UK expenditure UK expenditure 1217CE (1) At least 25% of the core expenditure on the video game incurred by the company must be UK expenditure. (2) The Treasury may by regulations amend the percentage specified in subsection (1). Additional deductions Additional deduction for qualifying expenditure 1217CF (1) If video games tax relief is available to the company, it may (on making a claim) make an additional deduction in respect of qualifying expenditure on the video game. (2) The deduction is made in calculating the profit or loss of the separate video game trade. (3) In this Chapter “qualifying expenditure” means core expenditure on the video game that falls to be taken into account under Chapter 2 in calculating the profit or loss of the separate video game trade for tax purposes. (4) The Treasury may by regulations— (a) amend subsection (3), and (b) provide that expenditure of a specified description is or is not to be regarded as qualifying expenditure. Amount of additional deduction 1217CG (1) For the first period of account during which the separate video game trade is carried on, the amount of the additional deduction is— E where E is— so much of the qualifying expenditure as is UK expenditure, or if less, 80% of the total amount of qualifying expenditure. (2) For any period of account after the first, the amount of the additional deduction is given by— E − P where— E is— so much of the qualifying expenditure incurred to date as is UK expenditure, or if less, 80% of the total amount of qualifying expenditure incurred to date, and P is the total amount of the additional deductions given for previous periods. (3) The Treasury may by regulations amend this section. Video game tax credits Video game tax credit claimable if company has surrenderable loss 1217CH (1) If video games tax relief is available to the company, it may claim a video game tax credit for an accounting period in which it has a surrenderable loss. (2) The company's surrenderable loss in an accounting period is— (a) the company's available loss for the period in the separate video game trade (see subsection (3)), or (b) if less, the available qualifying expenditure for the period (see subsections (5) and (6)). (3) The company's available loss for an accounting period is given by— L + RUL where— L is the amount of the company's loss for the period in the separate video game trade, and RUL is the amount of any relevant unused loss of the company (see subsection (4)). (4) The “relevant unused loss” of a company is so much of any available loss of the company for the previous accounting period as has not been— (a) surrendered under section 1217CI(1), or (b) carried forward under section 45 of CTA 2010 and set against profits of the separate video game trade. (5) For the first period of account during which the separate video game trade is carried on, the available qualifying expenditure is the amount that is E for that period for the purposes of section 1217CG(1). (6) For any period of account after the first, the available qualifying expenditure is given by— E − S where— E is the amount that is E for that period for the purposes of section 1217CG(2), and S is the total amount previously surrendered under section 1217CI(1). (7) If a period of account of the separate video game trade does not coincide with an accounting period, any necessary apportionments are to be made by reference to the number of days in the periods concerned. Surrendering of loss and amount of video game tax credit 1217CI (1) The company may surrender the whole or part of its surrenderable loss in an accounting period. (2) If the company surrenders the whole or part of that loss, the amount of the video game tax credit to which it is entitled for the accounting period is 25% of the amount of the loss surrendered. (3) The company's available loss for the accounting period is reduced by the amount surrendered. Payment in respect of video game tax credit 1217CJ (1) If the company— (a) is entitled to a video game tax credit for a period, and (b) makes a claim, the Commissioners for Her Majesty's Revenue and Customs (“the Commissioners”) must pay to the company the amount of the credit. (2) An amount payable in respect of— (a) a video game tax credit, or (b) interest on a video game tax credit under section 826 of ICTA, may be applied in discharging any liability of the company to pay corporation tax. To the extent that it is so applied the Commissioners' liability under subsection (1) is discharged. (3) If the company's company tax return for the accounting period is enquired into by the Commissioners, no payment in respect of a video game tax credit for that period need be made before the Commissioners' enquiries are completed (see paragraph 32 of Schedule 18 to FA 1998). In those circumstances the Commissioners may make a payment on a provisional basis of such amount as they consider appropriate. (4) No payment need be made in respect of a video game tax credit for an accounting period before the company has paid to the Commissioners any amount that it is required to pay for payment periods ending in that accounting period— (a) under PAYE regulations, (b) under section 966 of ITA 2007 (visiting performers), or (c) in respect of Class 1 national insurance contributions under Part 1 of the Social Security Contributions and Benefits Act 1992 or Part 1 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992. (5) A payment in respect of a video game tax credit is not income of the company for any tax purpose. Miscellaneous No account to be taken of amount if unpaid 1217CK (1) In determining for the purposes of this Chapter the amount of costs incurred on a video game at the end of a period of account, ignore any amount that has not been paid 4 months after the end of that period. (2) This is without prejudice to the operation of section 1217BD (when costs are taken to be incurred). Artificially inflated claims for additional deduction or tax credit 1217CL (1) So far as a transaction is attributable to arrangements entered into wholly or mainly for a disqualifying purpose, it is to be ignored in determining for any period— (a) any additional deduction which a company may make under this Chapter, and (b) any video game tax credit to be given to a company. (2) Arrangements are entered into wholly or mainly for a disqualifying purpose if their main object, or one of their main objects, is to enable a company to obtain— (a) an additional deduction under this Chapter to which it would not otherwise be entitled or of a greater amount than that to which it would otherwise be entitled, or (b) a video game tax credit to which it would not otherwise be entitled or of a greater amount than that to which it would otherwise be entitled. (3) “Arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable. Confidentiality of information 1217CM (1) Section 18(1) of the Commissioners for Revenue and Customs Act 2005 (restriction on disclosure by Revenue and Customs officials) does not prevent disclosure to the Secretary of State for the purposes of the Secretary of State's functions under any of the provisions listed in subsection (2). (2) The provisions referred to in subsection (1) are— (a) sections 1216CB to 1216CD (certification of relevant programmes as British), (b) sections 1217CB to 1217CD (certification of video games as British), and (c) Schedule 1 to the Films Act 1985 (certification of films as British). (3) Information so disclosed may be disclosed to the British Film Institute. (4) The Treasury may by order amend subsection (3)— (a) so as to substitute for the person or body specified in that subsection a different person or body, or (b) in consequence of a change in the name of the person or body so specified. (5) A person to whom information is disclosed under subsection (1) or (3) may not otherwise disclose it except— (a) for the purposes of the Secretary of State's functions under any of the provisions listed in subsection (2), (b) if the disclosure is authorised by an enactment, (c) in pursuance of an order of a court, (d) for the purposes of a criminal investigation or legal proceedings (whether civil or criminal) connected with the operation of any of Parts 15 to 15B of this Act or Schedule 1 to the Films Act 1985, (e) with the consent of the Commissioners for Her Majesty's Revenue and Customs, or (f) with the consent of each person to whom the information relates. Wrongful disclosure 1217CN (1) A person (“X”) commits an offence if— (a) X discloses revenue and customs information relating to a person (as defined in section 19(2) of the Commissioners for Revenue and Customs Act 2005), (b) the identity of the person to whom the information relates is specified in the disclosure or can be deduced from it, and (c) the disclosure contravenes section 1217CM(5). (2) If a person (“Y”) is charged with an offence under subsection (1), it is a defence for Y to prove that Y reasonably believed— (a) that the disclosure was lawful, or (b) that the information had already and lawfully been made available to the public. (3) A person guilty of an offence under subsection (1) is liable— (a) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine or both, or (b) on summary conviction, to imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum or both. (4) A prosecution for an offence under subsection (1) may be brought in England and Wales only— (a) by the Director of Revenue and Customs Prosecutions, or (b) with the consent of the Director of Public Prosecutions. (5) A prosecution for an offence under subsection (1) may be brought in Northern Ireland only— (a) by the Commissioners for Her Majesty's Revenue and Customs, or (b) with the consent of the Director of Public Prosecutions for Northern Ireland. (6) In the application of this section— (a) in England and Wales, in relation to an offence committed before the commencement of section 282 of the Criminal Justice Act 2003, or (b) in Northern Ireland, the reference in subsection (3)(b) to 12 months is to be read as a reference to 6 months. CHAPTER 4 Video game losses Application of sections 1217DA and 1217DB 1217D (1) Sections 1217DA and 1217DB apply to a company that is the video games development company in relation to a video game. (2) In those sections— “the completion period” means the accounting period of the company— in which the video game is completed, or if the company does not complete the video game, in which it abandons video game development activities in relation to the video game, “loss relief” includes any means by which a loss might be used to reduce the amount in respect of which the company, or any other person, is chargeable to tax, “pre-completion period” means an accounting period of the company before the completion period, and “the separate video game trade” means the company's separate trade in relation to the video game (see section 1217B). Restriction on use of losses while video game in development 1217DA (1) This section applies if in a pre-completion period a loss is made in the separate video game trade. (2) The loss is not available for loss relief except to the extent that it may be carried forward under section 45 of CTA 2010 to be set against profits of the separate video game trade in a subsequent period. Use of losses in later periods 1217DB (1) This section applies to the following accounting periods of the company (“relevant later periods”)— (a) the completion period, and (b) any subsequent accounting period during which the separate video game trade continues. (2) Subsection (3) applies if a loss made in the separate video game trade is carried forward under section 45 of CTA 2010 from a pre-completion period to a relevant later period. (3) So much (if any) of the loss as is not attributable to video games tax relief (see subsection (6)) may be treated for the purposes of loss relief as if it were a loss made in the period to which it is carried forward. (4) Subsection (5) applies if in a relevant later period a loss is made in the separate video game trade. (5) The amount of the loss that may be— (a) deducted from total profits of the same or an earlier period under section 37 of CTA 2010, or (b) surrendered as group relief under Part 5 of that Act, is restricted to the amount (if any) that is not attributable to video games tax relief (see subsection (6)). (6) The amount of a loss in any period that is attributable to video games tax relief is calculated by deducting from the total amount of the loss the amount there would have been if there had been no additional deduction under Chapter 3 in that or any earlier period. (7) This section does not apply to a loss to the extent that it is carried forward or surrendered under section 1217DC. Terminal losses 1217DC (1) This section applies if— (a) a company (“company A”) is the video games development company in relation to a qualifying video game, (b) company A ceases to carry on its separate trade in relation to that video game (“trade X”) (see section 1217B), and (c) if company A had not ceased to carry on trade X, it could have carried forward an amount under section 45 of CTA 2010 to be set against profits of trade X in a later period (“the terminal loss”). (2) If on cessation of trade X company A— (a) is the video games development company in relation to another qualifying video game, and (b) is carrying on its separate trade in relation to that video game (“trade Y”), it may (on making a claim) make an election under subsection (3). (3) The election is to have the terminal loss (or a part of it) treated as if it were a loss brought forward under section 45 of CTA 2010 to be set against the profits of trade Y in the first accounting period beginning after the cessation and so on. (4) Subsection (5) applies if on cessation of trade X— (a) there is another company (“company B”) that is the video games development company in relation to a qualifying video game, (b) company B is carrying on its separate trade in relation to that video game (“trade Z”), and (c) company B is in the same group as company A for the purposes of Part 5 of CTA 2010 (group relief). (5) Company A may surrender the terminal loss (or a part of it) to company B. (6) On the making of a claim by company B the amount surrendered is treated as if it were a loss brought forward by company B under section 45 of CTA 2010 to be set against the profits of trade Z of the first accounting period of that company beginning after the cessation and so on. (7) The Treasury may, in relation to the surrender of a loss under subsection (5) and the resulting claim under subsection (6), make provision by regulations corresponding, subject to such adaptations or other modifications as appear to them to be appropriate, to that made by Part 8 of Schedule 18 to FA 1998 (company tax returns: claims for group relief). (8) “Qualifying video game” means a video game in relation to which the conditions for video games tax relief are met (see 1217C(2)). CHAPTER 5 Provisional entitlement to relief Introduction 1217E (1) In this Chapter— “the company” means the video games development company in relation to a video game, “the completion period” means the accounting period of the company— in which the video game is completed, or if the company does not complete the video game, in which it abandons video game development activities in relation to it, “interim accounting period” means any earlier accounting period of the company during which video game development activities are carried on in relation to the video game, “interim certificate” and “final certificate” have the meaning given by section 1217CC, “the separate video game trade” means the company's separate trade in relation to the video game (see section 1217B), and “special video games relief” means— video games tax relief, or relief under section 1217DC (transfer of terminal losses from one video game to another). (2) The company's company tax return for the completion period must state that the video game has been completed or that the company has abandoned video game development activities in relation to it (as the case may be). Certification as a British video game 1217EA (1) The company is not entitled to special video games relief for an interim accounting period unless its company tax return for the period is accompanied by an interim certificate. (2) If an interim certificate ceases to be in force (otherwise than on being superseded by a final certificate) or is revoked, the company— (a) is not entitled to special video games relief for any period for which its entitlement depended on the certificate, and (b) must amend accordingly its company tax return for any such period. (3) If the video game is completed by the company— (a) its company tax return for the completion period must be accompanied by a final certificate, (b) if that requirement is met, the final certificate has effect for the completion period and for any interim accounting period, and (c) if that requirement is not met, the company— (i) is not entitled to special video games relief for any period, and (ii) must amend accordingly its company tax return for any period for which such relief was claimed. (4) If the company abandons video game development activities in relation to the video game— (a) its company tax return for the completion period may be accompanied by an interim certificate, and (b) the abandonment of video game development activities does not affect any entitlement to special video games relief in that or any previous accounting period. (5) If a final certificate is revoked, the company— (a) is not entitled to special video games relief for any period, and (b) must amend accordingly its company tax return for any period for which such relief was claimed. The UK expenditure condition 1217EB (1) The company is not entitled to special video games relief for an interim accounting period unless— (a) its company tax return for the period states the amount of planned core expenditure on the video game that is UK expenditure, and (b) that amount is such as to indicate that the condition in section 1217CE (the UK expenditure condition) will be met on completion of the video game. If those requirements are met, the company is provisionally treated in relation to that period as if that condition was met. (2) If such a statement is made but it subsequently appears that the condition will not be met on completion of the video game, the company— (a) is not entitled to special video games relief for any period for which its entitlement depended on such a statement, and (b) must amend accordingly its company tax return for any such period. (3) When the video game is completed or the company abandons video game development activities in relation to it (as the case may be), the company's company tax return for the completion period must be accompanied by a final statement of the amount of core expenditure on the video game that is UK expenditure. (4) If that statement shows that the condition in section 1217CE is not met, the company— (a) is not entitled to special video games relief for any period, and (b) must amend accordingly its company tax return for any period for which such relief was claimed. Time limit for amendments and assessments 1217EC Any amendment or assessment necessary to give effect to the provisions of this Chapter may be made despite any limitation on the time within which an amendment or assessment may normally be made. PART 2 Commencement 2 (1) Any power conferred on the Secretary of State or the Treasury by virtue of this Schedule to make regulations or an order comes into force on the day on which this Act is passed. (2) So far as not already brought into force by sub-paragraph (1), the amendments made by this Schedule come into force in accordance with provision contained in an order made by the Treasury. (3) An order under sub-paragraph (2)— (a) may make different provision for different purposes; (b) may provide for those amendments to be treated as having come into force on a day earlier than the day on which the order is made or this Act is passed; (c) may make such adaptations of Part 15B of CTA 2009 as appear to be necessary or expedient in consequence of other provisions of this Act not yet having come into force. 3 (1) The amendments made by this Schedule have effect in relation to accounting periods beginning on or after the day specified for the purposes of this paragraph in an order made by the Treasury (“the specified day”). (2) An order under sub-paragraph (1) may specify a day earlier than the day on which the order is made or this Act is passed. (3) Sub-paragraph (4) applies where a company has an accounting period beginning before the specified day and ending on or after that day (“the straddling period”). (4) For the purposes of Part 15B of CTA 2009— (a) so much of the straddling period as falls before the specified day, and so much of that period as falls on or after that day, are treated as separate accounting periods, and (b) any amounts brought into account for the purposes of calculating for corporation tax purposes the profits of any trade of the company for the straddling period are apportioned to the two separate accounting periods on such basis as is just and reasonable. 4 (1) The Treasury may by order make such amendments of this Schedule as are necessary for the purpose of complying with any undertakings given to the European Commission, or any conditions imposed by the Commission, in connection with an application for State aid approval. (2) In this paragraph “State aid approval” means approval that the provision made by Part 15B of CTA 2009, to the extent that it constitutes the granting of aid to which any of the provisions of Article 107 or 108 of the Treaty on the Functioning of the European Union applies, is, or would be, compatible with the internal market, within the meaning of Article 107 of that Treaty. (3) An order under this paragraph may— (a) make incidental, supplemental, consequential, transitional or saving provision, including provision amending Schedule 18; (b) contain provision having effect in relation to times before the order is made or this Act is passed. (4) A statutory instrument that contains (whether alone or with other provisions) an order under this paragraph may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons.

