Expenditure before 1964-65: deductions from rents
1 (1) Except as provided by sub-paragraphs (2) and (3) below, no payment shall be deductible under sections 25 and 26 if made before the beginning of the year 1964-65.
(2) Where, by virtue of paragraph 1(2) of Schedule 2 to the 1970 Act, any amount fell to be treated as a payment in relation to premises made by a person in the year 1964-65 in respect of dilapidation attributable to that year, the amount shall be similarly treated for the purposes of sections 25 and 26.
(3) If the amount of any loss was treated, by virtue of paragraph 1(3) of that Schedule, as if it were a payment such as is mentioned in section 72(1) of the 1970 Act made by any person in respect of any premises in and in respect of any year, it shall be treated for the purposes of sections 25 and 26 as if it were a payment such as is mentioned in section 25(1) made by that person in respect of those premises in and in respect of that year.
(4) A deduction falling to be made by virtue of sub-paragraph (3) above shall be made notwithstanding anything in sections 392(3) and 396(1); and relief shall not be given under either of those sections in respect of the loss in so far as a deduction in respect of it is given under this paragraph.
Expenditure before 1964-65: deductions from other receipts
2 (1) Subject to sub-paragraph (2) below, no payment shall be deductible under section 28 if made before the beginning of the year 1964-65.
(2) Sub-paragraph (1) above shall not prevent the deduction of a payment in so far as a loss in respect thereof was carried forward to the year 1964-65 by virtue of section 346 of the Income Tax Act 1952 (Case VI losses).
(3) Paragraph 1(4) above shall apply in the case of a deduction falling to made by virtue of sub-paragraph (2) above as it applies in the case of one falling to be made by virtue of paragraph 1(3) above.
Expenditure on sea walls before 1964-65
3 (1) Section 30 shall not apply in relation to expenditure incurred before the beginning of the year 1964-65 except in accordance with sub-paragraphs (2) and (3) below.
(2) Subject to sub-paragraph (3) below, section 30 shall apply in relation to expenditure which, by virtue of paragraph 3(1) of Schedule 2 to the 1970 Act, was treated as if—
(a) it had been incurred in the year of assessment following that in which it was actually incurred, and
(b) in so far as it was incurred in repairing an embankment, it had been incurred in making it,
as if it had been incurred in that year and in making that embankment.
(3) If, by virtue of the proviso to paragraph 3(1) of Schedule 2 to the 1970 Act, any expenditure fell to be treated for the purposes of sections 71 to 77 of that Act as if it were an amount paid by any person in and in respect of the year 1964-65 in respect of the maintenance of premises preserved or protected by an embankment, it shall be similarly treated for the purposes of sections 25 to 31.
PART I PUBLIC REVENUE DIVIDENDS ETC. PAYABLE TO THE BANK OF ENGLAND OR THE BANK OF IRELAND OR ENTRUSTED FOR PAYMENT TO THE BANK OF ENGLAND, THE BANK OF IRELAND OR THE NATIONAL DEBT COMMISSIONERS
1 The Bank of England and the Bank of Ireland as respects the dividends and the profits attached thereto payable to them out of the public revenue of the United Kingdom, or payable out of any public revenue and entrusted to them for payment and distribution, and the National Debt Commissioners, as respects the dividends payable by them or of which they have the distribution, shall, when any payment becomes due, deliver to the Board true accounts, in books provided for the purpose, of—
(a) the amounts of the dividends and profits attached thereto payable to the Bank, and
(b) all dividends entrusted to the Bank or the National Debt Commissioners for payment to the persons entitled thereto, and
(c) the amount of income tax chargeable thereon at the lower rate in force at the time of payment, without any other deduction than is allowed by the Income Tax Acts.
2 (1) In the case of dividends and profits attached thereto payable to the Bank of England out of the public revenue of the United Kingdom, the Bank of England shall set apart the income tax in respect of the amount payable to them.
(2) In the case of dividends and profits attached thereto entrusted to the Bank of England for payment and distribution, dividends payable by the Bank of Ireland at its principal office in Belfast, and dividends payable by the National Debt Commissioners or of which the National Debt Commissioners have the distribution—
(a) the Bank of England, the Bank of Ireland and the National Debt Commissioners respectively shall, before any payment is made by them, retain the amount of the income tax for the purposes of the Income Tax Acts, and
(b) the retaining of the amount shall be deemed to be a payment of the income tax by the persons entitled to the dividends, and shall be allowed by them on the receipt of the residue thereof, and
(c) the Bank of England, the Bank of Ireland and the National Debt Commissioners respectively shall be acquitted and discharged of a sum equal to the amount retained as though that sum had been actually paid.
(3) In relation to dividends payable to the Bank of Ireland out of the public revenue of the United Kingdom, and public revenue dividends which are entrusted to the Bank of Ireland for payment and distribution and are not payable by that Bank out of its principal office in Belfast, the following provisions shall have effect—
(a) the money which, apart from this sub-paragraph, would be issuable to the Bank of Ireland under section 14 of the National Debt Act 1870, or otherwise payable to the Bank of Ireland for the purpose of dividends on securities of the United Kingdom government entered in the register of the Bank of Ireland in Dublin, shall be issued and paid to the Bank of England; and
(b) the Bank of England shall set apart and retain out of moneys so issued and paid to them the amount of the income tax on the dividends payable to the Bank of Ireland, and on the dividends on the securities of the United Kingdom government entered in the register of the Bank of Ireland in Dublin; and
(c) the Bank of England shall pay to the Bank of Ireland the residue of moneys so issued and paid to them, to be applied by the Bank of Ireland to the payment of the dividends; and
(d) the retaining of the amount shall be deemed to be a payment of the income tax by the persons entitled to the dividends, and shall be allowed by them on the receipt of the residue thereof, and the Bank of England and the Bank of Ireland shall be acquitted and discharged of a sum equal to the amount retained as though that sum had been actually paid.
3 Money set apart or retained under paragraph 2 above, and the amount of any tax charged on the trading profits of the Bank of England or the Bank of Ireland, shall be paid into the general account of the Board at the Bank of England or the Bank of Ireland.
4 No deduction of income tax under this Part of this Schedule shall be made from any dividends payable in respect of stock, securities or annuities standing in the name of the official custodian for charities, nor from any dividends in respect of which there is given to the Bank of England a certificate from the Charity Commissioners that the dividends are subject only to charitable trusts and are exempt from tax.
PART II PUBLIC REVENUE DIVIDENDS PAYABLE BY PUBLIC OFFICES AND DEPARTMENTS
5 Where any payment is made of public revenue dividends payable by any public office or department of the Crown, the appropriate officer shall retain the income tax charged and pay the same into the general account of the Board at the Bank of England or the Bank of Ireland.
PART III OTHER PUBLIC REVENUE DIVIDENDS, FOREIGN DIVIDENDS AND PROCEEDS OF COUPONS
6 (1) The following persons are chargeable persons for the purposes of this Part of this Schedule—
(a) every person (other than the National Debt Commissioners or the Bank of England or the Bank of Ireland) who is entrusted with the payment of any dividends which are payable out of the public revenue of Northern Ireland, or which are payable to any persons in the United Kingdom out of any public revenue other than that of the United Kingdom or Northern Ireland;
(b) every person in the United Kingdom who is entrusted with the payment of any foreign dividends;
(c) every banker or other person in the United Kingdom who obtains payment of any dividends in such circumstances that the dividends are chargeable to tax under Schedule C, or in the case of foreign dividends, under Schedule D; and
(d) every banker in the United Kingdom who sells or otherwise realises coupons, and every dealer in coupons in the United Kingdom who purchases coupons, in such manner that the proceeds of the sale or realisation are chargeable to tax under Schedule C, or in the case of foreign dividends, under Schedule D.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6A (1) On the fourteenth day following the month in which a transaction such as is mentioned in paragraph 6 above is effected, income tax (at the lower rate in force at the time of payment) shall become due in respect of the relevant dividends or proceeds.
(2) The tax shall be payable by the chargeable person on behalf of the persons entitled to the dividends or proceeds.
(2A) Payments of tax made on any person’s behalf under this paragraph shall be treated as made for the purpose only of being applied in the discharge of that person’s liability to tax charged (otherwise than by virtue of this paragraph) on the dividends or proceeds to which the payments relate.
(3) The tax shall be payable without the making of any assessment.
(4) For the purposes of sub-paragraph (1) above the applicable rate shall be—
(a) the lower rate, in the case of a foreign dividend which is neither interest nor any other annual payment which is made otherwise than by way of dividend; and
(b) the basic rate in any other case.
6B Any tax due under paragraph 6A above shall carry interest, at the rate applicable under section 178 of the Finance Act 1989, from the date on which it becomes due until it is paid.
6C (1) For each quarter in which a person effects a transaction in respect of which he is a chargeable person, he shall make a return to the Board.
(2) The return shall specify the chargeable person’s name and address and give, in respect of each such transaction effected by him in the quarter, correct and complete particulars of—
(a) the relevant dividends or proceeds, and
(b) the income tax on those dividends or proceeds for which he has accounted, or is accountable, under paragraph 6A above.
(3) The return shall be made within 30 days from the end of the quarter.
(4) In this paragraph and paragraphs 6D to 6F below, “quarter” means any period of three months ending with 31st March, 30th June, 30th September or 31st December.
6D (1) Any income tax which has become due under paragraph 6A above and particulars of which are included in a return may be assessed on the chargeable person (whether or not it has been paid when the assessment is made) if it, or any part of it, was not paid on or before the date on which it became due.
(2) If it appears to the Board that there are any dividends or proceeds particulars of which ought to have been and have not been included in a return, or if the Board are not satisfied with any return, the Board may make an assessment on the chargeable person of the amount, or further amount, of income tax for which he is in their opinion accountable.
(3) Where the Board make an assessment under sub-paragraph (2) above they shall specify—
(a) which of the months in the quarter was the one in which they consider the transactions in question were effected, or
(b) where they consider that the transactions were effected in more than one of the months in the quarter, the proportion of the total amount of the assessment that is to be attributed to each of those months.
(4) Any income tax assessed under sub-paragraph (2) above shall be due within 14 days after the issue of the notice of assessment; but for the purposes of paragraph 6B above—
(a) it shall be treated as having become due on the fourteenth day following the month specified under sub-paragraph (3)(a) above, or
(b) each of the portions of it specified under sub-paragraph (3)(b) above shall be treated as having become due on the fourteenth day following the month to which it is to be attributed.
6E (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) For the purposes of sections 34 and 36(1) of the Management Act (time limits for making assessments), an assessment under paragraph 6D above shall be taken to relate to the year of assessment in which the quarter to which the assessment relates ends.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6F If a person has made a payment purporting to be a payment of tax due under paragraph 6A above but it appears to the Board that—
(a) he was not liable to make any payment under that paragraph, or
(b) the sum paid exceeded his liability under that paragraph,
the Board shall make or allow to be made such repayments, adjustments or set-offs against unpaid tax as they think appropriate.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
11 Nothing in paragraphs 6 to 6F above shall impose on any banker the obligation to disclose any particulars relating to the affairs of any person on whose behalf he may be acting.
12 Where income tax in respect of the proceeds of the sale or realisation of any coupon has been accounted for under this Part of this Schedule by any banker or dealer, and the coupon has been subsequently paid in such manner that income tax has been deducted from the payment under any of the provisions of this Schedule, the tax so deducted shall be repaid.
A claim under this paragraph shall be made to the Board.
13 (1) . . . ,the Board may, by notice served on any chargeable person, require that person within such time as may be specified in the notice to make available at his premises for inspection by an officer authorised by the Board all such books and other documents in the possession or control of that person as the officer may reasonably require for the purpose of determining whether any return made by that person under paragraph 6C above is correct and complete.
(2) The Board may grant a certificate exempting any chargeable person from the provisions of sub-paragraph (1) above, and while the certificate is in force the powers conferred by that sub-paragraph shall not be exercisable in relation to that person; and any such certificate may be revoked at any time by the Board, and may contain such terms and conditions as they think proper.
14 In this Part of this Schedule—
“dividends” includes foreign dividends, and
“foreign dividends” has the meaning given by section 123.
PART IV INTEREST PAYABLE OUT OF THE PUBLIC REVENUE OF THE REPUBLIC OF IRELAND ETC.
15 (1) Any person who is entrusted with the payment of any interest, dividends or other annual payments which are payable to any persons in the United Kingdom out of the public revenue of the Republic of Ireland, or out of or in respect of the stocks, funds, shares or securities of any Republic of Ireland company, society, adventure or concern, shall be relieved from the obligation imposed on him under the preceding provisions of this Schedule to pay income tax thereon on behalf of the persons entitled thereto as regards any such interest, dividends or other annual payments in respect of which he furnishes to the Board, in such form and subject to such conditions as they may prescribe, a list containing—
(a) a full description of the interest, dividends or other annual payments, and
(b) the name and address of each person who is entitled thereto, and
(c) the amount thereof to which each such person is entitled.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Any interest, dividends or other annual payments in respect of which the person entrusted with payment is relieved from the obligation to pay income tax by virtue of sub-paragraph (1) above, shall be assessable and chargeable under Case IV or V of Schedule D, as the case may be.
(4) The Board may make such regulations as may be necessary for the purposes of this paragraph.
(5) This paragraph shall apply to—
(a) any banker or other person in the United Kingdom who obtains payment of any such interest, dividends or other annual payments as is or are mentioned in sub-paragraph (1) above; and
(b) to any person who would, apart from this paragraph, be obliged to pay income tax in respect of the proceeds of the sale or other realisation of any coupon for any such interest, dividends or other annual payments,
as it applies to any person entrusted with the payment of any such interest, dividends or other annual payments, with the substitution in a case falling within paragraph (b) above, of references to the proceeds of the sale or other realisation for references to such interest, dividends or other annual payments.
In this sub-paragraph “coupon” has the same meaning as in section 123.
Introductory
1 (1) This Schedule forms part of the SIP code (see section 488 of ITEPA 2003 (approved share incentive plans)).
(2) Accordingly, expressions used in this Schedule and contained in the index at the end of Schedule 2 to that Act (approved share incentive plans) have the meaning indicated by that index.
(3) References in this Schedule to deductions are to deductions by a company in calculating for the purposes of corporation tax the profits of a trade carried on by it.
(4) Sub-paragraph (3) is subject to paragraph 13 (application of provisions to expenses of management of companies with investment business etc.).
Deduction for providing free or matching shares
2 (1) Where, under an approved share incentive plan, shares are awarded to employees as free or matching shares by reason of their employment with a company, a deduction is allowed under this paragraph to that company.
(2) Any such deduction—
(a) is of an amount equal to the market value of the shares at the time they are acquired by the trustees, and
(b) must be made for the period of account in which the shares are awarded to employees in accordance with the plan.
(3) Except as provided by sub-paragraph (1), no deduction may be made by the company or any associated company in respect of the provision of those shares.
This is subject to paragraphs 7 and 8 (deductions for costs of setting up, and contributions to running expenses of, plan).
(4) Where the shares are awarded under a group plan, the market value of the shares at the time they are acquired by the trustees shall for the purposes of this paragraph be taken to be the relevant proportion of the total market value of the shares included in the award.
(5) For the purposes of sub-paragraph (4) “the relevant proportion” means the proportion that the number of shares in the award awarded to the employees of the company concerned bears to the total number of shares in the award.
(6) In determining the market value of any shares for the purposes of this paragraph, if shares have been acquired by the trustees on different days it shall be assumed that those acquired on an earlier day are awarded to employees under the plan before those acquired by the trustees on a later day.
(7) If a deduction is made under this paragraph by a company, no deduction may be made by any other company under this paragraph in respect of the provision of the shares.
(8) This paragraph has effect subject to paragraph 4 (cases in which no deduction is allowed).
Deduction for additional expenses in providing partnership shares
3 (1) Where under an approved share incentive plan—
(a) partnership shares are awarded to employees by reason of their employment with a company, and
(b) the market value of those shares at the time they are acquired by the trustees exceeds the partnership share money paid by the participants to acquire those shares,
a deduction is allowed under this paragraph to that company.
(2) Any such deduction—
(a) is of an amount equal to the amount of the excess referred to in sub-paragraph (1)(b), and
(b) must be made for the period of account in which the shares are awarded to employees in accordance with the plan.