Propose a change

SCHEDULE 18 Television and video games tax relief: consequential amendments

Section 36 ICTA 1 (1) Section 826 of ICTA (interest on tax overpaid) is amended as follows. (2) In subsection (1), after paragraph (f) insert— (fa) a payment of television tax credit falls to be made to a company; or (fb) a payment of video game tax credit falls to be made to a company; or . (3) In subsection (3C), after “film tax credit” insert “ , television tax credit or video game tax credit ”. (4) In subsection (8A)(b)(ii), after “film tax credit” insert “ or television tax credit or video game tax credit ”. (5) In subsection (8BA), after “film tax credit” (in both places) insert “ or television tax credit or video game tax credit ”. FA 1998 2 Schedule 18 to FA 1998 (company tax returns, assessments and related matters) is amended as follows. 3 (1) Paragraph 10 (other claims and elections to be included in return) is amended as follows. (2) In sub-paragraph (4), for “film tax relief” substitute “ tax relief under Part 15, 15A or 15B of the Corporation Tax Act 2009 ”. (3) After sub-paragraph (5) insert— (6) An election under section 1216AE(7) of the Corporation Tax Act 2009 (election not to be a television production company) can only be made by being included in a company tax return (see section 1216AE(8)(a) of that Act). (7) An election under section 1217AB(6) of the Corporation Tax Act 2009 (election not to be a video games development company) can only be made by being included in a company tax return (see section 1217AB(7)(a) of that Act). 4 (1) Paragraph 52 (recovery of excessive overpayments etc) is amended as follows. (2) In sub-paragraph (2), after paragraph (bd) insert— (be) television tax credit under Part 15A of that Act, (bf) video game tax credit under Part 15B of that Act, . (3) In sub-paragraph (5)— (a) after paragraph (af) insert— (ag) an amount of television tax credit paid to a company for an accounting period, (ah) an amount of video game tax credit paid to a company for an accounting period, ; (b) after “(ae)” insert “ , (ag), (ah) ”. 5 (1) Part 9D (claims for film tax relief) is amended as follows. (2) In paragraph 83S (introduction), for “film tax relief” substitute the following reliefs— (a) film tax relief, (b) television tax relief, (c) video games tax relief. (3) The heading of that Part becomes “ Claims for tax relief under Part 15, 15A or 15B of the Corporation Tax Act 2009 ”. CAA 2001 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FA 2007 7 In Schedule 24 to FA 2007 (penalties for errors), in paragraph 28(fa) (meaning of “corporation tax credit”), omit the “or” at the end of sub-paragraph (iv) and after that sub-paragraph insert— (iva) a television tax credit under Chapter 3 of Part 15A of that Act, (ivb) a video game tax credit under Chapter 3 of Part 15B of that Act, or . CTA 2009 8 In Chapter 6A of Part 3 of CTA 2009 (trade profits: R&D expenditure credits), after section 104B insert— Restriction on claiming other tax reliefs 104BA (1) For provision prohibiting an R&D expenditure credit being given under this Chapter and relief being given under Chapter 3 of Part 15 (film tax relief), see section 1195(3A). (2) For provision prohibiting an R&D expenditure credit being given under this Chapter and relief being given under Chapter 3 of Part 15A (television tax relief), see section 1216C(4). (3) For provision prohibiting an R&D expenditure credit being given under this Chapter and relief being given under Chapter 3 of Part 15B (video games tax relief), see section 1217C(4). 9 In Part 8 of CTA 2009 (intangible fixed assets), in Chapter 10 (excluded assets), after section 808 insert— Assets representing production expenditure on certain TV programmes 808A (1) This Part does not apply to an intangible fixed asset held by a television production company so far as it represents production expenditure on a television programme to which Chapter 2 of Part 15A (taxation of activities of television production company) applies. (2) In this section— (a) “television programme” has the same meaning as in Part 15A (see section 1216AA), (b) “television production company” has the same meaning as in that Part (see section 1216AE), and (c) “production expenditure” has the same meaning as in that Part (see section 1216AG(2)). Assets representing core expenditure on video games 808B (1) This Part does not apply to an intangible fixed asset held by a video games development company so far as it represents core expenditure on a video game to which Chapter 2 of Part 15B (taxation of activities of video games development company) applies. (2) In this section— (a) “video game” has the same meaning as in Part 15B (see section 1217AA), (b) “video games development company” has the same meaning as in that Part (see section 1217AB), and (c) “core expenditure” has the same meaning as in that Part (see section 1217AD). 10 In Part 13 of CTA 2009 (additional relief for expenditure on research and development), after section 1040 insert— Restriction on claiming other tax reliefs 1040ZA (1) For provision prohibiting relief being given under this Part and under Chapter 3 of Part 15 (film tax relief), see section 1195(3A). (2) For provision prohibiting relief being given under this Part and under Chapter 3 of Part 15A (television tax relief), see section 1216C(4). (3) For provision prohibiting relief being given under this Part and under Chapter 3 of Part 15B (video games tax relief), see section 1217C(4). 11 Part 15 of CTA 2009 (film tax relief) is amended as follows. 12 In section 1195 (availability and overview of film tax relief), after subsection (3) insert— (3A) But film tax relief is not available in respect of any expenditure if— (a) the company is entitled to an R&D expenditure credit under Chapter 6A of Part 3 in respect of the expenditure, or (b) the company has obtained relief under Part 13 (additional relief for expenditure on research and development) in respect of the expenditure. 13 (1) Section 1206 (confidentiality of information) is amended as follows. (2) In subsection (1), for the words from “Schedule 1” to the end substitute “ any of the provisions listed in subsection (1A) ”. (3) After subsection (1) insert— (1A) The provisions referred to in subsection (1) are— (a) sections 1216CB to 1216CD (certification of relevant programmes as British), (b) sections 1217CB to 1217CD (certification of video games as British), and (c) Schedule 1 to the Films Act 1985 (certification of films as British). (4) In subsection (2), for “UK Film Council” substitute “ British Film Institute ”. (5) After that subsection insert— (2A) The Treasury may by order amend subsection (2)— (a) so as to substitute for the person or body specified in that subsection a different person or body, or (b) in consequence of a change in the name of the person or body so specified. (6) In subsection (3)— (a) in paragraph (a), for the words from “Schedule 1” to the end substitute “ any of the provisions listed in subsection (1A) ”; (b) in paragraph (d), for “that Schedule or this Part” substitute “ any of Parts 15 to 15B of this Act or Schedule 1 to the Films Act 1985 ”. 14 (1) In section 1310 of CTA 2009 (orders and regulations), subsection (4) is amended as follows. (2) Omit the “or” at the end of paragraph (e) and after that paragraph insert— (ea) section 1216AF(3) (meaning of “television production activities” etc), (eb) section 1216AH(3) (meaning of “UK expenditure” etc), (ec) section 1216CE(2) (UK expenditure), (ed) section 1216CF(4) (additional deduction for qualifying expenditure), (ee) section 1216CG(3) (amount of additional deduction), (ef) section 1217AC(2) (meaning of “video games development activities” etc), (eg) section 1217AE(3) (meaning of “UK expenditure” etc), (eh) section 1217CE(2) (UK expenditure), (ei) section 1217CF(4) (additional deduction for qualifying expenditure), (ej) section 1217CG(3) (amount of additional deduction), . 15 (1) Schedule 4 to CTA 2009 (index of defined expressions) is amended as follows. (2) At the appropriate place insert— the company (in Chapter 5 of Part 15A) | section 1216E(1) ; company tax return (in Part 15A) | section 1216AJ ; the completion period (in Chapter 5 of Part 15A) | section 1216E(1) ; co-producer (in Part 15A) | section 1216AI ; core expenditure (in Part 15A) | section 1216AG(3) ; costs of the relevant programme (in Chapter 2 of Part 15A) | section 1216BC ; final certificate (in Chapter 5 of Part 15A) | section 1216CC ; income from the relevant programme (in Chapter 2 of Part 15A) | section 1216BB ; interim accounting period (in Chapter 5 of Part 15A) | section 1216E(1) ; interim certificate (in Chapter 5 of Part 15A) | section 1216CC ; principal photography (in Part 15A) | section 1216AF(2) ; production expenditure (in Part 15A) | section 1216AG(2) ; qualifying co-production (in Part 15A) | section 1216AI ; qualifying expenditure (in Chapter 3 of Part 15A) | section 1216CF(3) ; relevant programme (in Part 15A) | section 1216AB ; the separate programme trade (in Chapters 2, 3 and 5 of Part 15A) | section 1216B(3) ; special television relief (in Chapter 5 of Part 15A) | section 1216E(1) ; television production activities (in Part 15A) | section 1216AF ; television production company (in Part 15A) | section 1216AE ; television programme (in Part 15A) | section 1216AA ; television tax relief (in Part 15A) | section 1216C(2) ; UK expenditure (in Part 15A) | section 1216AH . (3) At the appropriate place insert— the company (in Chapter 5 of Part 15B) | section 1217E(1) ; company tax return (in Part 15B) | section 1217AF ; the completion period (in Chapter 5 of Part 15B) | section 1217E(1) ; core expenditure (in Part 15B) | section 1217AD ; costs of the video game (in Chapter 2 of Part 15B) | section 1217BC ; final certificate (in Chapter 5 of Part 15B) | section 1217CC ; income from the video game (in Chapter 2 of Part 15B) | section 1217BB ; interim accounting period (in Chapter 5 of Part 15B) | section 1217E(1) ; interim certificate (in Chapter 5 of Part 15B) | section 1217CC ; qualifying expenditure (in Chapter 3 of Part 15B) | section 1217CF(3) ; the separate video game trade (in Chapters 2, 3 and 5 of Part 15B) | section 1217B(3) ; special video games relief (in Chapter 5 of Part 15B) | section 1217E(1) ; UK expenditure (in Part 15B) | section 1217AE ; video game (in Part 15B) | section 1217AA ; video games development activities (in Part 15B) | section 1217AC ; video games development company (in Part 15B) | section 1217AB ; video games tax relief (in Part 15B) | section 1217C(2) . FA 2009 16 In Schedule 54A to FA 2009 (further provision as to late payment interest and repayment interest), in paragraph 2(2), omit the “or” at the end of paragraph (d) and after paragraph (e) insert— (f) a payment of television tax credit under Chapter 3 of Part 15 of CTA 2009 for an accounting period, or (g) a payment of video game tax credit under Chapter 3 of Part 15B of CTA 2009 for an accounting period. CTA 2010 17 Part 8A of CTA 2010 (profits arising from the exploitation of patents etc) is amended as follows. 18 (1) Section 357CG (adjustments in calculating profits of trade) is amended as follows. (2) In subsection (3), omit the “and” at the end of paragraph (a) and after paragraph (b) insert— (c) the amount of any additional deduction for the accounting period obtained by the company under Part 15A of CTA 2009 in respect of qualifying expenditure on a television programme, and (d) the amount of any additional deduction for the accounting period obtained by the company under Part 15B of CTA 2009 in respect of qualifying expenditure on a video game. (3) After subsection (5) insert— (5A) In a case where— (a) the company is— (i) a television production company in relation to a television programme, or (ii) a video games development company in relation to a video game, and (b) there is a shortfall in qualifying expenditure in relation to the separate programme trade or (as the case may be) the separate video game trade for a relevant accounting period (see section 357CHA), the amount of qualifying expenditure brought into account in calculating the profits of the trade for that accounting period is to be increased by the amount mentioned in section 357CHA(2). (4) In subsection (6)— (a) for “subsection (5)” substitute “ subsections (5) and (5A) ”; (b) before the definition of “R&D expenditure” insert— “qualifying expenditure”— (a) in relation to a company that is a television production company, has the same meaning as in Chapter 3 of Part 15A of CTA 2009, and (b) in relation to a company that is a video games development company, has the same meaning as in Chapter 3 of Part 15B of that Act, ; (c) omit the “and” before the definition of “research and development”; (d) after that definition insert— “the separate programme trade”, in relation to a television production company, has the same meaning as in Chapter 2 of Part 15A of CTA 2009 (see section 1216B), “the separate video game trade”, in relation to a video games development company, has the same meaning as in Chapter 2 of Part 15B of CTA 2009 (see section 1217B), “television production company” has the same meaning as in Part 15A of CTA 2009 (see section 1216AE), and “video games development company” has the same meaning as in Part 15B of CTA 2009 (see section 1217AB). 19 After section 357CH insert— Shortfall in qualifying expenditure 357CHA (1) There is a shortfall in qualifying expenditure in relation to the separate programme trade of a television production company or (as the case may be) the separate video game trade of a video games development company for a relevant accounting period if the actual qualifying expenditure of the trade for the accounting period (as adjusted under subsections (8) to (11)) is less than 75% of the average amount of qualifying expenditure. (2) The amount that is to be added to the actual qualifying expenditure for the purposes of section 357CG(5A) is an amount equal to the difference between— (a) 75% of the average amount of qualifying expenditure, and (b) the actual qualifying expenditure, as adjusted under subsections (8) to (11). (3) In this section— (a) the “actual qualifying expenditure” of a trade of a company for an accounting period is the amount of qualifying expenditure that (ignoring section 357CG(5A)) is brought into account in calculating the profits of the trade for the accounting period, and (b) the following terms have the meaning given by section 357CG(6)— “qualifying expenditure”, “relevant accounting period”, “the separate programme trade”, “the separate video game trade”, “television production company”, “video games development company”. (4) The average amount of qualifying expenditure is— E N × 365 where— E is the amount of qualifying expenditure that— has been incurred by the company during the relevant period, and has been brought into account in calculating the profits of the trade for any accounting period ending before the first relevant accounting period, and N is the number of days in the relevant period. (5) The relevant period is the shorter of— (a) the period of 4 years ending immediately before the first relevant accounting period, and (b) the period beginning with the day on which the company begins to carry on the trade and ending immediately before the first relevant accounting period. (6) For a relevant accounting period of less than 12 months, the average amount of qualifying expenditure is proportionately reduced. (7) Subsections (8) to (11) apply for the purposes of determining— (a) whether there is a shortfall in qualifying expenditure for a relevant accounting period, and (b) if there is such a shortfall, the amount to be added by virtue of subsection (2). (8) If the amount of the actual qualifying expenditure for a relevant accounting period is greater than the average amount of qualifying expenditure, the difference between the two amounts is to be added to the actual qualifying expenditure for the next relevant accounting period. (9) If— (a) there is not a shortfall in qualifying expenditure for a relevant accounting period, but (b) in the absence of any additional amount, there would be a shortfall in qualifying expenditure for that accounting period, the remaining portion of the additional amount is to be added to the actual qualifying expenditure for the next relevant accounting period. (10) For the purposes of this section— “additional amount”, in relation to a relevant accounting period, means any amount added to the actual qualifying expenditure for that accounting period by virtue of subsection (8), (9) or (11), and “the remaining portion” of an additional amount is so much of that amount as exceeds the difference between— the actual qualifying expenditure for the relevant accounting period in the absence of the additional amount, and 75% of the average amount of qualifying expenditure. (11) If— (a) there is not a shortfall in qualifying expenditure for a relevant accounting period, and (b) there would not be a shortfall in qualifying expenditure for that accounting period in the absence of any additional amount, the additional amount is to be added to the actual qualifying expenditure for the next relevant accounting period (in addition to any additional amount so added by virtue of subsection (8)). 20 (1) Section 357CK (deductions that are not routine deductions) is amended as follows. (2) In subsection (1), at the end insert— (e) subsection (7A) (television production expenditure), (f) subsection (7B) (video games development expenditure). (3) After subsection (7) insert— (7A) Head 5 is— (a) the amount of any qualifying expenditure on a television programme for which an additional deduction for the accounting period is obtained by the company under Part 15A of CTA 2009, and (b) the amount of that additional deduction. (7B) Head 6 is— (a) the amount of any qualifying expenditure on a video game for which an additional deduction for the accounting period is obtained by the company under Part 15B of CTA 2009, and (b) the amount of that additional deduction. Consequential renumbering 21 (1) Sections 1217 and 1218 of CTA 2009 are renumbered as follows— (a) section 1217 becomes section 1218A, and (b) section 1218 becomes section 1218B. (2) In the following provisions of CTA 2009, for “section 1218” substitute “ section 1218B ” section 985(3), section 999(4), section 1000(3), section 1013(3), and section 1021(3). (3) In Schedule 4 to CTA 2009— (a) in the entry for “company with investment business (in Part 16)”, for “section 1218(1) and (2)” substitute “ section 1218B(1) and (2) ”, and (b) in the entry for “investment business in a company (in Part 16)”, for “section 1218(3)” substitute “ section 1218B(3) ”. (4) In section 18 of CAA 2001, for “section 1218” substitute “ section 1218B ”. Commencement 22 (1) The amendments made by this Schedule come into force in accordance with provision contained in an order made by the Treasury. (2) An order under sub-paragraph (1)— (a) may make different provision for different purposes; (b) may provide for any of those amendments to be treated as having come into force on a day earlier than the day on which the order is made or this Act is passed; (c) may make such adaptations of provisions of this Schedule brought into force as appear to be necessary or expedient in consequence of other provisions of this Act not yet having come into force. 23 (1) The amendments made by this Schedule have effect in relation to accounting periods beginning on or after the relevant day. (2) “The relevant day” is— (a) in the case of amendments relating to Part 15A of CTA 2009, 1 April 2013, and (b) in the case of amendments relating to Part 15B of that Act, the day specified by order for the purposes of paragraph 3 of Schedule 17. (3) For provision about the case where a company has an accounting period beginning before the relevant day and ending on or after that day, see paragraph 3(3) of Schedule 16 or (as the case may be) paragraph 3(4) of Schedule 17.