(3) Except as provided by sub-paragraph (1), no deduction may be made by that company or any associated company in respect of the provision of those shares.
This is subject to paragraphs 7 and 8 (deductions for costs of setting up, and contributions to running expenses of, plan).
(4) If a deduction is made under this paragraph by a company, no deduction may be made by any other company under this paragraph in respect of the provision of the shares.
(5) This paragraph has effect subject to paragraph 4 (cases in which no deduction is allowed).
Cases in which no deduction is allowed
4 (1) No deduction is allowed under paragraph 2 or 3 (deductions for providing free or matching shares or for additional expenses in providing partnership shares) in the following cases.
(2) No deduction is allowed in respect of shares awarded to an individual under the plan unless, at the time of the award, any earnings from the required employment are (or would be) chargeable earnings.
(3) In sub-paragraph (2)—
“chargeable earnings” means general earnings to which any of the charging provisions of Chapter 4 or 5 of Part 2 of ITEPA 2003 apply, and
the “required employment” means the employment by reference to which the individual is eligible to participate in the award.
(4) In sub-paragraph (3), the reference to any of the charging provisions of Chapter 4 or 5 of Part 2 of that Act has the same meaning as it has in the employment income Parts of ITEPA 2003 (see sections 14(3) and 20(3) of that Act).
(5) No deduction is allowed in respect of shares that are liable to depreciate substantially in value for reasons that do not apply generally to shares in the company.
(6) No deduction is allowed if a deduction has been made—
(a) by the company, or
(b) by an associated company of the company,
in respect of the provision of the same shares for this or another trust.
(7) Sub-paragraph (6) applies whatever the nature or purpose of the other trust and whatever the basis on which the deduction was made.
(8) For the purposes of determining whether the same shares have been provided to more than one trust, if shares have been acquired by the trustees of the plan trust on different days it shall be assumed that those acquired on an earlier day are awarded under the plan before those acquired by the trustees on a later day.
(9) No deduction is allowed in respect of the award of shares acquired by the trustees by virtue of a payment in respect of which a deduction has been made under paragraph 9 (deduction for contribution to plan trust) or 10(3) (further deduction where deduction under paragraph 9 withdrawn).
No deduction for expenses in providing dividend shares
5 (1) No deduction is allowed for expenses in providing shares that are acquired on behalf of individuals under an approved share incentive plan as dividend shares.
(2) This is subject to paragraph 8 (deductions for contributions to running expenses of plan).
Treatment of forfeited shares
6 (1) This paragraph applies if any of a participant’s plan shares are forfeited.
(2) The shares are treated for the purposes of this Schedule as acquired by the trustees—
(a) when the forfeiture occurs, and
(b) for no consideration.
(3) No deduction is allowed under paragraph 2 or 3 (deductions for providing free or matching shares or for additional expenses in providing partnership shares) in respect of any subsequent award of those shares under the plan.
Deduction for costs of setting up the plan
7 (1) A deduction is allowed under this paragraph for expenses incurred by a company in establishing a share incentive plan which is approved by the Inland Revenue.
(2) No deduction may be made under this paragraph if—
(a) any employee acquires rights under the plan, or
(b) the trustees acquire any shares for the purposes of the plan,
before the Inland Revenue approve the plan.
(3) If Inland Revenue approval of the plan is given more than nine months after the end of the period of account in which the expenses are incurred, the expenses are treated for the purposes of this paragraph as deductible for the period in which the approval is given.
(4) No other deduction is allowed in respect of expenses for which a deduction is allowed under this paragraph.
Deductions for contributions to running expenses of plan
8 (1) Nothing in this Schedule affects any deduction for expenses incurred by a company in contributing to the expenses of the trustees in operating an approved share incentive plan.
(2) For this purpose the expenses of the trustees in operating the plan—
(a) do not include expenses in acquiring shares for the purposes of the trust, other than incidental acquisition costs, but
(b) do include the payment of interest on money borrowed by them for that purpose.
(3) In sub-paragraph (2)(a) “incidental acquisition costs” means any fees, commission, stamp duty and similar incidental costs attributable to the acquisition of the shares.
Deduction for contribution to plan trust
9 (1) A deduction is allowed to a company under this paragraph where—
(a) on or after 6th April 2003, that company makes a payment to the trustees of an approved share incentive plan in order to enable them to acquire shares in that company or a company which controls it,
(b) the payment is applied by the trustees to acquire such shares,
(c) the shares are not acquired from a company, and
(d) the condition in sub-paragraph (2) is met in relation to the company in which the shares are acquired.
(2) The condition in this sub-paragraph is that, at the end of the period of 12 months beginning with the date of the acquisition, the trustees hold shares in the company for the plan trust that—
(a) constitute not less than 10 per cent of the ordinary share capital of the company, and
(b) carry rights to not less than 10 per cent of—
(i) any profits available for distribution to shareholders of the company,
(ii) any assets of that company available for distribution to its shareholders in the event of a winding-up.
(3) For the purposes of sub-paragraph (2), shares that have been appropriated to, and acquired on behalf of, an individual under the plan shall continue to be treated as held by the trustees of the plan trust for the beneficiaries of that trust until such time as they cease to be subject to the plan (within the meaning of the SIP code).
(4) A deduction allowed under this paragraph—
(a) is of an amount equal to the amount of the payment referred to in sub-paragraph (1), and
(b) must be made for the period of account in which the condition in sub-paragraph (2) is met.
(5) No other deduction is allowed for any amount in respect of which a deduction has been made under this paragraph (except as specified in paragraph 10).
Withdrawal of deduction under paragraph 9
10 (1) The Inland Revenue may by notice direct that the benefit of a deduction made under paragraph 9 is withdrawn where—
(a) fewer than 30 per cent of the shares acquired by virtue of the payment in respect of which the deduction is made have been awarded under the plan before the end of the period of 5 years beginning with the date of acquisition, or
(b) not all the shares acquired by virtue of that payment have been so awarded before the end of the period of 10 years beginning with that date.
(2) The effect of a direction under sub-paragraph (1)(a) or (b) is that the amount of the deduction is treated as a trading receipt of the company for the period of account in which the direction is given.
(3) However, where—
(a) the Inland Revenue give a direction under sub-paragraph (1)(a) or (b) in respect of any deduction, and
(b) at any time after the giving of the direction, all the shares acquired by virtue of the payment in respect of which the deduction was made are awarded under the plan,
a further deduction is allowed under this sub-paragraph to the company which made the payment.
(4) A deduction under sub-paragraph (3)—
(a) is of an amount equal to the amount of the payment referred to in that sub-paragraph, and
(b) must be made for the period of account in which sub-paragraph (3)(b) is first satisfied.
(5) No other deduction is allowed in respect of any amount for which a deduction has been made under sub-paragraph (3).
(6) Sub-paragraph (8) applies where—
(a) a deduction is made under paragraph 9 (deduction for contribution to plan trust) or sub-paragraph (3) in respect of a payment for the acquisition of shares, but
(b) shares are awarded under the plan to an individual at a time when the earnings from the required employment are not (or would not be if there were any) chargeable earnings.
(7) In sub-paragraph (6) “required employment” and “chargeable earnings”, in relation to an individual, have the same meanings as they have in paragraph 4(2) (cases in which no deduction is allowed).
(8) An amount equal to the appropriate proportion of the deduction is treated as a trading receipt of the company for the period of account in which the shares are so awarded.
(9) For the purposes of sub-paragraph (8), the appropriate proportion of the deduction is the proportion which the number of shares awarded to the individual bears to the total number of shares acquired by virtue of the payment.
(10) For the purposes of this paragraph, where shares are acquired by the trustees on different days, it shall be assumed that those acquired on an earlier day are awarded to employees under the plan before those acquired by the trustees on a later day.
Withdrawal of deductions on withdrawal of approval
11 (1) If approval of a share incentive plan is withdrawn the Inland Revenue may by notice to a company direct that the benefit of—
(a) any deductions under paragraph 2 (deduction for providing free or matching shares),
(b) any deductions under paragraph 3 (deduction for additional expenses in providing partnership shares),
(c) any deductions under paragraph 9 (deduction for contribution to plan trust) (in so far as not already withdrawn under paragraph 10), or
(d) any deductions under paragraph 10(3) (further deduction where deduction under paragraph 9 withdrawn),
in relation to the plan is also withdrawn.
(2) The effect of the direction is that the aggregate amount of the deductions is treated as a trading receipt of that company for the period of account in which the Inland Revenue give notice of the withdrawal of approval.
Termination of plan: shares acquired as mentioned in paragraph 9 but not yet awarded
12 (1) This paragraph applies where the company has issued a plan termination notice under paragraph 89 of Schedule 2 to ITEPA 2003 (termination of plan).
(2) In a case where—
(a) by virtue of a payment made to the trustees by the company, the trustees acquire shares in the company, or a company which controls it,
(b) a deduction under paragraph 9 (deduction for contribution to plan trust) has been made in respect of that payment (and has not been withdrawn under paragraph 10), and
(c) not all the shares acquired by virtue of the payment have been awarded under the plan before issue of the plan termination notice,
an amount equal to the appropriate proportion of the deduction is treated as a trading receipt of the company for the period of account in which the plan termination notice is given.
(3) For the purposes of sub-paragraph (2), the appropriate proportion of the deduction is the proportion which the number of shares acquired by virtue of the payment and not awarded as specified in sub-paragraph (2)(c) bears to the total number of shares so acquired.
Application of provisions to expenses of management of companies with investment business etc
13 (1) The provisions of this Schedule apply in relation to—
(a) companies with investment business, and
(b) companies in relation to which section 76 applies (expenses of insurance companies),
in accordance with the following provisions.
(2) The provisions of this Schedule which allow a deduction in calculating the profits of a trade apply—
(a) in relation to a company with investment business, to treat amounts as expenses of management, and
(b) in relation to companies in relation to which section 76 applies, to treat amounts as expenses payable falling to be brought into account at Step 1 in section 76(7).
(3) Paragraph 11(2) applies as if the reference to a trading receipt for the period of account in which the Inland Revenue give notice of the withdrawal of approval were a reference to profits or gains chargeable to tax under Case VI of Schedule D arising when the Inland Revenue give notice of the withdrawal.
SCHEDULE 4A CREATIVE ARTISTS: RELIEF FOR FLUCTUATING PROFITS
Introduction
1 This Schedule enables an individual (“the taxpayer”) to make a claim (an “averaging claim”) if his profits from a qualifying trade, profession or vocation (his “relevant profits”) fluctuate from one tax year to the next.
Qualifying trade, profession or vocation
2 (1) A trade, profession or vocation is a “qualifying trade, profession or vocation” if the taxpayer’s profits from it—
(a) are derived wholly or mainly from qualifying creative works, and
(b) are chargeable to tax under Case I or II of Schedule D.
(2) In sub-paragraph (1) “qualifying creative works” means—
(a) literary, dramatic, musical or artistic works, or
(b) designs,
created by the taxpayer personally or, where the trade, profession or vocation is carried on by the taxpayer in partnership, by one or more of the partners personally.
Circumstances in which claim may be made
3 (1) An averaging claim may be made if the taxpayer has been carrying on the qualifying trade, profession or vocation in two consecutive tax years and either—
(a) his relevant profits for one of the tax years are less than 75% of his relevant profits for the other, or
(b) his relevant profits for one (but not both) of the tax years are nil.
(2) For the purposes of paragraph 4 (years in respect of which averaging claim may be made) an averaging claim relates to both of the years involved.
Years in respect of which claim may be made
4 (1) An averaging claim may not be made in relation to a tax year if an averaging claim in respect of the same qualifying trade, profession or vocation has already been made in relation to a later tax year.
(2) An averaging claim may not be made in relation to a tax year in which—
(a) the taxpayer starts, or permanently ceases, to carry on the trade, profession or vocation, or
(b) the trade, profession or vocation begins or ceases to be a qualifying trade, profession or vocation.
(3) An averaging claim may be made in relation to a tax year which was the later year on a previous averaging claim.
Time limit for claim
5 An averaging claim must be made not later than twelve months after the 31st January next following the end of the later of the tax years to which it relates.
This is subject to paragraph 10(2) (extended time limit where profits adjusted for some other reason).
Adjustment of profits on averaging claim
6 (1) Where the taxpayer is entitled to make, and makes, an averaging claim, the amount taken to be his profits from the qualifying trade, profession or vocation for each of the tax years to which the claim relates is adjusted in accordance with this paragraph.
(2) If—
(a) the taxpayer’s relevant profits for one of the years amount to 70% or less of his relevant profits for the other year, or
(b) the taxpayer’s relevant profits for one (but not both) of the years are nil,
the amount of the adjusted profits for each of the years to which the claim relates is the average of the relevant profits for the two years.
(3) If the taxpayer’s relevant profits for one of the years amount to more than 70%, but less than 75%, of his relevant profits for the other year, the amount of the profits in each of the years is calculated as follows, so as to reduce the variation between them.
Step 1
The amount of the adjustment is given by the formula—
(
D
×
3
)
-
(
P
×
0.75
)
where—
D is the difference between the taxpayer’s relevant profits for the two tax years, and
P is the taxpayer’s relevant profits for the year in which those profits are higher.
Step 2
Add the amount of the adjustment to the taxpayer’s relevant profits for the year in which those profits are lower.
The result is the amount of the adjusted profits for that year.
Step 3
Subtract the amount of the adjustment from the taxpayer’s relevant profits for the year in which those profits are higher.
The result is the amount of the adjusted profits for that year
(4) Subject to the following provisions of this Schedule, the adjusted profits are taken to be the taxpayer’s relevant profits for the years to which the claim relates for all the purposes of the Income Tax Acts, including the further application of this Schedule.
How averaging claim is given effect
7 (1) An averaging claim relating to two tax years (“the earlier year” and “the later year”) is given effect in the later year.
(2) In so far as the claim involves an adjustment to the profits for the earlier year it is treated as a claim for the amount of the difference between—
(a) the amount in which the taxpayer is chargeable to tax for the earlier year (“amount A”), and
(b) the amount in which he would be so chargeable if effect were given to the adjustment in that year (“amount B”).
(3) That claim is given effect in the later year by increasing the amount referred to in section 59B(1)(b) of the Management Act (aggregate amount of payments on account made by the taxpayer) or, as the case may require, by increasing the amount of tax payable.
(4) Where effect falls to be given to two or more associated claims, amounts A and B above shall each be determined on the assumption that effect could have been, and had been, given to the other claim or claims in relation to the earlier year.
(5) Where this paragraph applies twice in relation to the same tax year, the increase or reduction in the amount of tax payable for that year as a result of the earlier application shall be disregarded in determining amounts A and B above for the purposes of the later application.
Extension of time for making other claims
8 (1) A claim by the taxpayer for relief under any other provision of the Income Tax Acts for either of the years to which an averaging claim relates (“the other claim”)—
(a) is not out of time if made on or before the last date on which the averaging claim could have been made, and
(b) if already made, may be amended or revoked on or before that date.
(2) If the other claim is made by being included in a return, the reference in sub-paragraph (1)(b) to amending or revoking the claim shall be read as a reference to amending the return by amending or omitting the claim.
Giving effect to late claim for other relief
9 (1) This paragraph applies where—
(a) the taxpayer makes or amends a claim for relief under any other provision of the Income Tax Acts for either of the years to which an averaging claim relates, and
(b) the making or amendment of the claim would be out of time but for paragraph 8.
(2) The claim or amendment is given effect in the later year.
(3) In so far as the claim or amendment relates to income of the earlier year, the amount claimed, or (as the case may be) the increase or reduction in the amount claimed, shall be equal to the difference between—
(a) the amount in which the taxpayer is chargeable to tax for the earlier year (“amount A”), and
(b) the amount in which he would be so chargeable on the assumption that effect could be, and was, given to the claim or amendment in relation to that year (“amount B”).
(4) That claim or amendment is given effect in the later year by increasing the amount referred to in section 59B(1)(b) of the Management Act (aggregate amount of payments on account made by the taxpayer) or, as the case may require, by increasing the amount of tax payable.
(5) Where effect falls to be given to two or more associated claims, amounts A and B above shall each be determined on the assumption that effect could have been, and had been, given to the other claim or claims in relation to the earlier year.
(6) In this paragraph “amend” includes revoke and “amendment” has a corresponding meaning.