Propose a change

SCHEDULE 19 Real estate investment trusts: UK REITs which invest in other UK REITs

Section 39 1 Part 12 of CTA 2010 (real estate investment trusts) is amended as follows. 2 (1) Section 530 (condition as to distribution of profits) is amended as follows. (2) For subsection (1) substitute— (1) In the case of a group UK REIT, the condition in this section is met in relation to an accounting period if— (a) so much of the group's UK profits arising in the period as are UK REIT investment profits (see section 549A), and (b) at least 90% of the rest of the group's UK profits arising in the period, are distributed by the principal company of the group on or before the filing date for the principal company's tax return for the period (see paragraph 14 of Schedule 18 to FA 1998). (3) For subsection (4) substitute— (4) In the case of a company UK REIT, the condition in this section is met in relation to an accounting period if— (a) so much of the profits of the company's property rental business arising in the period as are UK REIT investment profits (see section 549A), and (b) at least 90% of the rest of the profits of the company's property rental business arising in the period, are distributed on or before the filing date for the company's tax return for the period (see paragraph 14 of Schedule 18 to FA 1998). (4A) For the purposes of subsection (4) profits of the company's property rental business are to be calculated in accordance with section 599. 3 (1) Section 530A (condition as to distribution of profits: increase in profits after delivery of tax return) is amended as follows. (2) In subsection (2) for “530(1)(c)” substitute “ 530(1) ”. (3) In subsection (6) for “530(4)(b)” substitute “ 530(4) ”. (4) After subsection (9) insert— (10) This section cannot be relied upon to satisfy the requirement of section 530(1)(a) or (4)(a). 4 (1) Section 531 (conditions as to balance of business) is amended as follows. (2) After subsection (4) insert— (4A) In the case of a group, for the purposes of subsections (1) and (2) a distribution falling within section 549A(6) or (8) received by a member of the group is to be treated as profits of a property rental business in accordance with section 549A(1) notwithstanding section 549A(5). (4B) In the case of a company, for the purposes of subsections (1) and (3) a distribution falling within section 549A(6) or (8) received by the company is to be treated as profits of a property rental business in accordance with section 549A(1) notwithstanding section 549A(5). (3) In subsection (5)(b) after “cash” insert “ or relevant UK REIT shares ”. (4) In subsection (6)(b) after “cash” insert “ and relevant UK REIT shares ”. (5) After subsection (8) insert— (9) In this section “relevant UK REIT shares” means— (a) in the case of a group UK REIT, shares held by a member of the group in the principal company of another group UK REIT or in a company UK REIT, and (b) in the case of a company UK REIT, shares held by the company in the principal company of a group UK REIT or in another company UK REIT. 5 (1) Section 548 (distributions: liability to tax) is amended as follows. (2) In subsection (5) after “2009)” insert “ so far as the distribution is a distribution of exempt profits ”. (3) In subsection (6) after “2005)” insert “ so far as the distribution is a distribution of exempt profits ”. (4) After subsection (8) insert— (9) This section does not apply in relation to a distribution falling within section 549A(6) or (8) so far as the distribution is a distribution of exempt profits. (10) For the purposes of this Chapter a distribution is a “distribution of exempt profits” so far as the distribution falls within section 550(2)(a), (aa), (c) or (d). (11) In applying section 550 for the purposes of subsection (10) in relation to a distribution made by the principal company of a post-cessation group or by a post-cessation company— (a) subsection (1)(a) is to be read as referring to the principal company of the post-cessation group, or (as the case may be) (b) subsection (1)(b) is to be read as referring to the post-cessation company. 6 (1) Section 549 (distributions: supplementary) is amended as follows. (2) In subsection (2A) after “shareholder” insert “ so far as they are distributions of exempt profits ”. (3) After subsection (3) insert— (3A) Relevant distribution” does not include a distribution falling within section 549A(6) or (8) so far as the distribution is a distribution of exempt profits. (4) In subsection (4) after the first “shareholder” insert “ (so far as they are distributions of exempt profits) ”. 7 After section 549 insert— Distributions from one UK REIT to another UK REIT 549A (1) If a company receives a distribution falling within subsection (6) or (8), the distribution is to be treated as profits of a property rental business carried on by the company in the United Kingdom. Such profits are referred to in this Part as “UK REIT investment profits”. (2) The property rental business mentioned in subsection (1) is to be treated as separate from any other property rental business of the company. (3) References to profits of property rental business or UK property rental business are to be read as including UK REIT investment profits accordingly, including where the profits referred to are otherwise profits calculated in accordance with international accounting standards or section 599. (4) Section 549(2) and (2A) applies in relation to distributions falling within subsection (6) or (8) as it applies in relation to relevant distributions. (5) Subsection (1) applies in relation to a distribution only so far as the distribution is a distribution of exempt profits. This is subject to section 531(4A) and (4B). (6) A distribution falls within this subsection if— (a) it is made by the principal company of a group UK REIT to a shareholder of the company which is— (i) a member of another group UK REIT, or (ii) a company UK REIT, and (b) it is a distribution of amounts shown in the financial statements under section 532(2)(a) (statement of group's property rental business) as— (i) profits or gains (or both) of UK members of the group, or (ii) profits or gains (or both) of UK property rental business of non-UK members of the group. (7) In subsection (6) the reference to a distribution made by the principal company includes a reference to a distribution made by the principal company of the post-cessation group. (8) A distribution falls within this subsection if— (a) it is made by a company UK REIT to a shareholder of the company which is— (i) a member of a group UK REIT, or (ii) another company UK REIT, and (b) it is a distribution in respect of profits or gains (or both) of property rental business of the company. (9) In subsection (8) the reference to a distribution made by a company UK REIT includes a reference to a distribution made by the post-cessation company. 8 In section 550 (attribution of distributions) in subsection (2)— (a) for paragraph (a) substitute— (a) first, to distributions in satisfaction of the requirement of section 530(1)(a) or 530(4)(a) (as the case may be), (aa) second, to distributions in satisfaction of the requirement of section 530(1)(b) or 530(4)(b) (as the case may be), , (b) in paragraph (b) for “second” substitute “ third ”, (c) in paragraph (c) for “third” substitute “ fourth ”, (d) in paragraph (d) for “fourth” substitute “ fifth ”, and (e) in paragraph (e) for “fifth” substitute “ sixth ”. 9 In section 588 (joint ventures: effect of notice under section 586) after subsection (6) insert— (7) Subsections (3) to (6) apply (in particular) for the purpose of interpreting section 549A(6)(a)(i) and (8)(a)(i). 10 In section 589 (joint ventures: effect of notice under section 587) after subsection (6) insert— (7) Subsections (3) to (6) apply (in particular) for the purpose of interpreting section 549A(6)(a)(i) and (8)(a)(i). 11 In section 605 (property rental business: exclusion of business producing listed income) after subsection (1) insert— (1A) But see section 549A which treats income falling within class 7 of the table as profits of property rental business. 12 In Chapter 18 of Part 15 of ITA 2007 (deduction of income tax at source) in sections 973 and 974 (which relate to distributions made by UK REITs) after subsection (6) insert— (7) In relation to references to profits of property rental business, see section 549A of CTA 2010. 13 (1) The amendments made by paragraph 4(3) to (5) above have effect for accounting periods beginning on or after the day on which this Act is passed. (2) Subject to what follows, the amendments made by paragraphs 5 to 7 above have effect in relation to distributions received on or after the day on which this Act is passed. (3) A distribution received by a member of a group UK REIT does not fall within section 549A(6) or (8) of CTA 2010 if it is received in an accounting period of the principal company of the group beginning before the day on which this Act is passed. (4) A distribution received by a company UK REIT does not fall within section 549A(6) or (8) of CTA 2010 if it is received in an accounting period of the company beginning before the day on which this Act is passed.

Propose a change

SCHEDULE 20 Tax mismatch schemes

Section 42 1 CTA 2010 is amended in accordance with paragraphs 2 to 4. 2 In section 1(4) (overview of Act), after paragraph (j) insert— (ja) tax mismatch schemes (see Part 21BA), . 3 After Part 21B insert— PART 21BA Tax mismatch schemes Losses and profits from tax mismatch scheme to be disregarded 938O (1) This section applies to a company that is (at any time) a party to a tax mismatch scheme. (2) No scheme loss or profit made by the company in any accounting period in relation to the scheme is to be brought into account as a debit or credit for the purposes of Part 5 of CTA 2009 (loan relationships) or Part 7 of that Act (derivative contracts). (3) An amount that would, apart from this section, be brought into account for the purposes of Part 5 or 7 of that Act as respects any matter— (a) is treated, for the purposes of section 464(1) or (as the case may be) 699(1) of that Act (priority of Part 5 or 7 for corporation tax purposes), as if it were so brought into account, and (b) accordingly, may not be brought into account for any other corporation tax purposes as respects that matter. Meaning of “tax mismatch scheme” 938P (1) A scheme is a tax mismatch scheme if condition A or B is met. (2) Condition A is that, at the time the scheme is entered into, there is no practical likelihood that the scheme will fail to secure a relevant tax advantage of £2 million or more. (3) The Treasury may by order substitute a higher amount for the amount for the time being specified in subsection (2). (4) Any such substitution is to have effect in relation to schemes entered into on or after the day on which the order comes into force. (5) Condition B is that— (a) the purpose, or one of the main purposes, of the company in entering into the scheme is to obtain the chance of securing a relevant tax advantage (of any amount), and (b) at the time the scheme is entered into— (i) there is no chance that the scheme will secure a relevant tax disadvantage, or (ii) there is such a chance, but the expected value of the scheme is nevertheless a positive amount. (6) If, at the time the company enters into the scheme, there are chances that the scheme would, if carried out, secure different relevant tax advantages or disadvantages in different circumstances, the amounts and probabilities of each must be taken into account in determining the expected value of the scheme. (7) In determining whether condition A or B is met, it is to be assumed that the parties to the scheme carry it out. (8) Where, at the time the scheme is entered into, the length of the scheme period is uncertain, condition A or B is met if it would be met on any reasonable assumption as to the length of the scheme period. (9) In determining whether condition A or B is met, section 938O (scheme profits and losses to be left out of account) is to be disregarded. Meaning of “scheme loss” and “scheme profit” 938Q (1) A loss or profit made by a company in an accounting period is a “scheme loss” or “scheme profit” in relation to a tax mismatch scheme if the loss or profit— (a) arises from a transaction, or series of transactions, that forms part of the scheme, (b) is, or is comprised in, an amount that is brought into account as a debit or credit for the purposes of Part 5 or 7 of CTA 2009, and (c) meets the first or second asymmetry condition. (2) The first asymmetry condition is that the loss or profit affects the amount of any relevant tax advantage secured by the scheme. (3) Where, at the end of the accounting period— (a) it is not certain whether the scheme will secure a relevant tax advantage, or (b) it is not certain what the amount of the relevant tax advantage secured by the scheme will be, a loss or profit is to be treated as meeting the first asymmetry condition if, at that time, there is a chance that the scheme will secure a relevant tax advantage and that the loss or profit will affect its amount. (4) Where— (a) a loss or profit meets the conditions in subsection (1)(a) and (b), and (b) a part, but not the whole, of the loss or profit meets the first asymmetry condition, only that part of the loss or profit is a “scheme loss” or “scheme profit”. (5) The second asymmetry condition is that the loss or profit— (a) does not meet the first asymmetry condition, but (b) arises from a transaction, or series of transactions, that might (if events had turned out differently) have given rise to a loss or profit that would have done so. (6) References in this section to a loss or profit include a loss or profit arising in respect of interest or expenses. (7) In determining whether the condition in subsection (1)(b) or the first or second asymmetry condition is met, section 938O (scheme profits and losses to be left out of account) is to be disregarded. Meaning of “relevant tax advantage” etc and “the scheme period” 938R (1) In this Part “relevant tax advantage”, in relation to a scheme, means an economic profit that— (a) is made by the company over the scheme period, (b) meets the condition in subsection (3), and (c) is not negligible. (2) In this Part “relevant tax disadvantage”, in relation to a scheme, means an economic loss that— (a) is made by the company over the scheme period, (b) meets the condition in subsection (3), and (c) is not negligible. (3) The condition is that the economic profit or loss arises as a result of asymmetries in the way that the company brings, or does not bring, amounts into account as debits and credits for the purposes of Part 5 or 7 of CTA 2009. (4) A reference in this section to asymmetries includes, in particular— (a) asymmetries relating to quantification, and (b) asymmetries relating to timing. (5) In this section— (a) a reference to an economic profit includes an increase in an economic profit and a decrease in an economic loss, and (b) a reference to an economic loss includes an increase in an economic loss and a decrease in an economic profit. (6) In this Part “the scheme period”, in relation to a scheme, means the period during which the scheme has effect. Meaning of references to economic profits and losses 938S (1) An economic profit or loss is to be computed for the purposes of this Part taking into account, in particular— (a) profits and losses made as a result of the operation of the Corporation Tax Acts, and (b) any adjustments required to reflect the time value of money. (2) In determining for the purposes of this Part the amount of an economic profit or loss made by the company over the scheme period, profits and losses made by the company are to be taken into account only to the extent that they are attributable to times at which the company is a party to the scheme. Tax capacity assumption 938T (1) This section applies for the purpose of determining whether a scheme will, or might, secure a relevant tax advantage. (2) The economic profits and losses made by the company over the scheme period must be calculated on the assumption that the company— (a) obtains the full tax benefit of any loss made by the company in relation to a loan relationship or a derivative contract during the period, and (b) incurs the full tax cost of any profit made by the company in relation to a loan relationship or a derivative contract during the period. (3) The “full tax benefit” of a loss is the reduction in the liability of the company to corporation tax that would result if— (a) the loss were brought into account as a debit or as a reduction in a credit for the purposes of Part 5 or 7 of CTA 2009, and (b) the company's profits chargeable to corporation tax, disregarding the loss, were equal to the debit (or the reduction in the credit) determined by reference to the loss. (4) The “full tax cost” of a profit is the increase in the liability of the company to corporation tax that would result if— (a) the profit were brought into account as a credit or as a reduction in a debit for the purposes of Part 5 or 7 of CTA 2009, and (b) the company's profits chargeable to corporation tax, disregarding the profit, were nil. Meaning of “scheme” 938U In this Part “scheme” includes any scheme, arrangements or understanding of any kind whatever, whether or not legally enforceable, involving a single transaction or two or more transactions. Priority 938V For the purposes of this Part the following provisions are to be treated as of no effect— (a) section 441 of CTA 2009 (loan relationships for unallowable purposes); (b) section 690 of that Act (derivative contracts for unallowable purposes); (c) Part 6 of TIOPA 2010 (tax arbitrage); (d) Part 7 of that Act (tax treatment of financing costs and income). 4 In Schedule 4 (index of defined expressions), at the appropriate places insert— economic loss (in Part 21BA) | section 938S economic profit (in Part 21BA) | section 938S relevant tax advantage (in Part 21BA) | section 938R relevant tax disadvantage (in Part 21BA) | section 938R scheme (in Part 21BA) | section 938U scheme loss (in Part 21BA) | section 938Q the scheme period (in Part 21BA) | section 938R scheme profit (in Part 21BA) | section 938Q . “a tax mismatch scheme (in Part 21BA) | section 938P . 5 In section 231(8) of TIOPA 2010 (tax arbitrage: overview), for the words from “section” to the end substitute “ sections 938N and 938V of CTA 2010 (this Part treated as of no effect for the purposes of Parts 21B and 21BA of CTA 2010 (group mismatch and tax mismatch schemes)). ” 6 (1) The amendments made by this Schedule have effect in relation to schemes entered into at any time (including any time before the commencement date). (2) But section 938O in Part 21BA of CTA 2010 (as inserted by paragraph 3 of this Schedule) does not apply to— (a) scheme losses or profits that relate to a time before the commencement date, or (b) scheme profits that relate to a time on or after that date but are made in relation to a scheme entered into before that date. (3) In this paragraph “the commencement date” means 5 December 2012.