Effect of later adjustment of profits
10 (1) If after the taxpayer has made an averaging claim, his relevant profits in either or both of the tax years to which the claim relates are adjusted for some other reason—
(a) the averaging claim shall be disregarded, and
(b) a further averaging claim may be made in relation to the taxpayer’s relevant profits as adjusted.
(2) A further averaging claim is not out of time provided it is made not later than twelve months after the 31st January next following the tax year in which the adjustment for the other reason is made.
Interpretation of references to profits
11 (1) References in this Schedule to the taxpayer’s profits from a qualifying trade, profession or vocation are to profits before making deductions for losses sustained in any tax year.
(2) If the taxpayer sustains a loss in the qualifying trade, profession or vocation in any tax year, the profits of that year for the purposes of this Schedule are nil.
This shall not be read as preventing the taxpayer from obtaining relief under the Income Tax Acts for a loss sustained by him in that or any other tax year.
Interpretation of references to amount chargeable to tax
12 In this Schedule any reference to the amount in which a person is chargeable to tax is a reference to the amount in which he is so chargeable after taking into account any relief or allowance for which a claim is made.
Meaning of “claim” and “associated claim”
13 (1) In this Schedule any reference to a claim includes a reference to an election or notice.
(2) For the purposes of this Schedule, two or more claims made by the same person are associated with each other if each of them is any of the following—
(a) a claim to which this Schedule applies, or
(b) a claim to which Schedule 1B to the Management Act applies (other claims involving more than one year to be given effect in later year),
and the same tax year is the earlier year in relation to each of those claims.
(3) In sub-paragraph (2)—
(a) the reference to a claim to which this Schedule applies includes amendments and revocations to which paragraph 9 above applies;
(b) the reference to a claim to which Schedule 1B to the Management Act applies includes amendments and revocations to which paragraph 4 of that Schedule applies.
Meaning of “tax year”
14 In this Schedule a “tax year” means a year of assessment.
Farming: the general rule
1 (1) Subject to the provisions of this Schedule, in computing profitschargeable to corporation tax under Case I of Schedule D, animals kept by a farmer for the purposes of its farming shall be treated as trading stock.
(2) Animals forming part of production herds with respect to which an election under paragraph 2 below has effect shall not be so treated, but shall be treated instead in accordance with the rules set out in paragraph 3 below.
(3) An election under paragraph 2 below is referred to in this Schedule as “an election for the herd basis”.
Farming: election for the herd basis
2 (1) An election for the herd basis shall apply to all production herds of a particular class kept by the farmer making the election, including herds which the farmer has ceased to keep before, or first begins to keep after, the making of the election.
(2) An election for the herd basis must be made in writing to the inspector, and must specify the class of herds to which it relates.
(3) Subject to paragraphs 6 and 12 below, an election for the herd basis made by any farmer shall be valid only if it is made —
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) in the case of an election on behalf of persons in partnership, not later than twelve months from the 31st January next following the year of assessment in which the qualifying period of account ends; and
(c) in the case of an election by a person chargeable to corporation tax, not later than two years from the end of the qualifying accounting period.
(4) An election for the herd basis made by any farmer shall be irrevocable and, subject to paragraph 6 below, shall have effect—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) in a case falling within sub-paragraph (3)(b) above, for the qualifying period of account and all subsequent periods of account; and
(c) in a case falling within sub-paragraph (3)(c) above, for the qualifying accounting period and all subsequent accounting periods.
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) In this paragraph—
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“qualifying accounting period”, in relation to a person chargeable to corporation tax, means the first accounting period during the whole or part of which it kept a production herd of the class in question;
“qualifying period of account”, in relation to persons in partnership, means the first period of account during the whole or part of which those persons kept such a herd;
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3 (1) Where an election for the herd basis has effect, the consequences for the purposes of computing profitschargeable to corporation tax under Case I of Schedule D shall be as provided by this paragraph.
(2) The initial cost of the herd and, subject to the provisions of this paragraph as to replacements, the cost of any animal added to the herd shall not be deducted as an expense and the value of the herd shall not be brought into account.
(3) Where an animal which has theretofore been treated as part of the farmer’s trading stock is added to the herd otherwise than by way of replacement, there shall be included as a trading receipt—
(a) in the case of an animal bred by the farmer, a sum equal to the cost of breeding it and rearing it to maturity; and
(b) in any other case, a sum equal to the initial cost to the farmer of acquiring the animal, together with any cost incurred by the farmer in rearing it to maturity.
(4) Where an animal (the “first animal”) forming part of the herd dies, or ceases to form part of the herd, and is replaced in the herd by another animal (the “second animal”)—
(a) any proceeds of sale of the first animal shall be included as a trading receipt; and
(b) the cost of the second animal, except in so far as that cost consists of such costs as are allowable apart from the provisions of this Schedule as deductions in computing profits of farming under Case I of Schedule D, shall, subject to sub-paragraphs (5) and (6) below, be deducted as an expense.
(5) Where the second animal is of better quality than the first animal, the amount deducted shall not exceed the amount which it would have been necessary to expend in order to acquire an animal of the same quality as the first animal.
(6) Where the first animal was slaughtered by the order of any Ministry, government department or local or public authority under the law relating to diseases of animals, and the second animal is of worse quality, the amount included as a trading receipt shall not exceed the amount allowable as a deduction.
(7) Where the herd is sold as a whole, and another production herd of the same class is acquired, sub-paragraphs (1) to (6) above shall apply as though there had been sold from, and replaced in, the original herd a number of animals equal to the number in the original herd or in the newly acquired herd, whichever is the less.
(8) Subject to sub-paragraph (9) below, if (either all at once or over a period not exceeding 12 months) either—
(a) the whole of a herd is sold in circumstances in which sub-paragraph (7) above does not apply, or
(b) a part of a herd is sold on a substantial reduction being made in the number of animals in the herd,
any profit or loss arising from the transaction shall not be taken into account.
(9) Where within five years of the sale the seller acquires or begins to acquire another production herd of the class in question or, as the case may be, acquires or begins to acquire animals to replace the part of the herd in question—
(a) sub-paragraphs (4) to (7) above shall apply to the acquisition or replacement, except that, if the sale was one which the seller was compelled to effect by causes wholly beyond the seller's control, the amount included as a trading receipt in respect of any animal sold which is replaced by an animal of worse quality shall not exceed the amount allowable as a deduction in respect of that animal of worse quality; and
(b) for the purpose of the application of those sub-paragraphs, the proceeds of sale of the animals comprised in the original herd or part of a herd shall be brought into account as if they had been respectively received at the times of the corresponding acquisitions.
(10) If an animal forming part of the herd is sold, and none of sub-paragraphs (4) to (9) above applies, any profit or loss arising from the transaction shall be included or deducted, as the case may be; and for the purposes of this sub-paragraph, that profit or loss shall be computed by comparing with the proceeds of sale—
(a) in the case of an animal bred by the farmer, the cost of breeding it and rearing it to maturity; and
(b) in any other case, a sum equal to the initial cost to the farmer of acquiring the animal (or in the case of an animal acquired otherwise than for valuable consideration, its market value when the farmer acquired it) together, in both cases, with any cost incurred by the farmer in rearing it to maturity.
(11) Where the herd is sold as a whole, and another production herd of the same class is acquired, and the number of animals in the newly acquired herd is less than the number in the original herd, then, if the difference is not substantial, sub-paragraphs (8) and (9) above shall not apply, and sub-paragraph (10) above shall apply to a number of animals in the original herd equal to the difference.
(12) The preceding provisions of this paragraph shall apply in relation to the death or destruction of animals as they apply in relation to their sale, as if any insurance or compensation moneys received by reason of the death or destruction were proceeds of sale, and any reference in this paragraph to the proceeds of sale of an animal includes a reference to any proceeds of sale of its carcase or any part of its carcase.
Farming: provisions applicable to special cases
4 A farmer who, having kept a production herd of a particular class, ceases altogether to keep herds of that class for a period of at least five years shall, as respects production herds kept by the farmer after the end of that period, be treated as if the farmer had never kept any production herds of that class before the end of that period.
5 (1) Where a farmer transfers to another person all or any of the animals which form part of a production herd otherwise than by way of sale or by way of sale but for a price other than that which they would have fetched if sold in the open market, and either—
(a) the transferor is a body of persons over whom the transferee has control or the transferee is a body of persons over whom the transferor has control or both the transferor and the transferee are bodies of persons and some other person has control over both of them; or
(b) it appears with respect to the transfer, or with respect to transactions of which the transfer is one that the sole or main benefit, or one of the main benefits, which (apart from the provisions of this paragraph) might have been expected to accrue to the parties or any of them was a benefit resulting from—
(i) the obtaining of a right to make an election for the herd basis, or
(ii) such an election having effect or ceasing to have effect, or
(iii) such an election having a greater effect or a less effect;
the like consequences shall ensue, in relation to all persons concerned, for the purpose of computing profitschargeable to corporation tax under Case I of Schedule D as would have ensued if the animals had been sold for the price which they would have fetched if sold in the open market.
(2) In this paragraph “body of persons” includes a partnership, and “control” has the meaning given by section 840.
6 (1) Where the whole or a substantial part of a production herd kept by a farmer for the purposes of its farming is slaughtered by the order of any Ministry, government department or local or public authority under the law relating to the diseases of animals in such circumstances that compensation is payable in respect of it, an election for the herd basis thereupon made by the farmer in relation to that herd and any other production herds of the same class so kept by the farmer shall, subject to sub-paragraph (2) below, be valid notwithstanding that it is not made within the time required by paragraph 2(3) above.
(2) An election for the herd basis made by virtue of sub-paragraph (1) above shall only be valid if made—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) in the case of an election on behalf of persons in partnership, not later than twelve months from the 31st January next following the year of assessment in which the qualifying period of account ends; and
(c) in the case of an election by a person chargeable to corporation tax, not later than two years from the end of the qualifying accounting period.
(3) An election for the herd basis made by virtue of sub-paragraph (1) above shall, notwithstanding paragraph 2(4) above, have effect—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) in a case falling within sub-paragraph (2)(b) above, for the qualifying period of account and all subsequent periods of account; and
(c) in a case falling within sub-paragraph (2)(c) above, for the qualifying accounting period and all subsequent accounting periods.
(4) In this paragraph—
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“qualifying accounting period”, in relation to a person chargeable to corporation tax, means the first accounting period in which the compensation is relevant;
“qualifying period of account”, in relation to persons in partnership, means the first period of account in which the compensation is relevant;
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) For the purposes of this paragraph, compensation shall be deemed to be relevant in any period if, but only if, it falls (or would but for an election under this paragraph fall) to be taken into account as a trading receipt in computing the profits or losses of that or an earlier period.
Exclusion of working animals, and interpretation of preceding provisions
7 Nothing in this Schedule applies to any animals kept wholly or mainly for the work they do in connection with the carrying on of the farming.
8 (1) In this Schedule “herd” includes a flock, and any other collection of animals however named.
(2) For the purposes of this Schedule, immature animals kept in a herd shall not be treated as forming part of the herd unless—
(a) the land on which the herd is kept is such that animals which die or cease to form part of the herd cannot be replaced except by animals bred and reared on that land; and
(b) the immature animals in question are bred in the herd, are maintained in the herd for the purpose of replacement, and are necessarily maintained for that purpose;
and references in this Schedule to herds shall be construed accordingly.
(3) References in this Schedule to an animal being added to a herd include references to an immature animal which is kept in the herd becoming a mature animal except that not more immature animals shall be treated as forming part of a herd than are required to prevent a fall in the numbers of the herd.
(4) Female animals shall be treated for the purposes of this Schedule as becoming mature when they produce their first young.
(5) In this Schedule “a production herd” means, in relation to a farmer, a herd of animals of the same species (irrespective of breed) kept by the farmer wholly or mainly for the sake of the products which they produce for the farmer to sell, being products obtainable from the living animal.
In this sub-paragraph “products obtainable from the living animal” means—
the young of the animal, or
any other product obtainable from the animal, not being a product obtainable only by slaughtering the animal itself.
(6) For the purposes of this Schedule, production herds kept by a farmer shall be deemed to be of the same class if, and only if, all the animals kept in the herds are of the same species (irrespective of breed) and the products produced for the farmer to sell for the sake of which (either wholly or mainly) the herds are kept by the farmer are of the same kinds in the case of all the herds; and elections for the herd basis shall be framed accordingly.
(7) Any reference in this Schedule to profits chargeable to corporation tax under Schedule D includes a reference to profits which would be so chargeable if there were any such profits for the accounting period in question.
Application of preceding provisions to trades other than farming, creatures other than animals, and animals and creatures kept singly
9 (1) The preceding provisions of this Schedule shall, with the necessary adaptations, apply in relation to trades other than farming, and trades consisting only in part of farming as they apply in relation to farming, and references to farmers shall be construed accordingly.
(2) Those provisions shall (both in relation to farming and in relation to other trades) apply in relation to living creatures other than animals as they apply in relation to animals.
(3) Laying birds shall be treated for the purposes of this Schedule as becoming mature when they first lay.
(4) The provisions of this Schedule shall (both in relation to farming and in relation to other trades) apply, with the necessary adaptations —
(a) in relation to animals or other creatures kept singly as they apply in relation to herds; and
(b) in relation to shares in animals or other creatures as they apply in relation to animals or other creatures themselves.
(5) Nothing in this Schedule shall apply in relation to any animal or other creature kept wholly or mainly for public exhibition or for racing or other competitive purposes.
Supplemental and saving
10 Where an election for the herd basis is made, every person carrying on any farming or other trade affected by the election shall, if required to do so by notice from the inspector, make and deliver to the inspector, within the time specified in the notice, such returns as to, and as to the products of, the animals or other creatures kept by him for the purposes of the trade as may be required by the notice.
11 Where an election for the herd basis has effect for any accounting period after an assessment for that period has become final and conclusive, any such assessment or, on a claim therefor, repayment of tax shall be made as may be necessary to give effect to the election.
12 The validity of an election for the herd basis in force immediately before the commencement of this Schedule and made in pursuance of—
(a) section 35 of the Finance Act 1973 on or after 25th July 1973 and before 6th April 1976, or
(b) section 48(6) to (9) of the Finance Act 1984,
shall not be affected by the repeal of those sections by this Act.
Charge to tax etc.
1 (1) Subject to sub-paragraph (2) below, profits and gains arising from a transaction to which this Schedule applies (including those which, apart from this sub-paragraph, would be taken to be of a capital nature) shall be treated, when realised—
(a) as income of the person by whom they are realised; and
(b) as chargeable to tax under Case VI of Schedule D for the chargeable period in which they are realised.
(2) Sub-paragraph (1) above does not apply to—
(a) so much of any profits or gains arising to a person from a transaction as are charged to tax in his case under Case I or V of Schedule D;
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) For the purposes of this Schedule the profits and gains arising from a transaction to which this Schedule applies are to be taken to be realised at the time when the disposal comprised in the transaction takes place.
(5) For the purposes of sections 392 . . . any loss in a transaction to which this Schedule applies is to be taken to be sustained at the time when, in accordance with sub-paragraph (4) above, any profits or gains arising from that transaction would have been realised.
(6) Subject to sub-paragraph (7) below, the following, namely—
(a) profits and gains to which sub-paragraph (1) above applies, and
(b) losses in transactions the profits and gains from which (if there were any) would be profits and gains to which that sub-paragraph applies,
shall not be brought into account for the purposes of income tax . . . or capital gains tax except by virtue of this Schedule and, in the case of losses, section 392 . . . .
(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transactions to which Schedule applies
2 (1) This Schedule applies to a transaction if—
(a) it is a disposal of futures or options;
(b) it is one of two or more related transactions designed to produce a guaranteed return; and
(c) the guaranteed return comprises the return from that disposal or from a number of disposals of futures or options, of which that disposal is one, taken together.
(2) For the purposes of this Schedule two or more related transactions are transactions designed to produce a guaranteed return if, taking the transactions together, it would be reasonable to assume, from either or both of—
(a) the likely effect of the transactions, and
(b) the circumstances in which the transactions are entered into, or in which any of them is entered into,
that their main purpose, or one of their main purposes, is or was the production of a guaranteed return from one or more disposals of futures or options.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Production of guaranteed return
3 (1) For the purposes of this Schedule a guaranteed return is produced from one or more disposals of futures or options wherever (taking all the disposals together where there is more than one) risks from fluctuations in the underlying subject matter are so eliminated or reduced as to produce a return from the disposal or disposals—
(a) the amount of which is not, to any significant extent, attributable (otherwise than incidentally) to any such fluctuations; and
(b) which equates, in substance, to the return on an investment of money at interest.
(2) For the purposes of sub-paragraph (1) above the cases where risks from fluctuations in the underlying subject matter are eliminated or reduced shall be deemed to include any case where the main reason, or one of the main reasons, for the choice of that subject matter is—
(a) that there appears to be no risk that it will fluctuate; or
(b) that the risk that it will fluctuate appears to be insignificant.
(3) In this paragraph the references, in relation to a disposal of futures or options, to the underlying subject matter are references to or to the value of the commodities, currencies, shares, stock or securities, interest rates, indices or other matters to which, or to the value of which, those futures or options are referable.
Disposals of futures or options
4 (1) For the purposes of this Schedule a disposal is a disposal of futures or options if it consists in—
(a) the disposal of one or more futures;
(b) the disposal of one or more options; or
(c) the disposal of one or more futures together with one or more options.
(2) Subject to sub-paragraph (4) below, any question for the purposes of this Schedule as to whether there is a disposal falling within sub-paragraph (1)(a) to (c) above, or as to when such a disposal is made, shall be determined, on the assumptions specified in sub-paragraph (3) below, in accordance with—
(a) section 143(5) and (6), 144 and 144A of the 1992 Act (closing out and settlement of futures contracts and rules in relation to options); and
(b) the other provisions having effect for determining for the purposes of that Act whether or when an asset is disposed of;
and references in this Schedule to entering into a transaction are references, in relation to a transaction consisting in a disposal, to the making of the disposal.
(3) Those assumptions are—
(a) that all futures are assets for the purposes of the 1992 Act;
(b) that the words “in the course of dealing in commodity or financial futures” are omitted in each place where they occur in section 143(5) and (6) of that Act; and
(c) that any reference in that Act to a financial option within the meaning given by section 144(8) of that Act is a reference to any option that is not a traded option.
(4) Subject to sub-paragraph (5) below, where—
(a) one of a number of related transactions designed to produce a guaranteed return is the grant of an option,
(b) at least one of the other transactions is a transaction entered into after the grant of the option, and
(c) the transaction or transactions entered into after the grant of the option is or include a disposal which is not itself the grant of an option,
the disposal consisting in the grant of the option shall be deemed for the purposes of this Schedule to be a disposal made on the first occasion after the grant of the option when one of the other transactions which is a disposal but is not itself the grant of an option is entered into.
(4A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Nothing in sub-paragraph (4) above affects so much of sub-paragraph (2) above as (by applying section 144(2) or 144A(2) of the 1992 Act (cases where options are exercised))—
(a) requires the grant of an option and the transaction entered into by the grantor in fulfilment of his obligations under that option to be treated for the purposes of this Schedule as a single transaction; or
(b) determines the time at which such a single transaction is to be treated for the purposes of this Schedule as entered into.
(6) In this paragraph—
“future” means outstanding rights and obligations under a commodity or financial futures contract;
“option” means a traded option or an option which is not a traded option but is an option relating to—
currency, shares, stock, securities or an interest rate; or
rights under a commodity or financial futures contract;
and includes any liability or entitlement under an option.
“traded option” has the meaning given for the purposes of subsection (4) of section 144 of the 1992 Act by subsection (8) of that section.
Futures running to delivery and options exercised
4A (1) This paragraph applies where for the purposes of this Schedule—
(a) there are or, apart from section 144(2) or (3) of the 1992 Act, would be two or more related transactions;
(b) one of those transactions is or would be the creation or acquisition (by the making or receiving of a grant or otherwise) of a future or option;
(c) the other transaction, or one of the other transactions, is or would be the running of the future to delivery or the exercise of the option; and
(d) the transaction mentioned in paragraph (c) above is not treated for those purposes as a disposal of a future or option.
(2) This Schedule shall have effect in relation to the parties to the future or option as if the transaction specified in sub-paragraph (3) below—
(a) were a transaction for which the scheme or arrangements by reference to which the transactions are related transactions provided; and
(b) were a transaction which in fact takes place at the time (“the relevant time") immediately before the future runs to delivery or, as the case may be, the option is exercised.
(3) That transaction is a disposal of the future or option which—
(a) in the case of a person whose rights and entitlements under the future or option have a market value at the relevant time, consists in a disposal for a consideration equal to that market value; and
(b) in the case of any other party to the future or option, consists in a disposal which—
(i) is made for a nil consideration; and
(ii) involves that person in incurring costs equal to the amount specified in sub-paragraph (4) below.
(4) That amount is the amount which that party to the future or option might reasonably have been expected to pay, in a transaction at arm’s length entered into at the relevant time, for the release of his obligations and liabilities under the future or option.
(5) Where, in a case in which a transaction is deemed to take place by virtue of sub-paragraph (2)(b) above (“the deemed transaction")—
(a) any profits or gains arising from the deemed transaction are chargeable to tax under Case VI of Schedule D in accordance with paragraph 1(1) above, or
(b) any loss arising in the deemed transaction is brought into account for the purposes of section 392 . . . in accordance with paragraph 1(5) above,
amounts taken into account or allowable as deductions in computing those profits or gains, or that loss, shall not be excluded by virtue of section 37 or 39 of the 1992 Act (exclusion of amounts taken into account or allowable for the purposes of the taxation of income and profits) from any computation made for the purposes of that Act, but paragraph 1(6) above shall be given effect to in relation to the 1992 Act in accordance with sub-paragraphs (6) to (10) below.
(6) Where there are profits or gains arising to any person (“the taxpayer") from the deemed transaction, an increase equal to the amount of those profits or gains shall be made in the amount that would otherwise be taken for the purposes of the 1992 Act to be—
(a) the amount of the consideration for the acquisition of any asset acquired by the taxpayer by means of the future running to delivery or, as the case may be, by the exercise of the option; or
(b) the amount of the consideration for the acquisition by him of any asset disposed of by him by means of the future running to delivery or, as the case may be, in consequence of the exercise of the option;
but any increase made by virtue of paragraph (b) above in the amount of any consideration shall be disregarded in computing the amount of any indexation allowance.
(7) Where there is a loss for any person (“the taxpayer") in the deemed transaction—
(a) a reduction equal to the smaller of the amount of the loss and the amount to be reduced shall be made in the amount that would otherwise be taken for the purposes of the 1992 Act to be the amount of the consideration mentioned in sub-paragraph (6)(a) or (b) above; and
(b) the amount (if any) by which the amount of the loss exceeds the amount to be reduced shall be deemed to be a chargeable gain accruing to the taxpayer on the occasion specified in sub-paragraph (8) below.
(8) That occasion is—
(a) in a case where the consideration mentioned in paragraph (a) of sub-paragraph (6) above has been reduced to nil, the first occasion after the acquisition mentioned in that paragraph when there is a disposal of the asset in question; and
(b) in a case where it is the consideration mentioned in sub-paragraph (6)(b) above that has been reduced to nil, the occasion of the disposal made by the taxpayer by means of the future running to delivery or, as the case may be, in consequence of the exercise of the option.
(9) For the purposes of sub-paragraphs (6) and (7) above, where in any case there is a deemed disposal of an option by the person who granted it, any determination—
(a) of the profits arising to the grantor of the option from that disposal, or
(b) of the losses for the grantor in that disposal,
shall be made as if that disposal and the disposal by which the option was granted were a single transaction.
(10) In sub-paragraph (8) above—
(a) the reference in paragraph (a) to a disposal of the asset in question includes a reference to anything that would be such a disposal but for the provisions of section 116(10) or 127 of the 1992 Act; and
(b) the references in each of paragraphs (a) and (b) to a disposal include references to a disposal which, in accordance with the 1992 Act, would (apart from sub-paragraph (7)(b) above) be a disposal on which neither a gain nor a loss accrues.
(10A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(11) In this paragraph—
“future” and “option” have the same meanings as in paragraph 4 above;
“market value” has the same meaning as in the 1992 Act;
“party”, in relation to a future or option, means one of the persons who has any right or entitlement comprised in or arising under the future or option or who is subject to any obligation or liability so comprised or arising;
and references in this paragraph to a future running to delivery are references to the discharge by performance of the obligations owed under the commodity or financial futures contract in question to the party to the future whose rights are in relation to its underlying subject matter.
(12) Sub-paragraph (3) of paragraph 3 above applies for the purposes of sub-paragraph (11) above as it applies for the purposes of that paragraph.
The return from one or more disposals
5 (1) In this Schedule references to the return from one or more disposals are references to the return on investment represented either—
(a) by the total net profits and gains arising from the disposal or disposals; or
(b) by all but an insignificant part of those net profits and gains.
(2) For the purposes of the references in sub-paragraph (1) above to the total net profits and gains from any two or more disposals, it shall be assumed that profits and gains realised, and losses sustained, by persons who are associated with each other are all realised or sustained by the same person.
(3) For the purposes of sub-paragraph (2) above persons are associated with each other in relation to any two or more disposals made in pursuance of the same scheme or arrangements if—
(a) each of those persons shares or is to share, to an extent determined for the purposes of or in accordance with the scheme or arrangements, in the net return represented by the aggregate of all the profits, gains and losses realised or sustained on those disposals;
(b) those persons are associated companies at the time when the last of those disposals is made; or
(c) those persons have been associated companies at an earlier time falling after the first occasion on which a transaction was entered into in pursuance of the scheme or arrangements.
(4) In this paragraph—
“associated company” shall be construed in accordance with section 416; and
“scheme or arrangements” shall be construed in accordance with paragraph 6(4) below.
Related transactions
6 (1) For the purposes of this Schedule two or more transactions are related if all of them are entered into in pursuance of the same scheme or arrangements.
(2) Nothing in this Schedule shall be construed as preventing transactions with different parties, or transactions with parties different from the parties to the scheme or arrangements in pursuance of which they are entered into, from being related transactions.
(3) For the purposes of this paragraph the cases in which any two or more transactions are to be taken to be entered into in pursuance of the same scheme or arrangements shall include any case in which it would be reasonable to assume, from either or both of—
(a) the likely effect of the transactions, and
(b) the circumstances in which the transactions are entered into, or in which any of them is entered into,
that neither of them or, as the case may be, none of them would have been entered into independently of the other or others.
(3A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) In this paragraph “scheme or arrangements” includes schemes, arrangements and understandings of any kind, whether or not legally enforceable.
Special rule for trusts
7 (1) Where any profits or gains are treated, in accordance with paragraph 1 above, as income arising to trustees for any year of assessment, the relevant part of that income shall be treated for the purposes of the Tax Acts as if it were income to which section 686 applies (income taxable at the rate applicable to trusts).
(2) In sub-paragraph (1) above the reference to the relevant part of any income is a reference to so much (if any) of that income as—
(a) does not fall to be treated for the purposes of the Income Tax Acts as income of a settlor;
(b) is not income arising under a trust established for charitable purposes; and
(c) is not income from investments, deposits or other property held for any such purposes as are mentioned in sub-paragraph (i) or (ii) of section 686(2)(c) (property held for pension purposes).
(3) Subsection (6) of section 686 (meaning of “trustees” etc.) shall apply for the purposes of this paragraph as it applies for the purposes of that section.
Transfer of assets abroad
8 For the purpose of determining whether an individual ordinarily resident in the United Kingdom has a liability for income tax in respect of any profit or gain which—
(a) is realised by a person resident or domiciled outside the United Kingdom, and
(b) arises from a transaction to which this Schedule applies,
sections 739 and 740 (transfer of assets abroad) shall have effect as if that profit or gain, when realised, constituted income becoming payable to the person resident or domiciled outside the United Kingdom.
Apportionment in the case of insurance companies
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SCHEDULE 5A Stock lending: interest on cash collateral
Introductory
1 (1) In this Schedule—
(a) “approved stock lending arrangement” means an arrangement such as is mentioned in subsection (1), (2) or (2A) of section 129 and in relation to which that section and section 271(9) of the 1992 Act apply;
(b) “the borrower”, in relation to such an arrangement, means the person to whom the securities are transferred under the arrangement; and
(c) “the lender” means the person making that transfer and to whom, in return, securities of the same kind and amount are to be transferred.
(2) References in this Schedule to the borrower or lender under an approved stock lending arrangement include any person acting as the nominee of the borrower or lender.
Treatment of interest earned on cash collateral
2 (1) This paragraph applies where in connection with an approved stock lending arrangement—
(a) the borrower pays to the lender an amount (“cash collateral”) by way of security for the performance of the obligation to transfer to the lender securities of the same kind and amount as those transferred by him;
(b) interest is earned by the lender on the whole of the cash collateral in respect of the period for which he holds it, and is paid to him without deduction of tax; and
(c) the lender pays to the borrower an amount (“rebate interest”) equal to the amount of interest earned by him on the cash collateral.
(2) Where this paragraph applies—
(a) the interest earned by the lender on the cash collateral shall be treated for all purposes of the Tax Acts as the income of the borrower and not as the income of the lender;
(b) the lender shall not be required to deduct from the payment of rebate interest any sum representing income tax thereon;
(c) no relief shall be given to the lender in respect of the payment under any provision of the Tax Acts; and
(d) the rebate interest shall not be regarded as the income of the borrower.
(3) This paragraph does not apply unless the amount of the rebate interest is identified as such by the parties separately from any fee or other amount payable in connection with the arrangement.
Application of paragraph 2 in case of chain of arrangements
3 (1) Where the lender under one or more approved stock lending arrangements (“the lending arrangements”) is also the borrower under one or more other such arrangements (“the borrowing arrangements”) entered into to enable him to fulfil his obligations under the former arrangements, the interest which by virtue of paragraph 2(2)(a) above as it applies in relation to the borrowing arrangements is treated as his (the “attributed interest”) shall be treated for the purposes of that paragraph as it applies in relation to the lending arrangements as interest earned by him on the cash collateral provided under those arrangements, as follows.
(2) Where the aggregate amount of the cash collateral provided under the borrowing arrangements equals that provided under the lending arrangements, the whole of the attributed interest shall be so treated.
(3) Where the aggregate amount of the cash collateral provided under the borrowing arrangements exceeds that provided under the lending arrangements, a part of the attributed interest shall be so treated.
That part shall be the proportion of the attributed interest which the aggregate amount of the cash collateral provided under the lending arrangements bears to that provided under the borrowing arrangements.
(4) Where the aggregate amount of the cash collateral provided under the borrowing arrangements is less than that provided under the lending arrangements, the attributed interest shall be treated as earned by him on a part of the cash collateral provided under the lending arrangements.
That part shall be an amount equal to the aggregate amount of the cash collateral provided under the borrowing arrangements.
Interpretation
4 In this Schedule—
“relief” means relief by way of—
deduction in computing profits or gains, or
deduction or set off against income or total profits; and
“securities” includes stocks and shares.
Part I Tables of Flat Rate Cash Equivalents
Table A Cars with an original market value up to £19,250 and having a cylinder capacity
Cylinder capacity of car in cubic centimetres | Age of car at end of relevant year of assessment
Under 4 years | 4 years or more
1,400 or less | £2,310 | £1,580
More than 1,400 but not more than 2,000 | £2,990 | £2,030
More than 2,000 | £4,800 | £3,220
Table B Cars with an original market value up to £19,250 and not having a cylinder capacity
Original market value of car | Age of car at end of relevant year of assessment
Under 4 years | 4 years or more
Less than £6,000 | £2,310 | £1,580
£6,000 or more but less than £8,500 | £2,990 | £2,030
£8,500 or more but not more than £19,250 | £4,800 | £3,220
Table C Cars with an original market value of more than £19,250
Original market value of car | Age of car at end of relevant year of assessment
Under 4 years | 4 years or more
More than £19,250 but not more than £29,000 | £6,210 | £4,180
More than £29,000 | £10,040 | £6,660
PART II SUPPLEMENTARY PROVISIONS
Cash equivalent
1 (1) The cash equivalent of the benefit is the appropriate percentage for the year of the price of the car as regards the year.
(2) This is subject to paragraphs 6 and 7 below (reductions for periods when car unavailable and payments for use of car).