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SCHEDULE 21 Community amateur sports clubs

Section 46 Introductory 1 Chapter 9 of Part 13 of CTA 2010 (community amateur sports clubs) is amended as follows. Meaning of “open to the whole community” 2 (1) Section 659 (meaning of “open to the whole community”) is amended as follows. (2) In subsection (1), for paragraph (c) substitute— (c) the costs associated with membership of the club for any year do not represent a significant obstacle to membership of the club, use of its facilities or full participation in its activities (see subsection (2A)). (3) After subsection (2) insert— (2A) For the purposes of subsection (1)(c) the costs associated with membership of a club for any year represent a significant obstacle to membership of the club, use of its facilities or full participation in its activities if— (a) those costs exceed the amount specified for the year for the purposes of this subsection in regulations made by the Treasury, and (b) the club has not made such arrangements as are necessary to secure that those costs do not represent such an obstacle. (2B) The Treasury may by regulations make provision supplementing subsection (2A), including— (a) provision as to what constitutes full participation in a club's activities; (b) provision as to costs that are, or are not, to be regarded as the costs associated with membership of a club; (c) provision about calculating the amount of the costs associated with membership of a club for any year. (2C) The provision that may be made by regulations under this section includes— (a) different provision for different purposes, and (b) provision having effect in relation to times before the regulations are made. (2D) Section 1171(4) (orders and regulations subject to negative resolution procedure) does not apply to any regulations made under this section if a draft of the statutory instrument containing them has been laid before, and approved by a resolution of, the House of Commons. (4) For subsection (3) substitute— (3) A club is not prevented from being “open to the whole community” for the purposes of section 658 merely because it charges different fees for different descriptions of person. Meaning of “organised on an amateur basis” 3 (1) Section 660 (meaning of “organised on an amateur basis”) is amended as follows. (2) In subsection (1), omit the “and” after paragraph (b) and after that paragraph insert— (ba) it does not exceed the limit on paid players (see subsection (5A)), and . (3) In subsection (4)(g)— (a) after “travel” insert “ or subsistence ”, and (b) for “travelling to away matches” substitute “ in connection with away matches ”. (4) After subsection (4) insert— (4A) In subsection (4)(g) “subsistence expenses” means expenses on food, drink and temporary living accommodation. (5) After subsection (5) insert— (5A) A club does not exceed the limit on paid players for the purposes of subsection (1) if— (a) the number of persons paid to play for the club does not at any time exceed the specified maximum, (b) the number of such persons in any year does not exceed the specified maximum for that year, (c) the amount paid to any such person in any year in respect of activities undertaken for the club does not exceed the specified maximum for that year, and (d) the total amount paid to such persons in any year in respect of activities undertaken for the club does not exceed the specified maximum for that year. “Specified” means specified in regulations made by the Treasury. (5B) The Treasury may by regulations make provision supplementing subsection (5A), including— (a) provision as when a person is, or is not, to be regarded as a person paid to play for a club, and (b) provision about calculating for the purposes of subsection (5A) the amount paid to such a person. (6) After subsection (7) insert— (8) The Treasury may by regulations make further provision as to when a club is “organised on an amateur basis” for the purposes of section 658. (9) The provision that may be made by regulations under subsection (8) includes— (a) provision as to the conditions which a club must meet in order to be “organised on an amateur basis” for the purposes of section 658; (b) provision as to what are, or are not, to be regarded as “ordinary benefits of an amateur sports club” for the purposes of subsection (1); (c) provision about persons who are, or are not, to be regarded as guests of a member of a club for the purposes of subsection (1). (10) Regulations made under subsection (8) may amend this section or make other amendments to this Chapter. (11) A statutory instrument that contains (whether alone or with other provisions) regulations under subsection (8) that amend this section or make other amendments to this Chapter may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons. (7) After subsection (11) insert— (12) The provision that may be made by regulations under this section includes— (a) different provision for different purposes, and (b) provision having effect in relation to times before the regulations are made. (13) Section 1171(4) (orders and regulations subject to negative resolution procedure) does not apply to any regulations made under this section if a draft of the statutory instrument containing them has been laid before, and approved by a resolution of, the House of Commons. Clubs consisting mainly of social members 4 In section 658 (meaning of “community amateur sports club”), in subsection (1A)(c), for “section 661” substitute “ sections 660A and 661 ”. 5 After section 660 insert— Clubs consisting mainly of social members 660A (1) A club is not to be regarded as a club that has as its main purpose the provision of facilities for, and the promotion of participation in, one or more eligible sports if the percentage of its members who are social members exceeds the percentage specified for the purposes of this section in regulations made by the Treasury. (2) A member is a “social member” for the purposes of this section if the member does not participate, or participates only occasionally, in the sporting activities of the club. (3) The Treasury may by regulations make provision— (a) as to activities that are, or are not, to be regarded as “sporting activities” of a club; (b) as to the circumstances in which a member of a club is, or is not, to be regarded as participating in the sporting activities of the club; (c) as to the circumstances in which a member of a club is, or is not, to be regarded as participating only occasionally in those activities. (4) The provision that may be made by regulations under this section includes— (a) different provision for different purposes, and (b) provision having effect in relation to times before the regulations are made. (5) Section 1171(4) (orders and regulations subject to negative resolution procedure) does not apply to any regulations made under this section if a draft of the statutory instrument containing them has been laid before, and approved by a resolution of, the House of Commons. Exemptions 6 In section 662 (exemption from corporation tax for UK trading income), after subsection (5) insert— (5A) The Treasury may by order amend the figure for the time being specified as the relevant threshold in subsection (5)(a). (5B) A statutory instrument containing an order under subsection (5A) that amends that figure so as to substitute a lower figure may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons. 7 In section 663 (exemption from corporation tax for UK property income), after subsection (5) insert— (5A) The Treasury may by order amend the figure for the time being specified as the relevant threshold in subsection (5)(a). (5B) A statutory instrument containing an order under subsection (5A) that amends that figure so as to substitute a lower figure may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons. Power to specify income condition 8 (1) The Treasury may by regulations provide that a club is not entitled to be registered as a community amateur sports club under section 658 of CTA 2010 unless it meets one or more conditions relating to income received by the club. (2) The provision that may be made by regulations under this paragraph includes, in particular— (a) provision restricting the amount of income, or income of a specified description, that a community amateur sports club may receive for a period, and (b) provision prohibiting such a club from receiving income of a specified description. “Specified” means specified in the regulations. (3) Regulations made under this paragraph may— (a) amend Chapter 9 of Part 13 of CTA 2010, (b) make different provision for different purposes, and (c) contain provision having effect in relation to times before the regulations are made or this Act is passed. (4) A statutory instrument that contains (whether alone or with other provisions) regulations under this paragraph may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons. Commencement 9 (1) Any power conferred on the Treasury under or by virtue of this Schedule to make regulations or an order comes into force on the day on which this Act is passed (and may be exercised to make provision having effect in relation to times before this Act is passed). (2) So far as not already brought into force by virtue of sub-paragraph (1), the amendments made by this Schedule come into force in accordance with provision contained in an order made by the Treasury. (3) An order made under sub-paragraph (2) may— (a) provide for such amendments to be treated as having come into force on a date not earlier than 1 April 2010; (b) make transitional provision or savings. 10 (1) In a case where a club that was registered as a community amateur sports club before the day on which this Act is passed ceases to be entitled to be registered as such by virtue of this Schedule, an officer of Revenue and Customs may not cancel the club's registration with effect from a date earlier than that day. (2) But sub-paragraph (1) does not prevent the cancellation of the club's registration if the officer is satisfied that— (a) any information provided by a person (“P”) at the time of registration was inaccurate, and (b) the inaccuracy was careless (within the meaning of paragraph 3 of Schedule 24 to FA 2007) or deliberate on P's part.

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SCHEDULE 22 Transitional provision relating to reduction in standard lifetime allowance etc