The appropriate percentage
2 The appropriate percentage for the year is determined in accordance with paragraphs 3 to 5G below.
Car with CO2 emissions figure
3 (1) This paragraph applies where—
(a) the car—
(i) is first registered on or after 1st January 1998 but before 1st October 1999, and
(ii) when so registered conformed to a vehicle type with an EC type-approval certificate, or had a UK approval certificate, that specifies a CO2 emissions figure in terms of grams per kilometre driven, or
(b) the car—
(i) is first registered on or after 1st October 1999, and
(ii) is so registered on the basis of an EC certificate of conformity or UK approval certificate that specifies a CO2 emissions figures in terms of grams per kilometre driven.
(2) In this paragraph references to “the applicable CO2 emissions figure” are—
(a) if the car is within sub-paragraph (1)(a) above, to the figure mentioned in paragraph (ii) of that sub-paragraph, and
(b) if the car is within sub-paragraph (1)(b) above—
(i) where the EC certificate of conformity or UK approval certificate specifies only one CO2 emissions figure, that figure, and
(ii) where it specifies more than one, the figure specified as the CO2 emissions (combined) figure.
This is subject to paragraph 5 (bi-fuel cars) and paragraph 5A (disabled drivers).
(3) Where the applicable CO2 emissions figure does not exceed the lower threshold for the year the appropriate percentage for the year is 15% (“the basic percentage”).
(4) Where the applicable CO2 emissions figure exceeds the lower threshold for the year, the appropriate percentage for the year is whichever is the smaller of—
(a) the basic percentage increased by 1% for each 5 grams per kilometre by which the applicable CO2 emissions figure exceeds the lower threshold for the year, and
(b) 35%.
(5) This paragraph is subject to paragraph 5D (diesel car supplement) and any regulations under paragraph 5E (power to provide for discounts).
The lower threshold
4 (1) For the purposes of paragraph 3 above the lower threshold is ascertained from the following Table—
Table
Year of assessment | Lower threshold (in g/km)
2002-03 | 165
2003-04 | 155
2004-05 and subsequent years of assessment | 145
(2) The Treasury may by order provide for a lower threshold different from that provided for in the Table in sub-paragraph (1) above to apply for years of assessment beginning on or after 6th April 2005 or such later date as may be specified in the order.
(3) For the purposes of paragraph 3 above the applicable CO2 emissions figure (if it is not a multiple of five) is rounded down to the nearest multiple of five.
Bi-fuel cars
5 Where the car—
(a) is first registered on or after 1st January 2000, and
(b) is so registered on the basis of an EC certificate of conformity, or UK approval certificate, that specifies separate CO2 emissions figures in terms of grams per kilometre driven for different fuels,
then, for the purposes of paragraph 3 above, “the applicable CO2 emissions figure” is the lowest figure specified or, if there is more than one figure specified in relation to each fuel, the lowest CO2 emissions (combined) figure specified.
Automatic cars made available to disabled drivers
5A (1) Sub-paragraph (2) below applies where—
(a) paragraph 3 above (car with CO2 emissions figure) applies to the car,
(b) the car has automatic transmission,
(c) at any time in the year when the car is available to the employee, he holds a disabled person’s badge, and
(d) by reason of his disability he must, if he wants to drive a car, drive a car that has automatic transmission.
For this purpose the car is not at any time available to the employee by reason only of its being made available to a member of his family or household.
(2) If the applicable CO2 figure for the car (“the relevant car”) is more than it would have been if the car had been an equivalent manual car, paragraph 3 above shall have effect as if the applicable CO2 emissions figure in relation to the relevant car were the same as that in relation to an equivalent manual car.
(3) For this purpose “an equivalent manual car” means a car that—
(a) is first registered at or about the same time as the relevant car, and
(b) does not have automatic transmission, but otherwise is the closest variant available of the make and model of the relevant car.
(4) For the purposes of this paragraph a car has automatic transmission if—
(a) the driver of the car is not provided with any means whereby he may vary the gear ratio between the engine and the road wheels independently of the accelerator and the brakes, or
(b) he is provided with such means, but they do not include a clutch pedal or lever that he may operate manually.
(5) In this paragraph—
“the applicable CO2 emissions figure” has the same meaning as in paragraph 3 above; and
“disabled person’s badge” has the meaning given in section 168AA(3).
“EC certificate of conformity", “EC type-approval certificate" and “UK approval certificate"
5B In this Schedule—
“EC certificate of conformity” means a certificate of conformity issued by a manufacturer under any provision of the law of a Member State implementing Article 6 of Council Directive 70/156/EEC, as amended;
“EC type-approval certificate” means a type-approval certificate issued under any provision of the law of a Member State implementing Council Directive 70/156/EEC, as amended; and
“UK approval certificate” means a certificate issued under—
section 58(1) or (4) of the Road Traffic Act 1988, or
Article 31A(4) or (5) of the Road Traffic (Northern Ireland) Order 1981.
Car with no CO2 emissions figure
5C (1) This paragraph applies where—
(a) the car is first registered on or after 1st January 1998, and
(b) paragraph 3 above does not apply.
(2) If the car has an internal combustion engine with one or more reciprocating pistons, the appropriate percentage for the year is ascertained from the following Table—
Table
Cylinder capacity of car in cubic centimetres | Appropriate percentage
1,400 or less | 15%
More than 1,400 but not more than 2,000 | 25%
More than 2,000 | 35%
For this purpose a car’s cylinder capacity is the capacity of its engine calculated as for the purposes of the Vehicle Excise and Registration Act 1994.
(3) If sub-paragraph (2) above does not apply the appropriate percentage for the year is—
(a) 15%, if the car is an electrically propelled vehicle, and
(b) 35%, in any other case.
(4) This paragraph is subject to paragraph 5D (diesel car supplement) and any regulations under paragraph 5E (power to provide for discounts) below.
Diesel car supplement
5D (1) This paragraph applies where the car—
(a) is propelled solely by diesel, and
(b) is first registered on or after 1st January 1998.
(2) The appropriate percentage for the year is whichever is the smaller of—
(a) the percentage which is 3% greater than the appropriate percentage for the year ascertained in accordance with paragraphs 2 to 5C above, and
(b) 35%.
(3) In sub-paragraph (1) “diesel” means any diesel fuel within the definition in Article 2 of Directive 98/70/EC of the European Parliament and of the Council.
(4) This paragraph is subject to any regulations under paragraph 5E below (power to provide for discounts).
Discounts
5E The Treasury may by regulations provide for the value of the appropriate percentage as determined in accordance with paragraphs 2 to 5D above to be reduced by such amount as may be prescribed in the regulations, in such circumstances and subject to such conditions as may be so prescribed.
Car registered before 1st January 1998
5F (1) This paragraph applies where the car was first registered before 1st January 1998.
(2) Where the car has an internal combustion engine with one or more reciprocating pistons, the appropriate percentage for the year is ascertained from the following Table—
Table
Cylinder capacity of car in cubic centimetres | Appropriate percentage
1,400 or less | 15%
More than 1,400 but not more than 2,000 | 22%
More than 2,000 | 32%
For this purpose a car’s cylinder capacity is the capacity of its engine calculated as for the purposes of the Vehicle Excise and Registration Act 1994.
(3) Where sub-paragraph (2) above does not apply, the appropriate percentage for the year is—
(a) 15%, if the car is an electrically propelled vehicle, and
(b) 32%, in any other case.
Electrically propelled vehicle
5G For the purposes of this Schedule, a vehicle is not an electrically propelled vehicle unless—
(a) it is propelled solely by electrical power, and
(b) that power is derived from—
(i) a source external to the vehicle, or
(ii) an electrical storage battery which is not connected to any source of power when the vehicle is in motion.
Reduction for periods when car unavailable
6 Subject to paragraph 7 below, where for any part of the year concerned the car is unavailable, the cash equivalent of the benefit is the amount ascertained under the preceding provisions of this Schedule multiplied by the fraction—
A
B
where—
A is the number of days in the year on which the car is available; and
B is the number of days in the year.
Reduction for payments for use of car
7 (1) Where in the year concerned the employee is required, as a condition of the car being available for his private use, to pay any amount of money (whether by way of deduction from his emoluments or otherwise) for that use, then—
(a) if the amount ascertained under the preceding provisions of this Schedule exceeds the relevant sum, the cash equivalent of the benefit is an amount equal to the excess;
(b) if the relevant sum exceeds or is equal to the amount ascertained under the preceding provisions of this Schedule, the cash equivalent of the benefit is nil.
(2) In sub-paragraph (1) above—
(a) “the relevant sum” means the amount paid by the employee, as there mentioned, in respect of the year concerned;
(b) the reference to the car being available for the employee’s private use includes a reference to the car being available for the private use of others being members of his family or household.
Replacement cars
8 The Treasury may by regulations provide that where—
(a) a car is normally available to the employee but for a period of less than 30 days it is not available to him,
(b) another car is made available to the employee in order to replace the car mentioned in paragraph (a) above for the whole or part of the period, and
(c) such other conditions as may be prescribed by the regulations are fulfilled,
this Schedule shall have effect in relation to the cars concerned subject to such modifications as are prescribed by the regulations.
Meaning of “unavailable”
9 For the purposes of this Schedule a car is to be treated as being unavailable on any day if—
(a) the day falls before the first day on which the car is available to the employee,
(b) the day falls after the last day on which the car is available to the employee, or
(c) the day falls within a period, of 30 days or more, throughout which the car is not available to the employee.
General
10 For the purposes of this Schedule a car is available to an employee at a particular time if it is then made available, by reason of his employment and without any transfer of the property in it, either to him or to others being members of his family or household.
This is subject to paragraph 5A(1) above.
Part I Basic Case
Cash equivalent
1 (1) This paragraph applies where the van mentioned in section 159AA(1)—
(a) is not a van to which Part II of this Schedule applies for the year concerned, or
(b) is a van to which that Part applies for the year concerned but is a shared van (within the meaning there given) for part only of the year.
(2) Subject to paragraphs 2 and 3 below, the cash equivalent of the benefit is—
(a) £500, if the van is aged less than 4 years at the end of the year concerned;
(b) £350, if the van is aged 4 years or more at the end of the year concerned.
Reductions for periods where van unavailable
2 (1) Subject to paragraph 3 below, where paragraph 1 above applies and for any part of the year concerned—
(a) the van is unavailable, or
(b) the van is a shared van (within the meaning given by Part II of this Schedule),
the cash equivalent of the benefit is the amount ascertained under paragraph 1 above (the full amount) reduced by an amount which bears to the full amount the same proportion as the number of excluded days in the year bears to 365.
(2) For the purposes of sub-paragraph (1) above a van is to be treated as being unavailable on any day if—
(a) the day falls before the first day on which the van is available to the employee,
(b) the day falls after the last day on which the van is available to the employee, or
(c) the day falls within a period, of 30 days or more, throughout which the van is not available to the employee.
(3) For the purposes of sub-paragraph (1) above an excluded day is a day on which the van falls within paragraph (a) or (b) of that sub-paragraph.
Reduction for payments for use of van
3 (1) Where paragraph 1 above applies and in the year concerned the employee is required, as a condition of the van being available for his private use, to pay any amount of money (whether by way of deduction from his emoluments or otherwise) for that use, then—
(a) if the amount ascertained under paragraphs 1 and 2 above exceeds the relevant sum, the cash equivalent of the benefit is an amount equal to the excess;
(b) if the relevant sum exceeds or is equal to the amount ascertained under paragraphs 1 and 2 above, the cash equivalent of the benefit is nil.
(2) In sub-paragraph (1) above—
(a) “the relevant sum” means the amount paid by the employee, as there mentioned, in respect of the year concerned, and
(b) the reference to the van being available for the employee’s private use includes a reference to the van being available for the private use of others being members of his family or household.
(3) If the van is a shared van (within the meaning given by Part II of this Schedule) for part of the year concerned, the reference in sub-paragraph (2) above to the year shall be construed as a reference to the part of the year when the van is not a shared van.
Part II SHARED VANS
Introduction
4 (1) This Part of this Schedule applies to a van for a year if it is a shared van for any period in the year.
(2) A van is a shared van for a period if the period is one throughout which the van is available concurrently to more than one employee of the same employer.
(3) A van is also a shared van for a period if—
(a) the period is one throughout which the van is available to different employees of the same employer, but
(b) the circumstances are such that the employee or employees to whom the van is available at any given time in the period are not necessarily the same as the employee or employees to whom it is available at any other given time in the period.
(4) But if the van is available to one employee only for a period exceeding 30 days (an exclusive period)—
(a) the exclusive period shall not count towards any period that would otherwise fall within sub-paragraph (3) above;
(b) any period falling within sub-paragraph (3) above shall be treated as ending when the exclusive period begins (without prejudice to the start after the exclusive period of a further period falling within sub-paragraph (3) above).
(5) If a van would (apart from this sub-paragraph) be treated as shared during part of a day it shall be treated as shared throughout the day.
Benefit to employee
5 (1) This paragraph applies where for any year this Part of this Schedule—
(a) applies to a van, or
(b) applies to each of two or more vans made available by the same employer.
(2) For the purposes of this paragraph a participating employee is an employee to whom—
(a) the van is available for his private use while it is a shared van (where only one van is involved),
(b) one of the vans is available for his private use while it is a shared van (where more than one van is involved), or
(c) some or all of the vans are available for his private use while they are shared vans (where more than one van is involved);
but an employee is not a participating employee unless he makes private use of the van, or (if more than one is involved) he makes private use of at least one of them, at least once while it is a shared van.
(3) In sub-paragraph (2) above—
(a) any reference to a van being available for an employee’s private use includes a reference to the van being available for the private use of others being members of his family or household, and
(b) any reference to an employee making private use of a van includes a reference to a member of his family or household making private use of it.
(4) This paragraph shall apply to each participating employee in the same way, irrespective of—
(a) the number available to a particular employee of the vans involved;
(b) the fact that a particular van involved is or is not available to him or used by him;
(c) the extent to which a particular van involved is available to him or used by him.
(5) Where this paragraph applies—
(a) find the basic value of the van for the year or (as the case may be) the basic value for the year of each van involved;
(b) take that basic value or (as the case may be) the aggregate of those basic values;
(c) find for each participating employee a portion of the figure taken under paragraph (b) above by dividing it equally among the participating employees.
(6) The figure found for a participating employee shall be taken to be the cash equivalent of the benefit to him in the year of—
(a) the van available to him while it is a shared van (where only one van is involved or only one of the vans involved is available to him), or
(b) the vans available to him while they are shared vans (where more than one van is involved and more than one of them is available to him).
Basic value
6 (1) Subject to sub-paragraph (2) below, the basic value of a van for a year is—
(a) £500, if the van is aged less than 4 years at the end of the year concerned;
(b) £350, if the van is aged 4 years or more at the end of the year concerned.
(2) Where for any part of the year—
(a) the van is not a shared van, or
(b) the van is incapable of use,
its basic value is the amount ascertained under sub-paragraph (1) above (the full value) reduced by an amount which bears to the full value the same proportion as the number of excluded days in the year bears to 365.
(3) For the purposes of sub-paragraph (2) above a van is to be treated as being incapable of use on any day if the day falls within a period, of 30 days or more, throughout which the van is incapable of being used at all.
(4) For the purposes of sub-paragraph (2) above an excluded day is a day on which the van falls within paragraph (a) or (b) of that sub-paragraph.
Limit of benefit
7 Where (apart from this paragraph) the figure found under paragraph 5 above for a participating employee for a year would exceed £500, the figure for the employee for the year shall be taken to be £500.
Alternative calculation
8 (1) In a case where—
(a) a figure is found under paragraph 5 or 7 above for a participating employee for a year, and
(b) the employee makes a claim for this paragraph to be applied,
the figure found for the employee for the year shall be taken to be the alternative figure found under this paragraph.
(2) The alternative figure is a figure found by—
(a) taking for each van involved the number of relevant days;
(b) aggregating the numbers found under paragraph (a) above where more than one van is involved;
(c) multiplying the number found under paragraph (a) (or paragraphs (a) and (b)) above by £5.
(3) For the purposes of sub-paragraph (2)(a) above a relevant day is a day which falls in the year and during which (or part of which) the employee, or a member of his family or household, makes private use of the van concerned while it is a shared van.
(4) For the purposes of section 95 of the Taxes Management Act 1970 (incorrect return etc.) a claim under this paragraph shall be taken to be a claim for relief.