Section 48 PART 1 “Fixed protection 2014” 1 (1) This paragraph applies on or after 6 April 2014 in the case of an individual— (a) who, on that date, has one or more arrangements under— (i) a registered pension scheme, or (ii) a relieved non-UK pension scheme of which the individual is a relieved member, (b) in relation to whom paragraph 7 of Schedule 36 to FA 2004 (primary protection) does not apply on that date, (c) in relation to whom paragraph 12 of that Schedule (enhanced protection) does not apply on that date, and (d) in whose case paragraph 14 of Schedule 18 to FA 2011 (transitional provision relating to new standard lifetime allowance for the tax year 2012-13) does not apply on that date, if notice of intention to rely on it is given to an officer of Revenue and Customs. (2) Chapter 15A of Part 9 of ITEPA 2003 (pension income: lump sums under registered pension schemes) has effect in relation to the individual as if— (a) the amount specified in section 637P of that Act (individual’s lump sum allowance) were £375,000, and (b) the amount specified in section 637R of that Act (individual’s lump sum and death benefit allowance) were— (i) if one or more lump sum and death benefit allowance enhancement factors operate in relation to the individual for the purposes of paragraph 20H of Schedule 36 to FA 2004, the individual’s enhanced lump sum and death benefit allowance (as determined under that paragraph of that Schedule), and (ii) otherwise, £1,500,000. (3A) For the purposes of paragraph 20H of Schedule 36 to FA 2004, the individual’s “protected lump sum and death benefit allowance” is £1,500,000. (3) But this paragraph ceases to apply if the notice under sub-paragraph (1) is given on or after 15 March 2023 and, on or after 6 April 2014— (a) there is benefit accrual in relation to the individual under an arrangement under a registered pension scheme, (b) there is an impermissible transfer into any arrangement under a registered pension scheme relating to the individual, (c) a transfer of sums or assets held for the purposes of, or representing accrued rights under, any such arrangement is made that is not a permitted transfer, or (d) an arrangement relating to the individual is made under a registered pension scheme otherwise than in permitted circumstances. (4) For the purposes of sub-paragraph (3)(a) there is benefit accrual in relation to the individual under an arrangement— (a) in the case of a money purchase arrangement that is not a cash balance arrangement, if a relevant contribution is paid under the arrangement on or after 6 April 2014, (b) in the case of a cash balance arrangement or a defined benefits arrangement, if there is an increase in the value of the individual's rights under the arrangement at any time on or after that date (but subject to sub-paragraph (11)), and (c) in the case of a hybrid arrangement— (i) where the benefits that may be provided to or in respect of the individual under the arrangement include money purchase benefits other than cash balance benefits, if a relevant contribution is paid under the arrangement on or after 6 April 2014, and (ii) in any case, if there is an increase in the value of the individual's rights under the arrangement at any time on or after that date (but subject to sub-paragraph (11)). (5) For the purposes of sub-paragraphs (4)(b) and (c)(ii) and (11) whether there is an increase in the value of the individual's rights under the arrangement (and its amount if there is) is to be determined— (a) in the case of a cash balance arrangement (or a hybrid arrangement under which cash balance benefits may be provided to or in respect of the individual under the arrangement), by reference to whether there is an increase in the amount that would, on the valuation assumptions, be available for the provision of benefits to or in respect of the member (and, if there is, the amount of the increase), and (b) in the case of a defined benefits arrangement (or a hybrid arrangement under which defined benefits may be provided to or in respect of the individual under the arrangement), by reference to whether there is an increase in the benefits amount. (6) For the purposes of sub-paragraph (5)(b) “the benefits amount” is— ( P × RVF ) + LS where— LS is the lump sum to which the individual would, on the valuation assumptions, be entitled under the arrangement (otherwise than by commutation of pension); P is the annual rate of the pension which would, on the valuation assumptions, be payable to the individual under the arrangement; RVF is the relevant valuation factor. (7) Paragraph 17A of Schedule 36 to FA 2004 (impermissible transfers) applies for the purposes of sub-paragraph (3)(b) but as if the references to a relevant existing arrangement were to the arrangement and the reference in sub-paragraph (2) to 5 April 2006 were to 5 April 2014. (8) Sub-paragraphs (7) to (8B) of paragraph 12 of Schedule 36 to FA 2004 (when there is a permitted transfer) apply for the purposes of sub-paragraph (3)(c); and where there is a permitted transfer— (a) if it is a permitted transfer by virtue of sub-paragraph (8)(a) of paragraph 12, this paragraph applies in relation to the arrangement to which the transfer is made, (b) if it is a permitted transfer by virtue of sub-paragraph (8)(b) of that paragraph, this paragraph applies in relation to the arrangement to which the transfer is made as if it were the same as that from which it is made, and (c) if it is a permitted transfer by virtue of sub-paragraph (8)(c) of that paragraph, this paragraph applies in relation to the arrangement to which the transfer is made as if it were the same as that from which it is made and (if the employment is transferred) as if the employment with the transferee were the employment with the transferor. (9) Sub-paragraphs (2A) to (2C) of paragraph 12 of Schedule 36 to FA 2004 (“permitted circumstances”) apply for the purposes of sub-paragraph (3)(d). (10) Paragraph 14 of Schedule 36 to FA 2004 (when a relevant contribution is paid under an arrangement) applies for the purposes of sub-paragraph (4)(a) and (c)(i). (11) Increases in the value of the individual's rights under an arrangement are to be ignored for the purposes of sub-paragraph (4)(b) or (c)(ii) if in no tax year do they exceed the relevant percentage. (12) The relevant percentage, in relation to a tax year, means— (a) where the arrangement (or a predecessor arrangement) includes provision for the value of the rights of the individual to increase during the tax year at an annual rate specified in the rules of the pension scheme (or a predecessor registered pension scheme) on 11 December 2012— (i) that percentage (or, where more than one arrangement includes such provision, the higher or highest of the percentages specified), plus (ii) the relevant statutory increase percentage; (b) otherwise— (i) the percentage by which the consumer prices index for the month of September in the previous tax year is higher than it was for the September before that (or nil per cent if it is not higher), or (ii) if higher, the relevant statutory increase percentage. (13) In sub-paragraph (12)(a)— “predecessor arrangement”, in relation to an arrangement, means another arrangement (under the same or another registered pension scheme) from which some or all of the sums or assets held for the purposes of the arrangement directly or indirectly derive; “predecessor registered pension scheme”, in relation to a pension scheme, means another registered pension scheme from which some or all of the sums or assets held for the purposes of the arrangement under the pension scheme directly or indirectly derive. (14) In sub-paragraph (12) “the relevant statutory increase percentage”, in relation to a tax year, means the percentage increase in the value of the individual's rights under the arrangement during the tax year so far as it is attributable solely to one or more of the following— (a) an increase in accordance with section 15 of the Pension Schemes Act 1993 or section 11 of the Pension Schemes (Northern Ireland) Act 1993 (increase of guaranteed minimum where commencement of guaranteed minimum pension postponed); (b) a revaluation in accordance with section 16 of the Pension Schemes Act 1993 or section 12 of the Pension Schemes (Northern Ireland) Act 1993 (early leavers: revaluation of earnings factors); (c) a revaluation in accordance with Chapter 2 of Part 4 of the Pension Schemes Act 1993 or the Pension Schemes (Northern Ireland) Act 1993 (early leavers: revaluation of accrued benefits); (d) a revaluation in accordance with Chapter 3 of Part 4 of the Pension Schemes Act 1993 or the Pension Schemes (Northern Ireland) Act 1993 (early leavers: protection of increases in guaranteed minimum pensions); (e) the application of section 67 of the Equality Act 2010 (sex equality rule for occupational pension schemes). (15) Sub-paragraph (16) applies in relation to a tax year if— (a) the arrangement is a defined benefits arrangement which is under an annuity contract treated as a registered pension scheme under section 153(8) of FA 2004, (b) the contract provides for the value of the rights of the individual to be increased during the tax year at an annual rate specified in the contract, and (c) the contract limits the annual rate to the percentage increase in the retail prices index over a 12 month period specified in the contract. (16) Sub-paragraph (12)(b)(i) applies as if it referred instead to the annual rate of the increase in the value of the rights during the tax year. (17) For the purposes of sub-paragraph (15)(c) the 12 month period must end during the 12 month period preceding the month in which the increase in the value of the rights occurs. (18) Subject to sub-paragraphs (19) to (21), sub-paragraph (3) applies in relation to an individual who is a relieved member of a relieved non-UK pension scheme as if the relieved non-UK pension scheme were a registered pension scheme; and the other sub-paragraphs of this paragraph apply accordingly. (19) Sub-paragraphs (20) and (21) apply for the purposes of sub-paragraph (3)(a)(instead of sub-paragraph (4)) in determining if there is benefit accrual in relation to an individual under an arrangement under a relieved non-UK pension scheme of which the individual is a relieved member. (20) There is benefit accrual in relation to the individual under the arrangement if there is a pension input amount under sections 230 to 237 of FA 2004 (as applied by Schedule 34 to that Act) greater than nil in respect of the arrangement for a tax year; and, in such a case, the benefit accrual is treated as occurring at the end of the tax year. (21) There is also benefit accrual in relation to the individual under the arrangement if— (a) in a tax year there occurs a benefit crystallisation event in relation to the individual (whether in relation to the arrangement or to any other arrangement under any pension scheme or otherwise), and (b) had the tax year ended immediately before the benefit crystallisation event, there would have been a pension input amount under sections 230 to 237 of FA 2004 greater than nil in respect of the arrangement for the tax year, and, in such a case, the benefit accrual is treated as occurring immediately before the benefit crystallisation event. (22) Expressions used in this paragraph and Part 4 of FA 2004 (pension schemes) have the same meaning in this paragraph as in that Part. (23) In particular, references to a relieved non-UK pension scheme or a relieved member of such a scheme are to be read in accordance with paragraphs 13(3) and (4) and 18 of Schedule 34 to FA 2004 (application of lifetime allowance charge provisions to members of overseas pension schemes). 2 (1) The Commissioners for Her Majesty's Revenue and Customs may by regulations amend paragraph 1. (2) Regulations under this paragraph may (for example) add to the cases in which paragraph 1 is to apply or is to cease to apply. (3) Regulations under this paragraph may include provision having effect in relation to a time before the regulations are made; but— (a) the time must be no earlier than 6 April 2014, and (b) the provision must not increase any person's liability to tax. 3 (1) The Commissioners for Her Majesty's Revenue and Customs may by regulations make provision specifying how any notice required to be given to an officer of Revenue and Customs under paragraph 1 is to be given. (2) In sub-paragraph (1) the reference to paragraph 1 is to that paragraph as amended from time to time by regulations under paragraph 2. 4 (1) Regulations under paragraph 2 or 3 may include supplementary or incidental provision. (2) The powers to make regulations under paragraphs 2 and 3 are exercisable by statutory instrument. (3) A statutory instrument containing regulations under paragraph 2 or 3 is subject to annulment in pursuance of a resolution of the House of Commons. PART 2 Other provision 5 Part 4 of FA 2004 (pension schemes) is amended as follows. 6 (1) Section 218 (standard lifetime allowance etc) is amended as follows. (2) After subsection (5B) insert— (5BA) Where the operation of a lifetime allowance enhancement factor is provided for by any of sections 220, 222, 223 and 224 and the time mentioned in the definition of SLA in the section concerned fell within the period consisting of the tax year 2012-13 and the tax year 2013-14, subsection (4) has effect as if the amount to be multiplied by LAEF were £1,500,000 if that is greater than SLA. (5BB) Where more than one lifetime allowance enhancement factor operates, subsection (5BA) does not apply if subsection (5A) or (5B) applies. (3) After subsection (5C) insert— (5D) Where benefit crystallisation event 7 occurs on or after 6 April 2014 by reason of the payment of a relevant lump sum death benefit in respect of the death of the individual during the period consisting of the tax year 2012-13 and the tax year 2013-14, the standard lifetime allowance at the time of the benefit crystallisation event is £1,500,000. (4) The amendments made by this paragraph have effect for the tax year 2014-15 and subsequent tax years. 7 (1) In section 219 (availability of individual's lifetime allowance) after subsection (5) insert— (5A) If paragraph 7 of Schedule 36 (primary protection) makes provision for a lifetime allowance enhancement factor in relation to the individual, subsection (5) has effect as if CSLA were £1,500,000 if that is greater than CSLA. (2) The amendment made by this paragraph has effect for cases in which the time of the current benefit crystallisation event falls on or after 6 April 2014. 8 (1) Part 1 of Schedule 29 (authorised lump sums: lump sum rule) is amended as follows. (2) In paragraph 2 (which applies for the purpose of determining pension commencement lump sums) after sub-paragraph (8) insert— (9) Sub-paragraph (10) applies if the member is a protected individual (but not if this paragraph applies with the modifications set out in paragraph 27 or 28 of Schedule 36). (10) Sub-paragraphs (6) and (7) have effect as if CSLA were £1,500,000 if that is greater than CSLA. (11) The member is a “protected individual” if— (a) paragraph 7 of Schedule 36 (primary protection) makes provision for a lifetime allowance enhancement factor in relation to the member, or (b) at the time the member becomes entitled to the lump sum, paragraph 12 of that Schedule (enhanced protection) applies in relation to the member. (3) The amendment made by sub-paragraph (2) has effect for cases in which the member becomes entitled to the lump sum on or after 6 April 2014. (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) The amendment made by sub-paragraph (4) has effect for cases in which the nominated date falls on or after 6 April 2014.