Reduction for payments for use
9 (1) Where this Part of this Schedule applies and in the year concerned a participating employee is required, as a condition of the van or vans being available for his private use, to pay any amount of money (whether by way of deduction from his emoluments or otherwise) for that use, then—
(a) if the figure found for the employee for the year under paragraph 5 or 7 or 8 above exceeds the relevant sum, the figure shall be taken to be a figure equal to the excess;
(b) if the relevant sum exceeds or is equal to the figure found for the employee for the year under paragraph 5 or 7 or 8 above, the figure shall be taken to be nil.
(2) For the purposes of this paragraph the relevant sum shall be found by—
(a) taking for any van involved the amount paid by the employee, as a condition of it being available for his private use, in respect of the period when the van is a shared van in the year concerned, and
(b) where more than one van is involved, aggregating the amounts found under paragraph (a) above.
(3) Any reference in this paragraph to a van being available for the employee’s private use includes a reference to the van being available for the private use of others being members of his family or household.
Part III GENERAL
Interaction of Parts I and II
10 (1) This paragraph applies where—
(a) a cash equivalent of the benefit of a van to an employee in a year is found under Part I of this Schedule, and
(b) a cash equivalent of the benefit of the same van (or of vans including the same van) to the employee in the year is found under Part II of this Schedule.
(2) Once the different cash equivalents are so found, the employee shall be charged to tax as if the van concerned were different vans, one having a cash equivalent found under Part I of this Schedule and the other having (or counting towards) a cash equivalent found under Part II of this Schedule.
Limit of cash equivalent
11 In a case where—
(a) the cash equivalent of the benefit of vans to an employee in a year would (apart from this paragraph) total more than £500, and
(b) no more than one of the vans is available to him for his private use, or the private use of others being members of his family or household, at any one time in the year,
the cash equivalent of the benefit of the vans to him in the year shall be £500.
Interpretation
12 For the purposes of this Schedule a van is available to an employee at a particular time if it is then made available, by reason of his employment and without any transfer of the property in it, either to him or to others being members of his family or household.
PART I MEANING OF “OBTAINED BY REASON OF EMPLOYMENT”
1 (1) Subject to sub-paragraph (5) below, the benefit of a loan is obtained by reason of a person’s employment if, in relation to that person, it is of a class described in sub-paragraphs (2), (3) or (4) below.
(2) A loan made by his employer.
(3) A loan made by a company—
(a) over which his employer had control;
(b) by which his employer (being a company) was controlled; or
(c) which was controlled by a person by whom his employer (being a company) was controlled.
(4) A loan made in any case where—
(a) his employer was, or had control over, or was controlled by, a close company; and
(b) the loan was made by a person having a material interest in that close company or, that company being controlled by another company, in that other company.
(5) Sub-paragraphs (2) and (4) above do not apply to a loan made by . . . an individual . . . in the normal course of his domestic, family or personal relationships.
2 In paragraph 1 above—
(a) references to a loan being made by any person include references to his assuming the rights and liabilities of the person who originally made the loan and to his arranging, guaranteeing or in any way facilitating the continuation of a loan already in existence;
(b) “employer” includes a prospective employer; and
(c) “company”, except in the expression “close company”, includes a partnership.
PART II CALCULATION OF CASH EQUIVALENT OF LOAN BENEFIT
General
3 (1) The cash equivalent for any year of the benefit obtained from a loan is—
(a) the amount of interest (calculated in accordance with paragraph 4 or 5 below) which would have been payable for that year had interest at the official rate been payable on the loan, less
(b) the amount of interest actually paid on the loan for that year.
and, in a case where there are two or more loans, the aggregate of the cash equivalents (if any) of the benefit of each of those loans shall be treated for the purposes of section 160 as the cash equivalent of the benefit of all of them.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Normal method of calculation (averaging)
4 (1) In the absence of a requirement or election that paragraph 5 below should apply, the amount of interest at the official rate payable on a loan for any year (“the relevant year”) shall be ascertained as follows—
(a) take half the aggregate of—
(i) the maximum amount of the loan outstanding on 5th April preceding the relevant year or, if it was made in that year, on the date on which it was made, and
(ii) the maximum amount of the loan outstanding on 5th April in the relevant year or, if the loan was discharged in that year, the date of discharge;
(b) multiply that figure by the number of whole months during which the loan was outstanding in that year, and divide by 12;
(c) multiply the result by the official rate of interest in force during the period when the loan was outstanding in that year or, if the official rate changed during that period, the average rate during that period ascertained by reference to the number of days in the period and the number of days for which each rate was in force.
For the purposes of this paragraph, months begin on the sixth day of the calendar month.
(2) Where an employment-related loan is replaced, directly or indirectly—
(a) by a further employment-related loan, or
(b) by a non-employment-related loan which in turn is, in the same year of assessment or within 40 days thereafter, replaced, directly or indirectly, by a further employment-related loan,
sub-paragraph (1) above applies as if the replacement loan or, as the case may be, each of the replacement loans were the same loan as the first-mentioned employment-related loan.
(3) For the purposes of sub-paragraph (2) above “employment-related loan” means a loan the benefit of which is obtained by reason of a person’s employment (and “non-employment-related loan” shall be construed accordingly).
(4) The references in sub-paragraph (2) above to a further employment-related loan are to an employment-related loan the benefit of which is obtained by reason of—
(a) the same or other employment with the person who is the employer in relation to the first-mentioned employment-related loan, or
(b) employment with a person who is connected (within the meaning of section 839) with that employer.
Election for alternative method of calculation
5 (1) For any year of assessment (“the relevant year”) the alternative method of calculation set out in this paragraph applies if—
(a) the inspector so requires, by notice given to the employee, at a time allowed by sub-paragraph (2) below; or
(b) the employee so elects, by notice given to the inspector at such a time.
(2) A notice containing a requirement or election for the purposes of sub-paragraph (1) above is allowed to be given at any time before the end of the period of 12 months beginning with the 31st January next following the relevant year.
(3) The alternative method of calculating the amount of interest at the official rate payable on a loan for the relevant year is as follows—
(a) take each period in the relevant year during which the official rate of interest remains the same;
(b) for each such period take for each day in the period the maximum amount outstanding of the loan on that day, and add those amounts together;
(c) multiply that sum by the official rate in force during the period divided by 365; and
(d) add together the resulting figures for each period in the relevant year.
Apportionment of cash equivalent in case of joint loan etc.
5A (1) Where in any year there are two or more employees chargeable to tax in respect of the same loan—
(a) the cash equivalent of the benefit of the loan (determined in accordance with this Schedule) shall be apportioned between them in a fair and reasonable manner, and
(b) the portion allocated to each employee shall be treated as the cash equivalent of the benefit of the loan so far as he is concerned.
(2) For the purposes of determining the cash equivalent in such a case, the references in paragraph 5 above to the employee shall be construed as references to all the chargeable employees.
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
7 Section 160(1) does not apply to a loan in any year—
(a) for which interest is paid on the loan and the whole of that interest is eligible for relief, or
(b) for which no interest is paid on the loan but had interest been paid on it at the official rate the whole of that interest would have been eligible for relief.
8 Where for any year interest is paid on a loan and part of that interest is eligible for relief, the calculation of the cash equivalent under Part II of this Schedule is modified as follows—
(a) where paragraph 4 applies, the maximum amounts referred to in sub-paragraph (a)(i) and (ii) of that paragraph shall be proportionately reduced by reference to the proportion which so much of that interest paid for that year as is not eligible for relief bears to the whole of the interest so paid;
(b) where paragraph 5 applies, the maximum amounts referred to in sub-paragraph (3)(b) of that paragraph shall be proportionately reduced by reference to the proportion which so much of the interest paid on each such amount for the day in question as is not eligible for relief bears to the whole of the interest so paid; and
(c) the amount of interest eligible for relief shall be left out of account in ascertaining for the purposes of paragraph 3(1)(b) above the amount of interest paid for that year.
9 (1) Where for any year—
(a) no interest is paid on a loan, but
(b) had interest been paid on it at the official rate part of that interest would have been eligible for relief,
then the calculation of the cash equivalent under Part II of this Schedule shall be modified as provided by paragraph 8(a) or (b) above with the substitution for the references to the amounts of interest paid or not eligible for relief of references to the amounts (ascertained in accordance with the following provisions of this paragraph) which would have been paid or would not have been eligible for relief.
(2) For the purposes of paragraph 8(a) above as applied by this paragraph, the whole amount of interest at the official rate which would have been paid for any year shall be taken to be the amount payable for that year calculated in accordance with paragraph 4 above (disregarding paragraph 8); and the amount of that interest which would not have been eligible for relief shall be ascertained—
(a) by finding that amount on the assumption that the amount referred to in paragraph 4(a)(i) was the amount outstanding for the whole year;
(b) by finding that amount on the assumption that the amount referred to in paragraph 4(a)(ii) was the amount outstanding for the whole year; and
(c) by adding together the resulting figures and dividing by 2.
(3) For the purposes of paragraph 8(b) above as applied by this paragraph, the amount of interest which would have been paid and the amount of it which would not have been eligible for relief shall be ascertained on the assumption that interest at the official rate was paid daily throughout the year on the maximum amount outstanding on each day.
10 (1) If—
(a) a person has a loan on which no interest is paid and of which the benefit was obtained by reason of his or any other person’s employment (“the employer’s loan”); and
(b) that person or his wife or her husband has another loan which was made later than, or at the same time as, the employer’s loan and interest on which is, in whole or in part, eligible for relief;
then, for the purposes of determining whether, had interest been paid on the employer’s loan at the official rate, the whole or any part of that interest would have been eligible for relief, sections . . . 355(1) to (4), 356 to 358 and 360 to 365 shall have effect as if the employer’s loan were made after any other loan which falls within paragraph (b) above and which, in the context of the application of sections 354(1) to (4) and 355(5), relates to the same land, caravan or house boat as does the employer’s loan.
(2) Where such a loan is made as is mentioned in paragraph (b) of sub-paragraph (1) above, sections . . . 355(1) to (4), 356 to 358 and 360 to 365 have effect in accordance with that sub-paragraph with respect to so much of the interest referred to therein as would be paid on and after the day on which the loan is made; and paragraph 9(3) above shall have effect for the purpose of determining how much of that interest would have been eligible for relief.
11 (1) Where in any year a person has, alone or together with his wife or her husband, two or more loans—
(a) on which no interest is paid, and
(b) which, assuming the application of sections 354(1) to (4) and 355(5), would relate, in the context of those sections, to the same land, caravan or house boat,
then, for the purpose of determining whether, had interest been paid on any of those loans, it would, in whole or in part, have been eligible for relief, it shall be assumed in the first instance that those loans constitute a single loan (equal in amount to the aggregate of the actual loans) and to the extent that, had interest been paid on that single loan, it would have been eligible for relief, the relief shall then be attributed first to the earliest of the actual loans and, if all the relief is not thereby attributed, the balance shall be attributed to the next in time and so on with any of the balance remaining until the relief is wholly attributed.
(2) Nothing in sub-paragraph (1) above affects the operation of paragraph 10 above in relation to the priority which it gives to a loan falling within sub-paragraph (1)(b) of that paragraph, but any question which of two or more loans falling within sub-paragraph (1) above is the earlier shall be determined without regard to that paragraph.
12 References in paragraphs 10 and 11 above to a husband or wife do not include references to a separated husband or wife.
13 This Part of this Schedule is subject to the provisions of Part IV below.
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14 This Part of this Schedule applies in relation to the employee for any year for which he is, or, apart from paragraph 7, 8 or 9 above as they apply in relation to home loans, would be, liable to income tax at a rate higher than basic rate or to tax chargeable in respect of excess liability.
15 Where this Part of this Schedule applies in relation to the employee for any year, none of paragraphs 7, 8 and 9 above shall apply in his case in relation to any home loan in that year, except as provided by paragraph 17 below.
16 (1) Where, by virtue only of paragraph 15 above, paragraph 7, 8 or 9 above does not apply in the case of the employee in relation to a home loan in any year, there shall be treated as interest eligible for relief under section 353 by virtue of section 355(1)(a) in that year—
(a) in a case where, apart from paragraph 15 above, paragraph 7 would have applied in relation to the home loan, an amount equal to the cash equivalent of the benefit of that loan in that year, apart from paragraph 7, or
(b) in a case where, apart from paragraph 15 above, paragraph 8 or 9 would have applied in relation to the home loan, an amount equal to the difference between—
(i) the cash equivalent of the benefit of the home loan in that year, apart from paragraphs 8 and 9, and
(ii) what the cash equivalent of the benefit of the home loan would have been in that year, apart from paragraph 15 above,
but subject to the following provisions of this paragraph.
(2) In the application of section 353 by virtue of this paragraph—
(a) the amount that falls to be treated as mentioned in sub-paragraph (1) above shall be taken to fall within paragraph (a) of subsection (1) of that section; and
(b) subsections (2) and (3) of that section shall be disregarded in relation to that amount.
17 Paragraph 15 above shall not prevent paragraph 7, 8 or 9 applying in the case of the employee in any year if, apart from paragraph 15—
(a) he would not have been charged for that year to income tax at any rate higher than basic rate in respect of any of his total income or to tax in respect of excess liability; and
(b) the aggregate of the following amounts, that is to say—
(i) the amount of income in respect of which, apart from any home loans, he would have been charged to income tax for that year at the basic rate,
(ii) any income which is treated by virtue of section 683(1) or 684(1) as his income for that year for the purposes of excess liability, notwithstanding that he would not have been charged to tax otherwise than at the basic rate,
(iii) the cash equivalents, apart from paragraphs 7, 8 and 9 above, of the benefit of any home loans in that year, and
(iv) his nominal element (if any) for that year, reduced by an amount equal to the cash equivalents, apart from paragraph 15 above, of the benefit of any home loans in that year,
does not exceed the basic rate limit by more than the amount specified in section 161(1) for that year.
18 If, in the case of the employee, there is a home loan in any year and that is a year for which—
(a) he is liable to income tax at a rate higher than basic rate or to tax chargeable in respect of excess liability (whether or not by virtue of this Part of this Schedule), but
(b) he would not have been so liable apart from any home loans, and
(c) there is in his case a nominal element,
then, in computing his liability to income tax for that year, the amount which falls to be treated as emoluments under section 160(1) in consequence of the operation of paragraph 15 above (or, if more than one, the aggregate of those amounts) shall be taken to be the highest part of the income charged to tax, and an amount equal to the nominal element shall be taken to be the lowest portion of that part.
PART V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19 (1) In this Schedule—
“eligible for relief” shall be construed in accordance with sub-paragraph (2) below;
“eligible loan” means—
(a) any loan the interest on which is eligible for relief, other than a home loan; and
(b) in a case where part of the interest on a loan is eligible for relief otherwise than by virtue of section 355(1)(a), 356(1) or 365, that proportion of the loan which that part of the interest bears to the whole of the interest;
and in determining for the purposes of this definition whether the whole or any part of the interest on a loan is so eligible for relief, it shall be assumed that interest at a uniform rate is paid on the loan, whether or not that is in fact the case;
“excess liability” means liability to income tax over what it would be if all income tax not chargeable at the lower rateby virtue of section 1(2)(aa) were charged at the basic rate, or (so far as applicable in accordance with section 207A) the lower rate,, to the exclusion of any higher rate;
“home loan” means—
(a) any loan the interest on which is, or apart from section 357 would have been, eligible for relief by virtue of section 355(1)(a), 356(1) or 365; and
(b) in a case where part of the interest on a loan is or would have been so eligible for relief, that proportion of the loan which that part of the interest bears to the whole of the interest;
and in determining for the purposes of this definition whether the whole or any part of the interest on a loan is or would have been so eligible for relief, it shall be assumed that interest at a uniform rate is paid on the loan, whether or not that is in fact the case;
“loan”, except in Part I of this Schedule, shall be construed in accordance with sub-paragraphs (3) to (5) below;
“nominal element”, in relation to the employee, means the amount (if any) which, apart from paragraph 15 above, would, by virtue of section 161(1), not have been charged to tax under section 160 in that year in his case.
(2) Interest is “eligible for relief” for the purposes of this Schedule if it is eligible for relief under section 353 or would be eligible for such relief apart from subsection (2) of that section.