Propose a change

SCHEDULE 23 Employee shareholder shares

Section 55 PART 1 Income tax treatment of employee shareholder shares 1 ITEPA 2003 is amended in accordance with paragraphs 2 to 15. 2 In section 19(2) (time of receipt of non-money earnings), at the appropriate place insert— “ section 226A (amount treated as earnings: employee shareholder shares). ” 3 In Chapter 12 of Part 3, after section 226 insert— Shares of employee shareholders Amount treated as earnings 226A (1) This section applies if shares having a market value of no less than £2000 are acquired by an employee in consideration of an employee shareholder agreement. (2) An amount calculated in accordance with subsection (3) is to be treated as earnings from the employment, in respect of the acquisition of the shares, for the tax year in which they are acquired. But this is subject to subsection (4). (3) The amount is— MV − P where— MV is an amount equal to the market value of the shares; P is any payment the employee is treated as making for the shares under section 226B. But if P exceeds MV, the amount is nil. (4) If the shares are acquired pursuant to an employment-related securities option, subsection (2) does not apply. (5) If subsection (2) applies, nothing else constitutes earnings under this Part from the employment in respect of the acquisition of the shares. (6) For the purposes of this section and sections 226B to 226D— shares are “acquired” by an employee if the employee becomes beneficially entitled to them (and they are acquired at the time when the employee becomes so entitled); “employee shareholder agreement” means an agreement by virtue of which an employee is an employee shareholder (see section 205A(1)(a) to (d) of the Employment Rights Act 1996); “employee shareholder share” means a share acquired by an employee in consideration of an employee shareholder agreement; “employee” and “employer company”, in relation to an employee shareholder agreement, mean the individual and the company which enter into the agreement; “employment-related securities option” has the same meaning as in Chapter 5 of Part 7 (see section 471(5)); “market value” has the same meaning as it has for the purposes of TCGA 1992 by virtue of Part 8 of that Act; and the market value of shares is their market value on the day on which they are acquired (but see also subsection (7)). (7) For the purposes of subsection (1), the market value of the shares is to be determined ignoring— (a) any election under section 431 (election for market value of restricted shares to be calculated as if not restricted), and (b) section 437 (market value of convertible securities to be determined as if not convertible). Deemed payment for employee shareholder shares 226B (1) This section applies if shares having a market value of no less than £2000 are acquired by an employee in consideration of an employee shareholder agreement. (2) Where all the shares acquired in consideration of the agreement are acquired on the same day, the employee is to be treated, for the purposes of this Act, as having made on that day a payment of £2000 for those shares. (3) Where— (a) shares are acquired by the employee in consideration of the agreement on more than one day, and (b) of those shares, shares having a market value of not less than £2000 are acquired on the first of those days, the employee is to be treated for the purposes of this Act as having made, on the first of those days, a payment of £2000 for the shares acquired on that day. (4) If the market value of the shares acquired by the employee on the day mentioned in subsection (2) or (3)(b) exceeds £2000, the amount of the payment under subsection (2) or (3) which the employee is to be treated as having made for each of the shares is an amount equal to the appropriate proportion of the market value of that share. (5) The “appropriate proportion” is the following— 2000 V where V is the total market value of the shares acquired by the employee on the day. (6) This section is subject to— (a) section 226C (only one payment deemed to be made under agreements with associated companies), and (b) section 226D (no deemed payment if shareholder or a connected person has a material interest in the company). (7) Except as provided by this section, for the purposes of this Act the employee is to be treated as having given no consideration for shares acquired in consideration of the agreement. (8) Section 226A(7) applies for the purposes of this section as it applies for the purposes of section 226A(1). Only one payment deemed to be made under associated agreements 226C (1) An employee who is treated as having made a payment under section 226B for shares acquired in consideration of an employee shareholder agreement (“the relevant agreement”) is not to be treated as having made a payment for any other qualifying shares. (2) “Qualifying shares” means employee shareholder shares in— (a) the employer company in relation to the relevant agreement, or (b) an associated company of that company, which are acquired by the employee in consideration of an agreement within subsection (3). (3) An agreement is within this subsection if it is— (a) another employee shareholder agreement with the same employer company, or (b) an employee shareholder agreement with an associated company of that company. (4) For the purposes of this section— (a) a company is an “associated company” of another if— (i) one of the two has control of the other, or (ii) both are under the control of the same person or persons, and (b) if a company controls another when an employee shareholder agreement is entered into with the employee, paragraph (a) applies as if that continued to be the case (in addition to any other circumstances) when any subsequent employee shareholder agreement is entered into with that employee. (5) But subsection (4)(b) does not apply as between two companies if— (a) one of the companies has been dissolved, (b) the period of two years beginning with the date of the dissolution has passed, and (c) the employee has not, at any time in that period, been engaged in any office or employment (including engagement under a contract for services) with any company which is an associated company of the dissolved company. (6) In this section “control” is to be read in accordance with sections 450 and 451 of CTA 2010. Shareholder or connected person having material interest in company 226D (1) No payment is treated as made under section 226B in respect of any shares if, on the date on which the shares are acquired— (a) the employee has a material interest in the employer company or a relevant parent undertaking, or (b) the employee is connected with an individual who has a material interest in the employer company or a relevant parent undertaking. (2) No payment is treated as made under section 226B in respect of any shares if— (a) at any time in the period of one year ending with the date on which the shares are acquired, the employee had a material interest in the employer company or a relevant parent undertaking, or (b) on the date on which the shares are acquired, the employee is connected with an individual who, at any time in the period of one year ending with that date, had a material interest in the employer company or a relevant parent undertaking. (3) Subsections (4) and (5) define “material interest” for the purposes of this section. Those subsections must be read together with subsections (6) to (8). (4) An individual (“A”) has a material interest in a company if at least 25% of the voting rights in the company are exercisable— (a) by A, (b) by persons connected with A, or (c) by A and persons connected with A together. (5) If a company is a close company, an individual (“A”) has a material interest in it if— (a) A, (b) persons connected with A, or (c) A and persons connected with A together, possess such rights as would, in the event of the winding up of the company or in any other circumstances, give an entitlement to receive at least 25% of the assets that would then be available for distribution among the participators. (6) For the purposes of subsection (1), A is to be treated as having a material interest in a company at any time if either of the following conditions is met. (7) The first condition is that— (a) A, (b) persons connected with A, or (c) A and persons connected with A together, have an entitlement to acquire such rights as would (together with any existing rights) give A a material interest in the company. (8) The second condition is that there are arrangements in place between— (a) the employer company or a relevant parent undertaking, and (b) A, or persons connected with A, or A and persons connected with A together, which enable A or those persons to acquire such rights as would (together with any existing rights) give A a material interest in the company. (9) In this section— “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable); “close company” includes a company that would be a close company but for— section 442(a) of CTA 2010 (exclusion of companies not resident in the United Kingdom), or sections 446 and 447 of CTA 2010 (exclusion of certain quoted companies); “relevant parent undertaking” means any parent undertaking of the employer company and for this purpose “parent undertaking” is to be read in accordance with section 1162 of the Companies Act 2006. 4 In consequence of the amendment made by paragraph 3— (a) in the heading to Chapter 12 of Part 3, for “Payments” substitute “ Other amounts ”, and (b) before section 221 insert the heading “Payments”. 5 In section 428 (restricted securities: amount of charge on occurrence of chargeable event), in subsection (7), after paragraph (b) insert— (ba) any amount treated as earnings from the employee's employment under section 226A (employee shareholder shares: amount treated as earnings) in respect of the acquisition of the employment-related securities (other than an amount of exempt income), . 6 In section 431 (election for full or partial disapplication of Chapter 2 (restricted securities)), in subsection (3), after paragraph (a) insert— (aa) determining any amount that is to be treated as earnings from the employment where section 226A applies (employee shareholder shares: amount treated as earnings), . 7 In section 437 (convertible securities: adjustment of charge), in subsection (1)(a), after “charge)” insert “ , section 226A (employee shareholder shares: amount treated as earnings) ”. 8 In section 446B (charge on acquisition of securities with artificially depressed market value), in subsection (4), after paragraph (b) insert— (ba) section 226A (employee shareholder shares: amount treated as earnings), . 9 In section 446T (securities acquired for less than market value: amount of notional loan), in subsection (3), after paragraph (b) insert— (ba) any amount treated as earnings from the employee's employment under section 226A (employee shareholder shares: amount treated as earnings) in respect of the acquisition of the employment-related securities (other than an amount of exempt income), . 10 In section 446V (Chapter 3C to be additional to other income tax charges), after paragraph (b) insert— (ba) section 226A (employee shareholder shares: amount treated as earnings), . 11 In section 452 (shares in research institution spin-out companies: market value on acquisition), in subsection (2), after paragraph (a) insert— (aa) determining any amount that is to be treated as earnings from the employment under section 226A (employee shareholder shares: amount treated as earnings), . 12 In section 479 (securities options: amount of gain realised on chargeable event), after subsection (3) insert— (3A) Sections 226B to 226D (deemed payment for acquisition of employee shareholder shares) provide for the determination of the amount of consideration, if any, which is given for employee shareholder shares (within the meaning of section 226A(6)). 13 In section 531 (enterprise management incentives: limitation of charge where shares acquired below market value), after subsection (3) insert— (3A) Sections 226B to 226D (deemed payment for acquisition of employee shareholder shares) provide for the determination of the amount, if any, for which employee shareholder shares (within the meaning of section 226A(6)) are acquired. 14 (1) Section 532 (enterprise management incentives: consequences after disqualifying events) is amended as follows. (2) After subsection (4) insert— (4A) Sections 226B to 226D (deemed payment for acquisition of employee shareholder shares) provide for the determination of the amount, if any, for which employee shareholder shares (within the meaning of section 226A(6)) are acquired. (3) In subsection (5), for “those subsections” substitute “ subsections (2) and (3) ”. 15 In section 554N (exclusions: other cases involving employment-related securities etc), in subsection (7)(b), after “Part 3” insert “ , or an amount treated under section 226A as earnings of A, ”. 16 In Chapter 3 of Part 4 of ITTOIA 2005 (tax on dividends etc from UK companies), after section 385 insert— Purchase by company of exempt employee shareholder shares No charge to tax on purchase by company of exempt employee shareholder shares 385A (1) No tax is charged under this Chapter on the amount or value of a payment made by a company on the purchase of shares from an individual if— (a) the payment is made in respect of shares in the company, (b) the shares are exempt employee shareholder shares, and (c) at the time of the disposal, the individual is not an employee of, or an office-holder in, the employer company or an associated company of that company. (2) In this section— “exempt employee shareholder share”, “employer company” and “associated company” have the same meaning as in sections 236B to 236D of TCGA 1992 (capital gains tax treatment of employee shareholder shares); “in respect of shares in the company” has the same meaning as in Part 23 of CTA 2010 (company distributions) (see section 1113 of that Act). PART 2 Capital gains tax exemption for employee shareholder shares 17 TCGA 1992 is amended as follows. 18 In section 58(2) (spouses and civil partners: disposals excepted from the usual rule)— (a) omit “or” at the end of paragraph (a), and (b) after paragraph (b) insert , or (c) if the disposal is of exempt employee shareholder shares (see sections 236B to 236D), . 19 (1) Section 149AA (restricted and convertible employment-related securities) is amended as follows. (2) In subsection (1) for “Where” substitute “ Subject to subsection (1A), where ”. (3) After that subsection insert— (1A) Where an individual has acquired an asset consisting of shares which, on acquisition, became employee shareholder shares— (a) the consideration for the acquisition is (subject to section 119A) to be taken to be equal to any amount that constituted earnings under Chapter 1 of Part 3 of ITEPA 2003 (earnings) or section 226A of that Act (employee shareholder shares), and (b) no other consideration is to be treated as having been given for the acquisition of the shares. (4) In subsection (2)— (a) for “Subsection (1) above applies” substitute “ Subsections (1) and (1A) apply ”, and (b) for “is” substitute “ are ”. (5) After subsection (6) insert— (6A) For the purposes of subsection (1A)— “employee shareholder share” has the meaning given in section 236B(3) (exemption for employee shareholder shares), and shares are “acquired” by an individual if the individual becomes beneficially entitled to them (and they are so acquired at the time when the individual becomes so entitled). (6) In subsection (7)— (a) for “In subsection (1) the” substitute “ In subsections (1) and (1A) a ”, and (b) after “ITEPA 2003” insert “ or was treated as earnings under section 226A of that Act ”. (7) Accordingly, in the heading for that section, after “securities” insert “ and employee shareholder shares ”. 20 After section 236A insert— Employee shareholders Exemption for employee shareholder shares 236B (1) A gain which accrues on the first disposal of an exempt employee shareholder share is not a chargeable gain. (2) A share is an exempt employee shareholder share if it is— (a) an employee shareholder share, and (b) exempt in accordance with sections 236C and 236D. (3) In this section and sections 236C to 236G— shares are “acquired” by an employee if the employee becomes beneficially entitled to them (and they are acquired at the time when the employee becomes so entitled); “employee shareholder share” means a share acquired in consideration of an employee shareholder agreement and held by the employee; “employee shareholder agreement” means an agreement by virtue of which an employee is an employee shareholder (see section 205A(1)(a) to (d) of the Employment Rights Act 1996); “employee” and “employer company”, in relation to an employee shareholder agreement, mean the individual and the company which enter into the agreement. Only first £50,000 of shares under associated agreements to be exempt 236C (1) An employee shareholder share acquired in consideration of an employee shareholder agreement (“the relevant agreement”) is exempt for the purposes of section 236B only if, immediately after its acquisition, the total value of qualifying shares which have been acquired by the employee does not exceed £50,000. (2) “Qualifying share” means an employee shareholder share in— (a) the employer company in relation to the relevant agreement, or (b) an associated company of that company, which is acquired by the employee in consideration of an agreement within subsection (3). (3) An agreement is within this subsection if it is— (a) the relevant agreement, (b) another employee shareholder agreement with the same employer company, or (c) an employee shareholder agreement with an associated company of that company. (4) For the purposes of this section— (a) a company is an “associated company” of another if— (i) one of the two has control of the other, or (ii) both are under the control of the same person or persons, and (b) if a company controls another when an employee shareholder agreement is entered into with the employee, paragraph (a) applies as if that continued to be the case (in addition to any other circumstances) when any subsequent employee shareholder agreement is entered into with that employee. (5) But subsection (4)(b) does not apply as between two companies if— (a) one of the companies has been dissolved, (b) the period of two years beginning with the date of the dissolution has passed, and (c) the employee has not, at any time in that period, been engaged in any office or employment (including engagement under a contract for services) with any company which is an associated company of the dissolved company. (6) If a number of qualifying shares are acquired by an employee on a day and— (a) before that day, the value of qualifying shares that have been acquired by the employee does not exceed £50,000, and (b) at the end of that day, that value does exceed that sum, the appropriate proportion of the shares (rounded down, if necessary, to the nearest share) is to be treated for the purposes of subsection (1) as having been acquired separately and before the others. (7) The “appropriate proportion” is the following— 50000 – B T where— B is the value of qualifying shares acquired before the day; T is the total value of qualifying shares acquired on the day. (8) For the purposes of this section, the value of a share (at any time) is its unrestricted market value at the time when it was acquired by the employee. (9) The unrestricted market value of a share when it is acquired by an employee is what the market value of the share would be immediately after the acquisition, but for any restriction. For this purpose “restriction” has the meaning given by section 432(8) of ITEPA 2003 (restricted securities for the purposes of Chapter 2 of Part 7 of that Act). Shares not exempt if shareholder or connected person has material interest in company 236D (1) An employee shareholder share is not exempt for the purposes of section 236B if, on the date on which the share is acquired— (a) the employee has a material interest in the employer company or a relevant parent undertaking, or (b) the employee is connected with an individual who has a material interest in the employer company or a relevant parent undertaking. (2) An employee shareholder share is not exempt for the purposes of section 236B if— (a) at any time in the period of one year ending with the date on which the share is acquired, the employee had a material interest in the employer company or a relevant parent undertaking, or (b) on the date on which the share is acquired, the employee is connected with an individual who, at any time in the period of one year ending with that date, had a material interest in the employer company or a relevant parent undertaking. (3) Subsections (4) and (5) define “material interest” for the purposes of this section. Those subsections must be read together with subsections (6) to (8). (4) An individual (“A”) has a material interest in a company if at least 25% of the voting rights in the company are exercisable— (a) by A, (b) by persons connected with A, or (c) by A and persons connected with A together. (5) If a company is a close company, an individual (“A”) has a material interest in it if— (a) A, (b) persons connected with A, or (c) A and persons connected with A together, possess such rights as would, in the event of the winding up of the company or in any other circumstances, give an entitlement to receive at least 25% of the assets that would then be available for distribution among the participators. (6) For the purposes of subsection (1), A is to be treated as having a material interest in a company at any time if either of the following conditions is met. (7) The first condition is that— (a) A, (b) persons connected with A, or (c) A and persons connected with A together, have an entitlement to acquire such rights as would (together with any existing rights) give A a material interest in the company. (8) The second condition is that there are arrangements in place between— (a) the employer company or a relevant parent undertaking, and (b) A, or persons connected with A, or A and persons connected with A together, which enable A or those persons to acquire such rights as would (together with any existing rights) give A a material interest in the company. (9) In this section— “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable); “close company” includes a company that would be a close company but for— section 442(a) of CTA 2010 (exclusion of companies not resident in the United Kingdom), or sections 446 and 447 of CTA 2010 (exclusion of certain quoted companies); “relevant parent undertaking” means any parent undertaking of the employer company and for this purpose “parent undertaking” is to be read in accordance with section 1162 of the Companies Act 2006. Identification of exempt employee shareholder shares 236E (1) Sections 104 (share pooling), 105 (disposal on or before acquisition) and 106A (identification of securities) do not apply to exempt employee shareholder shares. (2) Subsection (3) applies where— (a) an employee holds shares of the same class in a company, (b) some, but not all, of the shares are exempt employee shareholder shares, and (c) the employee disposes of some, but not all, of the shares in that holding. (3) Where this subsection applies— (a) the employee may determine what proportion of the shares disposed of are to be treated as exempt employee shareholder shares (up to the number of such shares which the employee holds), and (b) the consideration received for the shares disposed of is to be apportioned accordingly. (4) For the purposes of this section shares in a company are not to be treated as being of the same class unless they are so treated by the practice of a recognised stock exchange or would be so treated if dealt with on a recognised stock exchange. Reorganisation of share capital involving employee shareholder shares 236F (1) Section 127 (equation of original shares and new holding on reorganisation) does not apply to exempt employee shareholder shares. (2) The reference in subsection (1) to section 127 includes that section as applied by sections 135 and 136 (other company reconstructions). Relinquishment of employment rights is not disposal of an asset 236G (1) This section applies where an individual has acquired shares in consideration of entering into an employee shareholder agreement. (2) The individual is not to be regarded as disposing of an asset by reason of the individual ceasing to have, or not acquiring, the rights mentioned in section 205A of the Employment Rights Act 1996 (rights which an employee shareholder does not have) in consequence of entering into the agreement. PART 3 Corporation tax 21 CTA 2009 is amended as follows. 22 In section 1005 (definitions), at the appropriate place insert— “employee shareholder share” has the meaning given by section 226A(6) of ITEPA 2003, . 23 (1) Section 1009 (relief for employee share acquisitions: employee's tax position) is amended as follows. (2) In subsection (2)(a), for “earnings within Chapter 1 of Part 3 of ITEPA 2003” substitute “ relevant earnings ”. (3) After subsection (2) insert— (2A) Relevant earnings” means— (a) earnings within Chapter 1 of Part 3 of ITEPA 2003, and (b) any amount that is treated as earnings by virtue of section 226A of that Act (employee shareholder shares). (4) After subsection (5) insert— (6) Where the shares are employee shareholder shares, this section is subject to section 1038B. 24 In section 1010(1) (acquisition of shares: relief if shares neither restricted nor convertible), after “section 1012” insert “ and, in the case of employee shareholder shares, section 1038B ”. 25 (1) Section 1011 (acquisition of shares: relief if shares are restricted or convertible) is amended as follows. (2) In subsections (2) and (3), for “earnings of the employee within Chapter 1 of Part 3 of ITEPA 2003” substitute “ relevant earnings of the employee ”. (3) For subsection (4) substitute— (4) For the purposes of subsections (2) and (3) “relevant earnings” means— (a) earnings within Chapter 1 of Part 3 of ITEPA 2003, and (b) any amount that is treated as earnings by virtue of section 226A of that Act (employee shareholder shares) (but see also section 1038B of this Act), except that it does not include any amount of exempt income (within the meaning of section 8 of ITEPA 2003). 26 In section 1018(1) (acquisition of shares pursuant to option: relief if shares neither restricted nor convertible), after “section 1020” insert “ and, in the case of employee shareholder shares, section 1038B ”. 27 In section 1019(1) (acquisition of shares pursuant to option: relief if shares are restricted or convertible), after “section 1020” insert “ and, in the case of employee shareholder shares, section 1038B ”. 28 In section 1022 (takeover of company whose shares are subject to option), after subsection (4) insert— (5) Where the shares are employee shareholder shares, this section is subject to section 1038B. 29 In section 1026 (restricted shares: relief available on chargeable event), after subsection (4) insert— (5) Where the shares are employee shareholder shares, this section is subject to section 1038B. 30 In section 1027 (restricted shares: relief available on death of employee), after subsection (4) insert— (5) Where the shares are employee shareholder shares, this section is subject to section 1038B. 31 In section 1033 (convertible securities: relief available on chargeable event), after subsection (4) insert— (5) Where the shares are employee shareholder shares, this section is subject to section 1038B. 32 In section 1034 (convertible securities: relief available following death of employee), after subsection (4) insert— (5) Where the shares are employee shareholder shares, this section is subject to section 1038B. 33 (1) At the end of Chapter 6 of Part 12 insert— Employee shareholder shares 1038B For the purposes of this Part, any payment treated as made under section 226B of ITEPA 2003 (employee treated as paying £2000 for employee shareholder shares) in respect of the acquisition of shares is to be ignored when determining— (a) whether a person is subject to a charge to tax under that Act, (b) the amount that counts (or would have counted) as employment income under that Act, or (c) the consideration given by a person in relation to the acquisition of the shares. (2) Accordingly, in the heading for that Chapter, at the end insert “ ETC ”. 34 In section 1292 (provision of qualifying benefits), after subsection (6) insert— (6ZA) In determining whether condition A or B is met, any payment treated as made under section 226B of ITEPA 2003 (deemed payment for employee shareholder shares) is to be ignored. 35 In section 1293 (timing and amount of certain qualifying benefits), after subsection (5) insert— (5A) In determining for the purposes of subsections (3) and (5) the amount that is, or would be, charged to tax under ITEPA 2003, any payment treated as made under section 226B of that Act (deemed payment for employee shareholder shares) is to be ignored. 36 In Schedule 4 (index of definitions), at the appropriate place insert— employee shareholder share (in Part 12) | section 226A(6) of ITEPA 2003 (see section 1005 of this Act) . PART 4 Employment income exemption 37 In Chapter 11 of Part 4 of ITEPA (employment income: miscellaneous exemptions), after section 326A insert— Employee shareholder agreements Advice relating to proposed employee shareholder agreements 326B (1) No liability to income tax arises by virtue of— (a) the provision of relevant advice by a relevant independent adviser, or (b) the payment or reimbursement, in accordance with section 205A(7) of the Employment Rights Act 1996, of any reasonable costs incurred in obtaining relevant advice. (2) “Relevant advice” means— (a) advice, other than tax advice, which is provided for the purposes of section 205A(6)(a) of that Act (advice as to terms and effect of employee shareholder agreement), and (b) tax advice which is so provided and consists only of an explanation of the tax effects of employee shareholder agreements generally. (3) In this section— “employee shareholder agreement” means an agreement by virtue of which an employee is an employee shareholder (see section 205A(1)(a) to (d) of that Act); “relevant independent adviser” has the meaning that it has for the purposes of section 203(3)(c) of that Act. PART 5 Commencement 38 The amendments made by this Schedule come into force in accordance with provision made by the Treasury by order made by statutory instrument.

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SCHEDULE 24 EMI options and entrepreneurs' relief etc

Section 64 Entrepreneurs' relief to apply to shares acquired under EMI option 1 (1) In Chapter 3 of Part 5 of TCGA 1992 (entrepreneurs' relief) section 169I (material disposal of business assets) is amended as follows. (2) In subsection (5) for “or B” substitute “ , B, C or D ”. (3) After subsection (7) insert— (7A) Condition C is that— (a) the assets disposed of are relevant EMI shares, (b) the option grant date is, or is before, the first date of the period of 1 year ending with the date of the disposal, and (c) throughout that period of 1 year— (i) the company is either a trading company or the holding company of a trading group, and (ii) the individual is an officer or employee of the company or (if the company is a member of a trading group) of one or more companies which are members of the trading group. (7B) Condition D is that— (a) the assets disposed of are relevant EMI shares acquired by the individual before the cessation date, (b) the option grant date is, or is before, the first date of the period of 1 year ending with the cessation date, (c) the conditions in paragraph (c) of subsection (7A) are met throughout that period of 1 year, and (d) the cessation date is within the period of 3 years ending with the date of the disposal. (7C) In this section “relevant EMI shares” means— (a) shares of a company acquired by an individual to which subsection (7D) applies, or (b) shares of a company to which subsection (7F) applies. (7D) This subsection applies to shares of a company acquired by an individual if the individual— (a) acquires them on or after 6 April 2013, and (b) acquires them as a result of the exercise of a qualifying option within the meaning given by section 527(4) of ITEPA 2003 (enterprise management incentives) where the option is exercised on or before the tenth anniversary of the date mentioned in section 529(2) of that Act. (7E) Subsection (7D) does not apply to shares acquired as a result of the exercise of a qualifying option if— (a) a disqualifying event (see section 533 of ITEPA 2003) occurs in relation to the option before its exercise, and (b) it is exercised later than the period mentioned in section 532(1)(b) of ITEPA 2003. (7F) This subsection applies to shares of a company if— (a) the shares are the new holding in a case in which section 127 applies in relation to an individual, (b) the original shares in that case are relevant EMI shares (whether by virtue of subsection (7D) or this subsection), and (c) that case is one in which section 127 applies by virtue only of— (i) section 126, or (ii) subject to subsection (7G), section 135(3). (7G) Subsection (7F)(c)(ii) applies only if— (a) the exchange of shares in question is a qualifying exchange of shares as defined in paragraph 40 of Schedule 5 to ITEPA 2003, and (b) when the exchange occurs, the independence requirement (see paragraph 9 of Schedule 5 to ITEPA 2003) and the trading activities requirement (see paragraphs 13 and 14 of that Schedule) are met in relation to the new company (see paragraph 40(1)(a) of that Schedule). (7H) In this section “the original relevant EMI shares”, in relation to shares which are relevant EMI shares by virtue of subsection (7F), means the shares originally acquired by the individual to which subsection (7D) applied. (7I) If the shares disposed of are relevant EMI shares by virtue of subsection (7F), in relation to times before the reorganisation mentioned in section 127, in subsection (7A)(c) references to the company are to be read as references to (if different)— (a) the company whose shares are the original relevant EMI shares, or (b) if there has been more than one reorganisation since the original relevant EMI shares were acquired— (i) the company whose shares are the original relevant EMI shares, or (ii) if at the time in question the individual is holding relevant EMI shares which are shares of another company, that other company. This subsection is subject to subsection (7N). (7J) If the shares disposed of are relevant EMI shares by virtue of subsection (7F), the question of whether the requirement of subsection (7B)(a) is met is to be determined by reference to the date of the acquisition of the original relevant EMI shares. (7K) Subject to what follows, in subsections (7A)(b) and (7B)(b) “the option grant date” means the date on which the qualifying option in question was granted. (7L) Subsections (7M) and (7N) apply if the qualifying option is a replacement option for the purposes of the EMI code (see paragraph 41 of Schedule 5 to ITEPA 2003). (7M) In subsections (7A)(b) and (7B)(b) “the option grant date” means— (a) the date on which the old option was granted, or (b) if the old option was also a replacement option, the date on which the earlier old option was granted, and so on. (7N) In relation to any time during the currency of an old option taken into account under subsection (7M), in subsection (7A)(c) references to the company are to be read as references to the company whose shares were the subject of the old option. (7O) In subsection (7B) “the cessation date” means the date on which the company— (a) ceases to be a trading company without continuing to be or becoming a member of a trading group, or (b) ceases to be a member of a trading group without continuing to be or becoming a trading company. (7P) Subsections (7Q) and (7R) apply in relation to a disposal of relevant EMI shares if— (a) the shares were acquired as a result of the exercise of a qualifying option where— (i) a disqualifying event (see section 533 of ITEPA 2003) occurs in relation to the option before its exercise, but (ii) it is exercised within the period mentioned in section 532(1)(b) of ITEPA 2003, or (b) if the shares are relevant EMI shares by virtue of subsection (7F), the original relevant EMI shares were acquired as mentioned in paragraph (a). (7Q) Subsection (7A)(b) has effect as if the reference to the date of the disposal were a reference to the date of the disqualifying event. (7R) If the disqualifying event is within section 534(1)(c) of ITEPA 2003, subsection (7B)(a) has effect as if the reference to the cessation date were a reference to the first day after the period mentioned in section 532(1)(b) of that Act if that day is later than the cessation date. Identification of shares acquired under EMI option 2 Chapter 1 of Part 4 of TCGA 1992 (general provision relating to shares etc) is amended as follows. 3 In section 105 (disposal on or before day of acquisition of shares etc) after subsection (3) insert— (4) Subsection (5) applies if an individual— (a) acquires shares (“the relevant shares”) of the same class, on the same day and in the same capacity, and (b) some of the relevant shares are relevant EMI shares (as defined by section 169I(7C) to (7G)). (5) This section has effect as if— (a) paragraph (a) of subsection (1) required the relevant EMI shares to be treated as acquired by the individual by a single transaction separate from the remainder of the relevant shares (which are also to be treated by virtue of that paragraph as acquired by the individual by a single transaction), and (b) subsection (1) required the relevant EMI shares to be treated as disposed of after the remainder of the relevant shares. 4 (1) Section 106A (identification of securities for capital gains tax purposes) is amended as follows. (2) In subsection (5)— (a) omit the “and” after paragraph (a), (b) after paragraph (a) insert— (aa) with securities acquired by him within that period which are not relevant EMI shares, rather than with securities acquired by him within that period which are relevant EMI shares; and , and (c) at the beginning of paragraph (b) insert “ subject to paragraph (aa), ”. (3) After subsection (6) insert— (6A) Subject to subsections (4) and (5) above, a company's shares which are disposed of shall be identified— (a) with relevant EMI shares, rather than with other shares, and (b) with relevant EMI shares acquired at an earlier time rather than with relevant EMI shares acquired at a later time. (6B) No shares identified with relevant EMI shares by virtue of subsection (6A)(a) or (b) above shall be regarded as forming part of an existing section 104 holding or as constituting a section 104 holding. (4) In subsection (10), before the definition of “securities”, insert— relevant EMI shares” has the meaning given by section 169I(7C) to (7G), . Commencement and transitional provision 5 (1) The amendments made by paragraphs 1 to 4 above have effect in relation to disposals of shares on or after 6 April 2013. (2) In the case of the amendments made by paragraphs 2 to 4 above, sub-paragraph (1) is subject to paragraph 6(4) below. 6 (1) This paragraph applies if, during the tax year 2012-13, an individual acquires shares of a class in a company (“the relevant shares”) which would be relevant EMI shares were the reference to 6 April 2013 in section 169I(7D)(a) of TCGA 1992 (as inserted by paragraph 1 above) a reference to 6 April 2012 instead. (2) If the individual makes no disposals of shares of that class in that company during that tax year, the relevant shares are to be treated as if they were relevant EMI shares. (3) If the individual disposes of shares of that class in that company during that tax year, the individual may elect for the relevant shares to be treated as if they were relevant EMI shares. (4) If the individual makes an election under sub-paragraph (3)— (a) the amendments made by paragraphs 2 to 4 above also have effect, in the case of the individual, in relation to disposals of shares of that class in that company during that tax year, but (b) for this purpose, the amendment made by sub-paragraph (5) has effect instead of the amendment made by paragraph 4(3) above. (5) In section 106A of TCGA 1992 after subsection (6) insert— (6A) Subject to subsections (4) and (5) above, a company's shares which are disposed of shall be identified— (a) with shares which are not relevant EMI shares, rather than with relevant EMI shares, and (b) with relevant EMI shares acquired at a later time rather than with relevant EMI shares acquired at an earlier time. (6B) No shares identified with relevant EMI shares by virtue of subsection (6A)(b) above shall be regarded as forming part of an existing section 104 holding or as constituting a section 104 holding. (6) An election under sub-paragraph (3) may not be made or revoked after 31 January 2014 (and paragraph 3(1)(b) of Schedule 1A to TMA 1970 does not apply in relation to such an election). (7) For the purposes of this paragraph shares in a company are not to be treated as being of the same class unless they are so treated by the practice of a recognised stock exchange or would be so treated if dealt with on a recognised stock exchange. (8) “Recognised stock exchange” has the meaning given by section 1005 of ITA 2007.

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SCHEDULE 25 Charge on certain high value disposals by companies etc