(3) In the definitions of “eligible loan” and “home loan” in sub-paragraph (1) above, “loan” means any such loan as is mentioned in section 160(1), and for this purpose sub-paragraphs (4) and (5) below shall be disregarded.
(4) Where by virtue of sub-paragraph (1) above part of a loan constitutes a home loan or an eligible loan, the loan shall be treated for the purposes of this Schedule, apart from Part I, as if it were two or more separate loans, consisting respectively—
(a) of the part (if any) which is a home loan,
(b) of the part (if any) which is an eligible loan, and
(c) of the part (if any) which is neither a home loan nor an eligible loan,
and, subject to sub-paragraph (5) below, references in this Schedule, apart from Part I, to loans, home loans and eligible loans shall be construed accordingly.
(5) Except for home loans and eligible loans, all the loans between the same lender and borrower for which a cash equivalent falls to be ascertained and which are outstanding at any time, as to any amount, in any year are to be treated for the purposes of this Schedule, apart from Part I, as a single loan.
SCHEDULE 7A Beneficial loans: loans on ordinary commercial terms
Introduction
1 For the purposes of section 161B(1) a loan “on ordinary commercial terms” means a loan—
(a) made by a person (“the lender”) in the ordinary course of a business carried on by him which includes—
(i) the lending of money, or
(ii) the supplying of goods or services on credit, and
(b) in relation to which the requirements of paragraph 2, 3 or 4 below are met.
Requirements relating to original loan
2 (1) This paragraph applies to any loan and the relevant time for the purposes of this paragraph is the time the loan was made.
(2) The requirements of this paragraph are—
(a) that at the relevant time comparable loans were available to all those who might be expected to avail themselves of the services provided by the lender in the course of his business;
(b) that a substantial proportion of the relevant loans were made to members of the public;
(c) that the loan in question and comparable loans generally made by the lender at or about the relevant time to members of the public are held on the same terms; and
(d) that if those terms differ from those applicable immediately after the relevant time they were imposed in the ordinary course of the lender’s business.
(3) For the purposes of this paragraph a loan is comparable to another loan if it is made for the same or similar purposes and on the same terms and conditions.
(4) The relevant loans for the purposes of sub-paragraph (2)(b) are—
(a) the loan in question, and
(b) comparable loans made by the lender at or about the relevant time.
(5) In determining for the purposes of this paragraph whether any loans made by any person before 1st June 1994 are made on the same terms or conditions, or held on the same terms, there shall be left out of account any amounts, by way of fees, commission or other incidental expenses, incurred for the purpose of obtaining any of those loans by the persons to whom they are made.
Requirements relating to loan varied before 6th April 2000
3 (1) This paragraph applies to a loan that has been varied before 6th April 2000 and the relevant time for the purposes of this paragraph is the time of the variation.
(2) The requirements of this paragraph are—
(a) that a substantial proportion of the relevant loans were made to members of the public;
(b) that the loan in question and relevant loans generally made by the lender at or about the relevant time to members of the public are held on the same terms; and
(c) that if those terms differ from those applicable immediately after the relevant time they were imposed in the ordinary course of the lender’s business.
(3) The relevant loans for the purposes of sub-paragraph (2)(a) are—
(a) the loan in question;
(b) any existing loans which were varied at or about the time of the variation of the loan in question so as to be held on the same terms as that loan after it was varied;
(c) any new loans made by the lender, at or about that time, which are held on those terms.
Requirements relating to loan varied on or after 6th April 2000
4 (1) The requirements of this paragraph apply to a loan that has been varied on or after 6th April 2000 and the relevant time for the purposes of this paragraph is the time of the variation.
(2) The first requirement is that at the relevant time members of the public that had loans from the lender for similar purposes had a right to vary their loans on the same terms and conditions as applied in relation to the variation of the loan in question.
(3) The second requirement is that any existing loans so varied and the loan in question as varied are held on the same terms.
(4) The third requirement is that if those terms differ from the terms applicable immediately after the relevant time, they were imposed in the ordinary course of the lender’s business.
(5) The fourth requirement is that a substantial proportion of the relevant loans were made to members of the public.
(6) The relevant loans for the purposes of sub-paragraph (5) are—
(a) the loan in question;
(b) any existing loans which were varied at or about the time of the variation of the loan in question so as to be held on the same terms as that loan after it was varied;
(c) any new loans made by the lender, at or about that time, which are held on those terms.
Disregard of certain penalties, fees, etc.
5 Amounts incurred by the person to whom a loan is made—
(a) on penalties or interest or similar amounts incurred as a result of varying the loan, and
(b) on fees, commission or other incidental expenses, incurred for the purpose of obtaining the loan,
shall be left out of account in determining for the purposes of paragraph 3 or 4 whether rights to vary loans are exercisable on the same terms and conditions or loans are held on the same terms.
Meaning of 'member of the public’
6 For the purposes of this Schedule a “member of the public” means a member of the public at large with whom the lender deals at arm’s length.
Form
1 The terms of the scheme must be set out in writing.
Employer and employment unit
2 The scheme must identify the scheme employer.
3 If the scheme employer does not pay the emoluments of all the employees to whom the scheme relates, the scheme must identify each of the persons who pays the emoluments of any of those employees.
4 (1) The scheme must identify the undertaking to which the scheme relates and that undertaking must be one which is carried on with a view to profit.
(2) The references in sub-paragraph (1) above to an undertaking include references to part of an undertaking; and the provisions of a scheme identifying part of an undertaking must do so in such a way as to distinguish it, otherwise than by name only, from other parts of the undertaking.
Employees
5 The scheme must contain provisions by reference to which the employees to whom the scheme relates may be identified.
6 The scheme must contain provisions ensuring that no payments are made under it by reference to a profit period if the employees to whom the scheme relates constitute less than 80 per cent. of all the employees in the employment unit at the beginning of that profit period, but for this purpose any person who is at that time within paragraph 7 or 8 below shall not be counted.
7 (1) The scheme must contain provisions ensuring that no payments are made under it to any person who is employed in the employment unit by a company and who has . . . a material interest in the company.
(2) For the purposes of this paragraph a person shall be treated as having a material interest in a company if he, either on his own or with one or more associates,or if any associate of his with or without such other associates,—
(a) is the beneficial owner of, or able, directly or through the medium ofother companies, or by any other indirect means to control, more than 25 percent. of the ordinary share capital of the company, or
(b) in the case of a close company, possesses, or is entitled to acquire, such rights as would, in the event of the winding-up of the company or in any other circumstances, give an entitlement to receive more than 25 per cent. of the assets which would then be available for distribution among the participators.
(3) In this paragraph—
"associate" has the same meaning as in section 417(3) and (4) , but subject to sub-paragraph (4) below; . . .
"control" has the meaning given by section 840; and
“participator” has the meaning given by section 417(1)
and the definition of "control" in section 840 applies (with the necessary modifications) in relation to a company which is an unincorporated association as it applies in relation to one that is not.
(4) For the purposes of this paragraph, where an employee of a company has an interest in shares or obligations of the company as a beneficiary of an employee benefit trust, the trustees shall not be regarded as associates of his by reason only of that interest unless sub-paragraph (8) below applies in relation to him.
(5) A trust is an employee benefit trust for the purposes of this paragraph if—
(a) all or most of the employees of the company are eligible to benefit under it, and
(b) none of the property subject to it has been disposed of on or after 14th March 1989 (whether by sale, loan or otherwise) except in the ordinary course of management of the trust or in accordance with sub-paragraph (6) below.
(6) Property is disposed of in accordance with this sub-paragraph if—
(a) it is applied for the benefit of—
(i) individual employees or former employees of the company,
(ii) spouses, former spouses, widows or widowers of employees or former employees of the company,
(iii) relatives, or spouses of relatives, of persons within sub-paragraph (i) or (ii) above, or
(iv) dependants of persons within sub-paragraph (i) above,
(b) it is applied for charitable purposes, or
(c) it is transferred to the trustees of an approved profit sharing scheme (within the meaning of section 187), of another employee benefit trust, or of a qualifying employee share ownership trust (within the meaning of Schedule 5 to the Finance Act 1989),
and the property applied or transferred consists of any of the ordinary share capital of the company or of money paid outright.
(7) In sub-paragraph (6)(a)(iii) above “relative” means parent or remoter forebear, child or remoter issue, brother, sister, uncle, aunt, nephew or niece.
(8) This sub-paragraph applies in relation to an employee if at any time on or after 14th March 1989—
(a) the employee, either on his own or with any one or more of his associates,or
(b) any associate of his, with or without other such associates,
has been the beneficial owner of, or able (directly or through the medium of other companies or by any other indirect means) to control, more than 25per cent. of the ordinary share capital of the company.
(9) Where—
(a) on or after 14th March 1989 an employee of a company, or an associate of his, receives a payment (“the relevant payment”) from the trustees of anemployee benefit trust, and
(b) at any time during the period of three years ending with the day on whichthe relevant payment is received, the property subject to the trust consists of or includes any part of the ordinary share capital of the company,
the employee or associate shall be treated for the purposes of sub-paragraph (8) above as if he were the beneficial owner of the appropriate percentage of the ordinary share capital of the company on the day on which the relevant payment is received (in addition to any percentage of that share capital of which he is actually the beneficial owner on that day).
(10) For the purposes of sub-paragraph (9) above, the appropriate percentage is—
A
x
100
B
where—
A is the smaller of—
(a) the aggregate of the relevant payment and any other payments received by the employee or associates of his from the trustees of the trust during the period of 12 months ending with the day on which the relevant payment is received, and
(b) the aggregate of the distributions made to the trustees of the trust by the company in respect of its ordinary share capital during the period of three years ending with the day on which the relevant payment is received; and
B is the aggregate of—
(a) any distributions made by the company in respect of its ordinary share capital during the period of 12 months ending with the day on which the relevant payment is received,
(b) any distributions so made during the period of 12 months immediately preceding that mentioned in paragraph (a) above, and
(c) any distributions so made during the period of 12 months immediately preceding that mentioned in paragraph (b) above,
divided by the number of the periods mentioned in paragraphs (a) to (c) above in which distributions were so made.
(11) Where—
(a) an employee or associate is treated by sub-paragraph (9) above as if he were the beneficial owner of a percentage of the ordinary share capital of a company by reason of receiving the relevant payment from the trustees of a trust, and
(b) that employee, or an associate of his, has, during the period of 12 months ending with the day on which the relevant payment is received, received one or more payments from trustees of another employee benefit trust or trusts satisfying the requirement in paragraph (b) of sub-paragraph (9) above,
that sub-paragraph shall have effect in relation to the employee or associate mentioned in paragraph (a) above as if he had received the payment from the trustees of the trust or of each of the trusts mentioned in paragraph (b) above (or where more than one payment has been received from the trustees of a trust, the last of the payments) on the day on which the relevant paymentis received.
(12) In sub-paragraphs (8) to (11) above “associate”, in relation to an employee, does not include the trustees of an employee benefit trust by reason only that the employee has an interest in shares or obligations of the trust.
8 The persons within this paragraph are any of the following employees who are excluded by the scheme from receiving any payment of profit-related pay—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) those who have not been employed by a relevant employer for a minimum period (of not more than three years) specified in the scheme;
and for this purpose “relevant employer” means the scheme employer or any person who pays the emoluments of any of the employees to whom the scheme relates.
Profit periods
9 The scheme must identify the accounting period or periods by reference to which any profit-related pay is to be calculated.
10 (1) Subject to sub-paragraphs (2) and (3) below, any such accounting period must be a period of 12 months.
(2) If the scheme is a replacement scheme, the first of two profit periods may be a period of less than 12 months, but the scheme may not provide for more than two profit periods.
(3) The scheme may make provision for a profit period to be abbreviated where registration of the scheme is cancelled with effect from a day after the beginning of the period; and a scheme making such provision may exclude the operation of all or any of the provisions of paragraph 13(4) and (5) or (as the case may be) paragraph 14(3)(b), (4) and (5) below in relation to the determination of the distributable pool for an abbreviated period.
(4) For the purposes of this paragraph, a scheme is a replacement scheme if—
(a) it succeeds another scheme (or two or more other schemes) registration of which was cancelled under section 178(1)(a) on the ground of a change in the employment unit or in the circumstances relating to the scheme; and
(b) that change occurred not more than three months before the beginning of the first (or only) profit period of the new scheme, and the Board are satisfied that it was not brought about with a view to the registration of the new scheme or in circumstances satisfying the conditions in section 177(1)(a), (b) and (c); and
(c) not less than one half of the employees to whom the new scheme relates were employees to whom the previous scheme (or any of the previous schemes) related at the time of that change.
Distributable pool
11 The scheme must contain provisions by reference to which the aggregate sum that may be paid to employees in respect of a profit period (“the distributable pool”) may be determined.
12 Except where the scheme is a replacement scheme (within the meaning of paragraph 10 above), the provisions for the determination of the distributable pool must employ either the method specified in paragraph 13 below (“method A”) or the method specified in paragraph 14 below (“method B”).
13 (1) Method A is that the distributable pool is equal to a,fixed percentage of the profits of the employment unit in the profit period.
(1A) That percentage must be a fixed percentage specified in the scheme and, if the scheme relates to more than one period, must be the same for each period.
(2) That percentage must be such that, on the assumption as to profits mentioned in sub-paragraph (3)below, it will produce a distributable pool equal to not less than 5per cent. of the standard pay of the employment unit.
(3) The assumption referred to in sub-paragraph (2)above is that the profits in the profit period are the same as those in a base year specified in the scheme; and that base year must be a period of 12months ending at a time within the period of two years immediately preceding the profit period, or the first of the profit periods, to which the scheme relates.
(4) Notwithstanding sub-paragraph (1) above, a scheme employing method A may include provision for disregarding profits in the profit period so far as they exceed 160 per cent. (or such greater percentage as may be specified in the scheme) of—
(a) if the profit period is the first or only period to which the scheme relates, the profits for a base year specified in the scheme;
(b) in any other case, the profits for the previous profit period.
(5) Notwithstanding sub-paragraph (1) above, a scheme employing method A may include provision to the effect that there shall be no distributable pool if the profits in the profit period are less than an amount specified in, or ascertainable by reference to, the scheme; but that amount must not exceed the profits for a base year specified in the scheme.
(6) The base year referred to in sub-paragraph (4)(a) and sub-paragraph (5) above must be a period of 12 months ending at a time within the period of two years immediately preceding the profit period, or the first of the profit period, to which the scheme relates
(7) Any provision included in a scheme by virtue of sub-paragraph (4) or (5) above may take effect either from the scheme’s first profit period or from any later profit determined in accordance with the scheme.
13A (1) Where a scheme includes provision by virtue of paragraph 13(4) or (5) above the scheme must be so framed that in arriving at the profits for the base year or for the previous profit period any profit-related pay and any secondary Class I contributions in respect of it are accorded the same accountancy treatment as is accorded to any profit-related pay and any secondary Class I contributions in respect of it in arriving at the profits in the profit period.
(2) In sub-paragraph (1) above—
(a) “profit-related pay” means profit-related pay under whatever scheme;
(b) “secondary Class I contributions” means secondary Class I contributions under Part I of the Social Security Act 1975 or Part I of the Social Security (Northern Ireland) Act 1975 or Part I of the Social Security Contributions and Benefits Act 1992 or Part I of the Social Security Contributions and Benefits (Northern Ireland) Act 1992.
(3) Sub-paragraph (1) above shall apply notwithstanding anything in paragraph 19 below.
(4) Where a scheme includes provision by virtue of paragraph 13(4) above the scheme must also include provision that if the pay for the profit period is less than the pay for the base year or for the previous profit period (as the case may be) the percentage to be applied for the purposes of the provision included by virtue of paragraph 13(4) above shall be the increased percentage (instead of any other percentage).
(5) The increased percentage must be one arrived at by—
(a) taking the percentage that would be applied for the purposes of the provision included by virtue of paragraph 13(4) above apart from the provision included by virtue of sub-paragraph (4) above, and
(b) adding the percentage found by expressing the difference in pay as a percentage of the profits for the base year or for the previous profit period (as the case may be).
(6) For the purposes of this paragraph—
(a) the pay for the profit period or for the previous profit period or for the base year is the pay paid to employees in respect of employment in the period or year concerned in the employment unit concerned;
(b) the difference in pay is the difference between the pay for the profit period and the pay for the previous profit period or for the base year (as the case may be);
and any profit-related pay shall be ignored in applying paragraph (a) above.