Section 65 PART 1 Taxation of Chargeable Gains Act 1992 1 TCGA 1992 is amended as follows. 2 (1) Section 1 (the charge to tax) is amended as follows. (2) In subsection (2), after “Acts” insert “ , subject to the exception in subsection (2A) ”. (3) After subsection (2) insert— (2A) But companies are chargeable to capital gains tax, and not corporation tax, in respect of chargeable gains accruing to them to the extent that those gains are ATED-related gains in respect of which the companies are chargeable to capital gains tax under section 2B. (4) In subsection (3) for “subsection (2)” substitute “ subsections (2) and (2A) ”. 3 In section 2 (persons and gains chargeable to capital gains tax, and allowable losses), after subsection (7) insert— (7A) Nothing in this section applies in relation to an ATED-related gain chargeable to, or an ATED-related loss allowable for the purposes of, capital gains tax by virtue of section 2B. 4 After section 2 insert— Persons chargeable to capital gains tax on ATED-related gains 2B (1) A person (other than an excluded person) (“P”) is chargeable to capital gains tax in respect of any ATED-related chargeable gain accruing to P in a tax year on a relevant high value disposal. (2) A person is “excluded” if the person is an individual, the trustees of a settlement or the personal representatives of a deceased person and— (a) the gain accrues on a disposal of any partnership assets and the person is a member of the partnership, or (b) the gain accrues on a disposal of any property held for the purposes of a relevant collective investment scheme and the person is a participant in relation to the scheme. (3) Capital gains tax is charged on the total amount of ATED-related chargeable gains accruing to P in the tax year on relevant high value disposals, after deducting ring-fenced ATED-related allowable losses in relation to that year. (4) Subsections (5) to (7) apply in relation to an ATED-related allowable loss accruing to P in a tax year on a relevant high value disposal. (5) The loss is not allowable as a deduction from ATED-related chargeable gains accruing in any earlier tax year on relevant high value disposals. (6) Relief is not to be given under this Act more than once in respect of the loss or any part of the loss. (7) Relief is not to be given under this Act in respect of the loss if, and so far as, relief has been or may be given in respect of it under the Tax Acts. (8) The only deductions which can be made from ATED-related chargeable gains are those permitted by this section. (9) See section 57A and Schedule 4ZZA for how to compute— (a) the ATED-related gain or loss accruing on a relevant high value disposal, and (b) the gain or loss accruing on a relevant high value disposal which is not ATED-related. (10) In this section— “participant”, in relation to a relevant collective investment scheme, is to be read in accordance with section 235 of the Financial Services and Markets Act 2000; “relevant collective investment scheme” means a collective investment scheme within the meaning of Part 17 of that Act (see section 235 of that Act) other than— a unit trust scheme within the meaning of that Part (see section 237(1) of that Act), or an open-ended investment company within the meaning of that Part (see section 236(1) of that Act); “ring-fenced ATED-related allowable losses”, in relation to a tax year, means— any ATED-related allowable losses accruing to P in the tax year on relevant high value disposals, and so far as they have not been allowed as a deduction from ATED-related chargeable gains accruing in any previous tax year on relevant high value disposals, any ATED-related allowable losses accruing to P in any previous tax year (not earlier than the tax year 2013-14) on such disposals. “Relevant high value disposal” 2C (1) A disposal on which a gain or loss accrues to P is a “relevant high value disposal” if conditions A to D are met. (2) Condition A is that the disposal is of the whole or part of a chargeable interest (“the disposed of interest”). (3) Condition B is that the disposed of interest has, at any time during the relevant ownership period, been or formed part of a single-dwelling interest. (4) Condition C is that— (a) P, or (b) if the disposed of interest is a partnership asset, the responsible partners, or (c) if the disposed of interest is held for the purposes of a relevant collective investment scheme, the person who has day-to-day control over the management of the property subject to the scheme, has or have been within the charge to annual tax on enveloped dwellings with respect to that single-dwelling interest on one or more days in the relevant ownership period which are not relievable days in relation to the interest. (5) Condition D is that the amount or value of the consideration for the disposal exceeds the threshold amount (see section 2D). (6) In this section and section 2D— “chargeable interest” has the same meaning as in Part 3 of the Finance Act 2013 (annual tax on enveloped dwellings) (see section 107 of that Act (chargeable interest)); “dwelling” has the same meaning as in that Part (see section 112 of that Act); “relevant collective investment scheme” has the same meaning as in section 2B; “the relevant ownership period” means the period which begins— if an election has been made under paragraph 5 of Schedule 4ZZA, with the day on which P acquired the chargeable interest or, if later, 31 March 1982, and in any other case, with the day on which P acquired the chargeable interest or, if later, 6 April 2013, and ends with the day before the day on which the disposal occurs; “relievable day” means a day which is “relievable” by virtue of any of the provisions mentioned in section 132 of the Finance Act 2013 (ATED: effect of reliefs) and in respect of which a claim has been made under section 106(3) of that Act; “the responsible partners” has the same meaning as in section 96 of that Act; “single-dwelling interest” has the same meaning as in Part 3 of that Act; and a reference to being “within the charge” to annual tax on enveloped dwellings with respect to a single-dwelling interest is to be read in accordance with section 170(2) of that Act. (7) For the purposes of Condition C— (a) Part 3 of the Finance Act 2013 applies, in relation to any part of the relevant ownership period falling before 1 April 2013, as if section 94(8)(a) of that Act (first chargeable period for ATED) read “the period beginning with 31 March 1982 and ending with 31 March 1983”, and (b) when determining whether any day falling before 1 April 2013 is a relievable day, the definition of “relievable day” in subsection (6) above is to read as if the words “and in respect of which a claim has been made under section 106(3) of that Act” were omitted. “The threshold amount” 2D (1) This section applies to determine “the threshold amount” in relation to a disposal which meets Conditions A to C in section 2C (“the current disposal”). (2) If— (a) the current disposal is not a part disposal of an asset, and (b) P has not made any relevant related disposals, the threshold amount is £2 million, subject to subsection (5) (joint interests). (3) If paragraphs (a) and (b) of subsection (2) do not both apply, the threshold amount is the relevant fraction of £2 million, subject to subsection (5) (joint interests). (4) “The relevant fraction” is— C TMV where— “C” is the amount or value of the consideration for the current disposal; “TMV” is what would be the market value, at the time of the current disposal, of a notional asset comprising— the disposed of interest (see section 2C(2)), if the current disposal is a part disposal, any part of the chargeable interest held by P that remains undisposed of immediately following that part disposal, any chargeable interest (or part of a chargeable interest) which was the subject of a relevant related disposal, and any chargeable interest (or part of a chargeable interest) held by P at the time of the current disposal which, if P had disposed of it at that time, would have been the subject of a relevant related disposal. (5) If the disposed of interest is a share of the whole of— (a) a chargeable interest, or (b) a part of a chargeable interest, subsections (2) and (3) have effect as if the references to “£2 million” were to the joint share fraction of that amount. (6) The joint share fraction is the fraction of the whole of the chargeable interest or part represented by the disposed of interest. (7) “Relevant related disposal”, in relation to the current disposal, means any disposal by P which— (a) meets Conditions A to C in section 2C in circumstances where the single-dwelling interest referred to in Condition C is— (i) the single-dwelling interest by virtue of which Condition C is met in relation to the current disposal, or (ii) another single-dwelling interest in the same dwelling as that interest, and (b) was made in the period of 6 years ending with the day on which the current disposal occurs, but not before 6 April 2013. Restriction of losses 2E (1) This section applies where (ignoring this section)— (a) a disposal would be a relevant high value disposal, but for a failure to meet condition D in section 2C, (b) if it were a relevant high value disposal, an ATED-related loss would accrue to a person (other than an excluded person) in a tax year on the disposal, and (c) the total of the sums allowable as a deduction under section 38 in relation to the disposal exceeds the threshold amount in relation to the disposal. (2) For the purposes of this Act— (a) the disposal is to be treated as a relevant high value disposal (and section 57A and Schedule 4ZZA apply accordingly), and (b) the ATED-related loss which accrues on the disposal is to be restricted to the amount which would have been that loss had the consideration for the disposal been £1 greater than the threshold amount in relation to the disposal. (3) In a case where paragraph 2 of Schedule 4ZZA applies (calculation of gains or losses on disposals of assets held on 5 April 2013), the reference in subsection (1)(c) to the disposal is to be read as a reference to the notional disposal referred to in paragraph 3(2) of that Schedule (disposal on which notional post-April 2013 gain or loss accrues). (4) Nothing in subsection (2)(b) restricts any loss which is not ATED-related, or affects any gain (whether or not ATED-related), accruing on the relevant high value disposal. (5) In this section— “excluded” has the meaning given by section 2B(2); “the threshold amount” has the meaning given by section 2D. Tapering relief for gains 2F (1) This section applies to an ATED-related gain which accrues on a relevant high value disposal and is chargeable to capital gains tax by virtue of section 2B. (2) There is excluded from the gain so much of it as exceeds five-thirds of the difference between— (a) the amount or value of the consideration, and (b) the threshold amount (within the meaning of section 2D) in relation to the disposal. (3) But where the relevant fraction is less than 1, subsection (2) has effect as if the amount determined under that subsection were the relevant fraction of that amount. (4) “The relevant fraction”— (a) in a case where the ATED-related gain is determined in accordance with paragraph 3 of Schedule 4ZZA, has the meaning given by paragraph 3(4) of that Schedule, and (b) in a case where the ATED-related gain is determined in accordance with paragraph 6 of that Schedule, has the same meaning as in paragraph 6(5)(a) of that Schedule. (5) Nothing in this section restricts any gain which is not ATED-related, or affects any loss (whether or not ATED-related), accruing on the relevant high value disposal. 5 In section 4 (rates of capital gains tax), after subsection (3) insert— (3A) The rate of capital gains tax in respect of gains chargeable under section 2B accruing to a person in a tax year is 28%. 6 In section 8 (company's total profits to include chargeable gains), after subsection (4) insert— (4A) Nothing in this section applies in relation to an ATED-related gain chargeable to, or an ATED-related loss allowable for the purposes of, capital gains tax by virtue of section 2B. 7 In section 13 (attribution of gains to members of non-resident companies), after subsection (1) insert— (1A) But this section does not apply if the gain is an ATED-related gain chargeable to capital gains tax by virtue of section 2B (capital gains tax on ATED-related gains). 8 In section 16 (computation of losses), in subsection (3) after “section” insert “ 2B, ”. 9 In Part 2, after Chapter 4 insert— CHAPTER 5 Computation of gains and losses: relevant high value disposals Gains and losses on relevant high value disposals 57A (1) Schedule 4ZZA makes provision about the computation of gains and losses on relevant high value disposals, including provision about whether a gain or loss is ATED-related or not. (2) But if the effect of Schedule 4ZZA applying in relation to a disposal would be that no ATED-related gain or loss accrues on the disposal, for the purposes of this Act the gain or loss on the disposal is to be computed ignoring that Schedule (and is not ATED-related). 10 After section 100 insert— Exemption for certain EEA UCITS 100A (1) ATED-related gains accruing on relevant high value disposals made by an EEA UCITS which is not an open-ended investment company or a unit trust scheme are not chargeable gains under section 2B. (2) In this section— “EEAUCITS” has the same meaning as in Part 17 of the Financial Services and Markets Act 2000 (see section 237 of that Act); “unit trust scheme” has same meaning as in that Part (see section 237(1) of that Act); “open-ended investment company” has the same meaning as in that Part (see section 236(1) of that Act). 11 (1) Section 161 (appropriations to and from stock) is amended as follows. (2) In subsection (1) for “subsection (3)” substitute “ subsections (3) to (3ZB) ”. (3) After subsection (3) insert— (3ZA) But if the person— (a) meets the requirement of paragraph (a) or (b) of subsection (3), and (b) (ignoring any election under this section) would be treated under subsection (1) as making a relevant high value disposal on which an ATED-related gain chargeable to, or loss allowable for the purposes of, capital gains tax under section 2B would accrue, the person may not elect under subsection (3) but may elect for subsection (3ZB) to apply. (3ZB) Subject to subsection (4), where an election is made for this subsection to apply— (a) a gain or loss accruing on the disposal under subsection (1) which is not ATED-related is not a chargeable gain or an allowable loss, (b) the market value of the asset at the time of the appropriation is, for the purposes of computing the profits of the trade for the purposes of tax, to be treated as reduced by the amount of any gain, or increased by the amount of any loss, which would be a chargeable gain or allowable loss but for paragraph (a), and (c) the chargeable gain or allowable loss which accrues on that disposal and is ATED-related is unaffected by the election. (4) In subsection (3A), after “subsection (3)” insert “ or (3ZA) ”. (5) In subsection (4), after “subsection (3)” insert “ or (3ZA) ”. 12 In section 171 (transfers within a group: general provisions), in subsection (2), after paragraph (b) insert— (ba) a relevant high value disposal on which (ignoring subsection (1)) there accrues to company A an ATED-related gain chargeable to, or an ATED-related loss allowable for the purposes of, capital gains tax by virtue of section 2B; or . 13 After section 187 insert— Deemed disposal under section 185: ATED-related gains and losses 187A (1) This section applies if— (a) (ignoring subsections (2) and (3)) a gain or loss would accrue to a company on a disposal of an asset deemed to have been made by virtue of section 185(2), and (b) that gain or loss is an ATED-related gain chargeable to, or an ATED-related loss allowable for the purposes of, capital gains tax under section 2B. (2) That gain or loss does not accrue to the company on that disposal. (3) But, on a subsequent disposal of the whole or part of the asset, the whole or a corresponding part of the gain or loss— (a) is deemed to accrue to the company (in addition to any gain or loss that actually accrues on that subsequent disposal), and (b) (if that would not otherwise be the case) is to be treated as an ATED-related gain or loss accruing on a relevant high value disposal. (4) Nothing in this section affects the treatment, for the purposes of this Act, of any gain or loss which is not ATED-related and accrues on the disposal of the asset deemed to have been made by virtue of section 185(2). 14 In section 271 (miscellaneous exemptions)— (a) in subsection (1A), after “registered pension scheme” insert “ or an overseas pension scheme ”, and (b) in subsection (10), for the words after “above” substitute “— “investments” includes futures contracts and options contracts; “overseas pension scheme” has the same meaning as in Part 4 of the Finance Act 2004 (see section 150(7) of that Act).” 15 In section 288 (interpretation), in subsection (1), at the appropriate places insert— “ATED-related”, in relation to a gain or loss, is to be construed in accordance with section 57A and Schedule 4ZZA; ; “relevant high value disposal” has the meaning given by section 2C; . 16 After Schedule 4 insert— SCHEDULE 4ZZA relevant high value disposals: gains and losses Introductory 1 This Schedule applies for the purposes of determining in relation to a relevant high value disposal made by a person (“P”)— (a) whether a gain or loss which is ATED-related accrues to P on the disposal, and (b) whether a gain or loss which is not ATED-related accrues to P on the disposal. Assets held on 5 April 2013: no paragraph 5 election 2 If the interest disposed of was held by P on 5 April 2013— (a) paragraph 3 applies for the purposes of computing the gain or loss accruing to P which is ATED-related, and (b) paragraph 4 applies for the purposes of computing the gain or loss accruing to P which is not ATED-related. 3 (1) An amount equal to the relevant fraction of the notional post-April 2013 gain or loss is the ATED-related gain or loss (as the case may be). (2) “Notional post-April 2013 gain or loss” means the gain or loss which (in the absence of section 2B and this Schedule) would have accrued on the relevant high value disposal had P acquired the interest on 5 April 2013 for a consideration equal to its market value on that date. (3) For the purposes of sub-paragraph (2), the amount of the gain or loss accruing to P is to be computed (whether or not that would otherwise be the case) as if P were within the charge to capital gains tax (but not within the charge to corporation tax on chargeable gains). (4) “The relevant fraction” is— CD TD where— “CD” is the number of days in the relevant ownership period which are ATED chargeable days; “TD” is the total number of days in the relevant ownership period. (5) “The relevant ownership period” means the period beginning with 6 April 2013 and ending with the day before the day on which the relevant high value disposal occurs. (6) “ATED chargeable day” means any day by virtue of which condition C in section 2C(4) is met in relation to the relevant high value disposal. 4 (1) The gain or loss accruing on the relevant high value disposal which is not ATED-related is computed as follows. Step 1 Determine the amount of the notional pre-April 2013 gain or loss. Step 2 In a case where there is a notional post-April 2013 gain— determine the amount of that gain remaining after the deduction of the ATED-related gain determined under paragraph 3, and adjust that remaining gain by reducing it by the notional indexation allowance. Step 3 In a case where there is a notional post-April 2013 loss, determine the amount of that loss remaining after deduction of the ATED-related loss determined under paragraph 3. Step 4 Add— the amount of any gain or loss determined under Step 1, and the amount of any adjusted gain determined under Step 2 or (as the case may be) any loss determined under Step 3, (treating any amount which is a loss as a negative amount). If the result is a positive amount, that amount is the gain on the relevant high value disposal which is not ATED-related. If the result is a negative amount, that amount (expressed as a positive number) is the loss on the relevant high value disposal which is not ATED-related. (2) “The notional pre-April 2013 gain or loss” means the gain or loss which would have accrued on 5 April 2013 had the interest been disposed of for a consideration equal to its market value on that date. (3) For the purposes of sub-paragraph (2), the amount of the gain or loss accruing to P is to be computed (whether or not that would otherwise be the case) as if P were within the charge to corporation tax on chargeable gains (but not within the charge to capital gains tax). (4) Paragraph 3(2) and (3) (meaning of “notional post-April 2013 gain or loss”) also applies for the purposes of this paragraph. (5) “Notional indexation allowance” means the relevant fraction of an amount equal to the difference between— (a) the indexation allowance which (in the absence of section 2B and this Schedule) would be made under Chapter 4 of Part 2 in determining the gain accruing on the relevant high value disposal were that gain being computed for corporation tax purposes, and (b) the indexation allowance which is made under Chapter 4 of Part 2 in determining the notional pre-April 2013 gain. (6) “The relevant fraction” is— TD – CD TD where “CD” and “TD” have the same meaning as in paragraph 3(4). Election for paragraph 2 to 4 not to apply to a chargeable interest 5 (1) A person may make an election under this paragraph for paragraphs 2 to 4 not to apply in relation to a chargeable interest held by (or any part of which is held by) the person on 5 April 2013. (2) An election is irrevocable. (3) An election must be made by being included in a tax return under the Management Act for the tax year in which the first relevant high value disposal by the person of the chargeable interest (or any part of it) on or after 6 April 2013 occurs. (4) The reference in sub-paragraph (3) to an election being included in a return includes an election being included by virtue of an amendment of the return. (5) All such adjustments are to be made, whether by way of discharge or repayment of tax, the making of assessments or otherwise, as are required to give effect to an election. (6) In this paragraph “chargeable interest” has the same meaning as in Part 3 of the Finance Act 2013 (annual tax on enveloped dwellings) (see section 107 of that Act). Cases where election made or assets acquired after 5 April 2013 6 (1) This paragraph applies if— (a) an election is made by P under paragraph 5 in respect of the chargeable interest which (or a part of which) is the subject of the relevant high value disposal, or (b) the chargeable interest (or part) disposed of by the relevant high value disposal was not held by P throughout the period beginning with 5 April 2013 and ending with the disposal. (2) The ATED-related gain or loss accruing on the relevant high value disposal is computed as follows. Step 1 Determine the amount of the gain or loss which would accrue to P, ignoring section 2B and this Schedule (but not the remainder of this Step). For this purpose, the amount of the gain or loss is to be computed (whether or not that would otherwise be the case) as if P were within the charge to capital gains tax (but not within the charge to corporation tax on chargeable gains). Step 2 An amount equal to the relevant fraction of that gain or loss is the ATED-related gain or loss accruing on the relevant high value disposal. (3) The gain or loss accruing on the relevant high value disposal which is not ATED-related is to be computed as follows. Step 1 In a case where there is a gain under Step 1 of sub-paragraph (2)— determine the amount of the gain remaining after the deduction of the ATED-related gain, and adjust the remaining gain by reducing it by an amount equal to the notional indexation allowance. That adjusted gain is the gain accruing on the relevant high value disposal which is not ATED-related. Step 2 In a case where there is a loss under Step 1 of sub-paragraph (2), determine the amount of the loss remaining after deduction of the ATED-related loss. That remaining loss is the loss accruing on the relevant high value disposal which is not ATED-related. (4) “Notional indexation allowance” means the relevant fraction of the indexation allowance which would be made under Chapter 4 of Part 2 in determining the gain under Step 1 in sub-paragraph (2) were that gain being computed for corporation tax purposes. (5) Subject to sub-paragraph (6), “the relevant fraction”— (a) in sub-paragraph (2) has the same meaning as in paragraph 3(4), and (b) in sub-paragraph (4) has the same meaning as in paragraph 4(6). (6) For the purpose of determining the relevant fraction under sub-paragraph (5), paragraph 3(5) has effect as if the relevant ownership period began on the day on which P acquired the interest or, if later, 31 March 1982. Adjustments of ATED chargeable days 7 (1) This paragraph applies where, as a result of a claim under section 106(3) of the Finance Act 2013 (adjustment of chargeable amount), or an amendment of or adjustment to such a claim, there is an alteration in the number of ATED chargeable days. (2) All such adjustments are to be made, whether by way of discharge or repayment of tax, the making of assessments or otherwise, as are required to give effect to any change in liability to tax as a result of that alteration. 17 In Schedule 7A (restriction on set-off of pre-entry losses), after paragraph 10 insert— 10A Section 161(3ZB)(a) and (b) does not apply to a loss if, in the absence of an election under section 161(3ZA), the loss would have been a pre-entry loss. PART 2 Other amendments Corporation Tax Act 2009 18 In section 2 of CTA 2009 (charge to corporation tax), after subsection (2) insert— (2A) But in subsection (2) “chargeable gains” does not include gains chargeable to capital gains tax under section 2B of TCGA 1992 (companies etc chargeable to capital gains tax on ATED-related gains on relevant high value disposals). Corporation Tax Act 2010 19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART 3 Commencement 20 The amendments made by this Schedule have effect in relation to disposals occurring on or after 6 April 2013.

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