14 (1) Method B is that the distributable pool is—
(a) if the profit period is the first or only profit period to which the scheme relates, a percentage of a notional pool of an amount specified in the scheme;
(b) in any other case, a percentage of the distributable pool for the previous profit period.
(2) The amount of the notional pool referred to in sub-paragraph (1)above must not be less than 5per cent. of the standard pay of the employment unit.
(3) The percentage referred to in sub-paragraph (1) above must be either—
(a) that arrived at by expressing the profits in the profit period as a percentage of the profits in the preceding period of 12 months; or
(b) the percentage mentioned in paragraph (a) above reduced (if it is more than 100) or increased (if it is less than 100) by a specified fraction of the difference between it and 100;
and the reference in paragraph (b) above to a specified fraction is a reference to a fraction of not more than one half specified in the scheme.
(4) Notwithstanding sub-paragraph (1) above, a scheme employing method B may include provision for disregarding profits in the profit period so far as they exceed 160 per cent. (or such greater percentage as may be specified in the scheme) of the profits in the preceding period of 12 months.
(5) Notwithstanding sub-paragraph (1) above, a scheme employing method B may include provision to the effect that there shall be no distributable pool if the profits in the profit period are less than an amountspecified in, or ascertainable by reference to, the scheme; but that amount must not exceed the profits in the period of 12 months immediately preceding the first or only profit period to which the scheme relates.
(6) Where by virtue of a provision of the kind described in sub-paragraph (5) above there is no distributable pool for a profit period, any comparison required in accordance with sub-paragraph (1)(b) to be made with the distributable pool for that period shall be made with what would have been the pool but for sub-paragraph (5).
(7) In this paragraph “standard pay of the employment unit” has the same meaning as it has in paragraph 13above.
(8) Any provision included in a scheme by virtue of sub-paragraph (3)(b), (4) or (5) above may take effect either from the scheme’s first profit period or from any later profit period determined in accordance with the scheme.
14A (1) Where a scheme includes provision to give effect to paragraph 14(3) above or provision by virtue of paragraph 14(4) above the scheme must be so framed that in arriving at the profits in the preceding period of 12 months any profit-related pay and any secondary Class I contributions in respect of it are accorded the same accountancy treatment as is accorded to any profit-related pay and any secondary Class I contributions in respect of it in arriving at the profits in the profit period.
(2) Where a scheme includes provision by virtue of paragraph 14(5) above the scheme must be so framed that in arriving at the profits in the relevant period of 12 months any profit-related pay and any secondary Class I contributions in respect of it are accorded the same accountancy treatment as is accorded to any profit-related pay and any secondary Class I contributions in respect of it in arriving at the profits in the profit period; and for this purpose the relevant period of 12 months is the period of 12 months immediately preceding the first or only profit period to which the scheme relates.
(3) In sub-paragraphs (1) and (2) above—
(a) “profit-related pay” means profit-related pay under whatever scheme;
(b) “secondary Class I contributions” means secondary Class I contributions under Part I of the Social Security Contributions and Benefits Act 1992 or Part I of the Social Security Contributions and Benefits (Northern Ireland) Act 1992.
(4) Sub-paragraphs (1) and (2) above shall apply notwithstanding anything in paragraph 19 below.
(5) Where a scheme includes provision by virtue of paragraph 14(4) above the scheme must also include provision that if the pay for the profit period is less than the pay for the preceding period of 12 months the percentage to be applied for the purposes of the provision included by virtue of paragraph 14(4) above shall be the increased percentage (instead of any other percentage).
(6) The increased percentage must be one arrived at by—
(a) taking the percentage that would be applied for the purposes of the provision included by virtue of paragraph 14(4) above apart from the provision included by virtue of sub-paragraph (5) above, and
(b) adding the percentage found by expressing the difference in pay as a percentage of the profits in the preceding period of 12 months.
(7) For the purposes of this paragraph—
(a) the pay for the profit period or for the preceding period of 12 months is the pay paid to employees in respect of employment in the period concerned in the employment unit concerned;
(b) the difference in pay is the difference between the pay for the profit period and the pay for the preceding period of 12 months;
and any profit-related pay shall be ignored in applying paragraph (a) above.
15 If the scheme is a replacement scheme (within the meaning of paragraph 10 above), it must provide for the distributable pool for a profit period to be equal to a specified percentage of the profits for the period.
Payment from distributable pool etc.
16 The scheme must provide for the whole of the distributable pool to be paid to employees in the employment unit.
17 The scheme must make provision as to when payments will be made to employees.
18 (1) The provisions of the scheme must be such that employees participate in the scheme on similar terms.
(2) For the purposes of sub-paragraph (1) above, the fact that the payments to employees vary according to the levels of their remuneration, the length of their service or similar factors shall not be regarded as meaning that they do not participate on similar terms.
Ascertainment of profits
19 (1) The scheme must provide for the preparation of a profit and loss account in respect of—
(a) each profit period of the employment unit; and
(b) any other period the profits for which must be ascertained for the purposes of this Chapter.
(2) The profit and loss account must give a true and fair view of the profit or loss of the employment unit for the period to which it relates.
(3) Subject to sub-paragraph (2) above, the requirements of Schedule 4 to the Companies Act 1985 shall apply (with any necessary modifications) to a profit and loss account prepared for the purposes of the scheme as they apply to a profit and loss account of a company for a financial year.
(4) Notwithstanding the preceding provisions of this paragraph, a profit and loss account prepared for the purposes of the scheme must not make any deduction, in arriving at the profits or losses of the employment unit, for the remuneration of any person excluded from the scheme by virtue of paragraph 7 above.
(4A) In sub-paragraph (4) above “remuneration”, in relation to a person, includes fees and percentages, any sums paid by way of expenses allowance (insofar as those sums are charged to income tax), any contributions paid in respect of him under any pension scheme and the estimated value of any other benefits received by him otherwise than in cash.
(5) Notwithstanding the preceding provisions of this paragraph, if the scheme so provides in relation to any of the items listed in sub-paragraph (6) below, a profit and loss account prepared for the purposes of the scheme may, in arriving at the profits or losses of the employment unit—
(a) leave the item out of account notwithstanding that Schedule 4 to the Companies Act 1985 requires it to be taken into account; or
(b) take the item into account notwithstanding that Schedule 4 to the Companies Act 1985 or section 3(3) of the Finance (No. 2) Act 1997 requires it to be left out of account.
(6) The items referred to in sub-paragraph (5) above are—
(a) interest receivable and similar income;
(b) interest payable and similar charges;
(c) goodwill;
(d) tax on profit or loss on ordinary activities (but not any penalty under the Taxes Acts);
(e) research and development costs;
(f) profit-related pay payable under the scheme, and profit-related pay payable under any other registered scheme if it is one to which paragraph 21 below applies;
(ff) secondary Class 1 contributions under Part I of the Social Security Act 1975 or Part I of the Social Security (Northern Ireland) Act 1975 in respect of profit-related pay payable under the scheme;
(fg) windfall tax charged under Part I of the Finance (No. 2) Act 1997;
(g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(h) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(j) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(k) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(l) any exceptional items which fall within sub-paragraph (6A) below and should in accordance with any accounting practices regarded as standard be shown separately on the face of the profit and loss account.
(6A) The items are—
(a) profits or losses on the sale or termination of an operation;
(b) costs of a fundamental reorganisation or restructuring having a material effect on the nature and focus of the employment unit’s operations;
(c) profits or losses on the disposal of fixed assets; and
(d) the effect on tax of any of the items mentioned in paragraphs (a) to (c) above.
(7) References in this paragraph to Schedule 4 to the Companies Act 1985 shall be construed, in relation to Northern Ireland, as references to Schedule 4 to the Companies (Northern Ireland) Order 1986.
19A (1) The Treasury may by order amend paragraph 19 above so as to add to, delete or vary any of the items mentioned in sub-paragraph (6) of that paragraph.
(2) In this paragraph references to an order are references to an order under sub-paragraph (1) above.
(3) Subject to sub-paragraphs (4) to (8) below, any amendment or amendments made by virtue of an order shall have effect in relation to the preparation, for the purposes of a scheme, of a profit and loss account in respect of a period beginning on or after the day on which the order comes into force.
(4) Any amendment or amendments made by virtue of an order shall not have effect in relation to an existing scheme unless, before the end of the period of 6 months beginning with the day on which the order comes into force, the scheme is altered to take account of the amendment or amendments.
(5) Sub-paragraphs (6) to (8) below apply where, before the end of the period mentioned in sub-paragraph (4) above, an existing scheme is altered as mentioned in that sub-paragraph.
(6) The provision made by the scheme in compliance with paragraph 20(1) below shall not prevent a profit and loss account being prepared in accordance with the alteration.
(7) Where the distributable pool would but for this sub-paragraph be determined by reference—
(a) to an amount shown in a profit and loss account prepared in accordance with the altered scheme, and
(b) to an amount shown in a profit and loss account (“an earlier account”) prepared in accordance with the scheme in a form in which it stood before the alteration,
then, for the purposes of the determination of the pool, the amount shown in the earlier account shall be recalculated using the same method as that used to calculate the amount mentioned in paragraph (a) above.
(8) The alteration of the existing scheme shall be treated as being within subsection (8) of section 177B.
(9) An order may include such supplementary, incidental or consequential provisions as appear to the Treasury to be necessary or expedient.
(10) In this paragraph “an existing scheme”, in relation to an order, means a scheme which, immediately before the day on which the order comes into force, is a registered scheme.
20 (1) The scheme must provide that, in preparing a profit and loss account for the purposes of this Schedule, no changes may be made from the accounting policies used in preparing accounts for any earlier period relevant for those purposes, or in the methods of applying those policies, if the effect of the changes (either singly or taken together) would be that the amount of profits (or losses) differed by more than 5 per cent. from what would be that amount if no changes were made.
(2) Sub-paragraph (1) above has effect subject to paragraph 19(2) above.
Parts of undertakings
21 (1) This paragraph shall apply to a scheme if the employment unit is a part of an undertaking, and the scheme states that the profits or losses of the unit are for the purposes of the scheme to be taken to be equivalent to those of the whole undertaking (which must be identified by the scheme).
(2) Where this paragraph applies to a scheme, this Schedule shall have effect as if any reference to the profits or losses of the employment unit were a reference to the profits or losses of the undertakings of which it forms part.
22 (1) Where paragraph 21 above applies to a scheme, the scheme must contain provisions ensuring that no payments are made under it by reference to a profit period unless, at the beginning of that profit period,—
(a) there is at least one other registered scheme which relates to employees employed in the same undertaking as that of which the employment unit forms part, and
(b) the number of the employees to whom the scheme relates does not exceed 33 per cent. of the number of the employees to whom that other scheme relates (or if there is more than one other scheme, the aggregate number of the employees to whom they relate).
(2) Another registered scheme shall be disregarded for the purposes of sub-paragraph (1) above—
(a) if paragraph 21 above applies to it, or
(b) if, by virtue of provisions of the kind described in paragraph 6 above, no payments could be made under it by reference to the profit period concerned.
(3) Where paragraph 21 above applies to two or more schemes relating to employment units which are parts of the same undertaking, an employee to whom another scheme relates shall not be counted for the purposes of sub-paragraph (1)(b) above in connection with more than one of those schemes.
23 (1) In a case where—
(a) paragraph 21 above applies to a scheme, and
(b) method A (specified in paragraph 13 above) is employed for the purposes of the scheme,
the scheme must contain provisions which comply with this paragraph and which apply as regards each profit period to which the scheme relates.
(2) The scheme must ensure that no payments are made under it by reference to a given profit period if the percentage mentioned in paragraph 13(1) above exceeds the permitted percentage.
(3) The scheme must ensure that the permitted percentage is a percentage found by—
(a) taking the pay paid to employees in respect of employment in the relevant year in the employment unit to which the other scheme mentioned in paragraph 22(1)(a) above relates or (if there are two or more other schemes) the aggregate of the pay paid to employees in respect of employment in the relevant year in the employment units to which the other schemes relate;
(b) taking the profit-related pay paid to employees in respect of employment in the relevant year in the employment unit to which the other scheme mentioned in paragraph 22(1)(a) above relates or (if there are two or more other schemes) the aggregate of the profit-related pay paid to employees in respect of employment in the relevant year in the employment units to which the other schemes relate;
(c) taking the pay paid to employees in respect of employment in the relevant year in the employment unit to which the scheme mentioned in paragraph 21 above relates;
(d) taking the fraction whose denominator is equal to the number of whole pounds found under paragraph (a) above and whose numerator is equal to the number of whole pounds found under paragraph (b) above;
(e) multiplying the amount found under paragraph (c) above by the fraction found under paragraph (d) above;
(f) taking the profits for the relevant year of the undertaking mentioned in paragraph 21 above;
(g) expressing the amount found under paragraph (e) above as a percentage of the amount found under paragraph (f) above;
(h) taking the percentage found under paragraph (g) above as the permitted percentage.
(4) The scheme must ensure that the relevant year is a period of 12 months identified in the scheme and ending at a time within the period of two years immediately preceding the given profit period.
24 (1) In a case where—
(a) paragraph 21 above applies to a scheme, and
(b) method B (specified in paragraph 14 above) is employed for the purposes of the scheme,
the scheme must contain provisions which comply with this paragraph and which apply as regards each profit period to which the scheme relates.
(2) The scheme must ensure that no payments are made under it by reference to the first or only profit period to which the scheme relates if the notional pool mentioned in paragraph 14(1)(a) above exceeds the permitted limit.
(3) The scheme must also ensure that no payments are made under it by reference to a given profit period other than the first if the distributable pool for the previous profit period (mentioned in paragraph 14(1)(b) above) exceeds the permitted limit.
(4) The scheme must ensure that the permitted limit is a limit found by—
(a) taking the pay paid to employees in respect of employment in the relevant year in the employment unit to which the other scheme mentioned in paragraph 22(1)(a) above relates or (if there are two or more other schemes) the aggregate of the pay paid to employees in respect of employment in the relevant year in the employment units to which the other schemes relate;
(b) taking the profit-related pay paid to employees in respect of employment in the relevant year in the employment unit to which the other scheme mentioned in paragraph 22(1)(a) above relates or (if there are two or more other schemes) the aggregate of the profit-related pay paid to employees in respect of employment in the relevant year in the employment units to which the other schemes relate;
(c) taking the pay paid to employees in respect of employment in the relevant year in the employment unit to which the scheme mentioned in paragraph 21 above relates;
(d) taking the fraction whose denominator is equal to the number of whole pounds found under paragraph (a) above and whose numerator is equal to the number of whole pounds found under paragraph (b) above;
(e) multiplying the amount found under paragraph (c) above by the fraction found under paragraph (d) above;
(f) taking the amount found under paragraph (e) above as the permitted limit.
(5) The scheme must ensure that the relevant year is—
(a) a period of 12 months identified in the scheme and ending at a time within the period of two years immediately preceding the first or only profit period to which the scheme relates (in the case of provisions contained in the scheme by virtue of sub-paragraph (2) above);
(b) a period of 12 months identified in the scheme and ending at a time within the period of two years immediately preceding the given profit period (in the case of provisions contained in the scheme by virtue of sub-paragraph (3) above).
SCHEDULE 9 APPROVED SHARE OPTION SCHEMES AND PROFIT SHARING SCHEMES
Sections 185, 186, 187.
PART I GENERAL
1 (1) Subject to the provisions of this Schedule, on the application of a body corporate (“the grantor”) which has established a share option scheme or a profit sharing scheme, the Board shall approve the scheme if they are satisfied that it fulfils such requirements of Part II and this Part as apply in relation to the scheme in question, and the requirements of Part III, IV or V of this Schedule; and in this Schedule—
“the relevant requirements” means, in relation to any scheme, the requirements of this Schedule by reference to which the scheme is approved; and
“savings-related share option scheme” means a scheme in relation to which the relevant requirements include the requirements of Part III of this Schedule.
(2) An application under sub-paragraph (1) above shall be made in writing and contain such particulars and be supported by such evidence as the Board may require.
(3) Where the grantor has control of another company or companies, the scheme may be expressed to extend to all or any of the companies of which it has control and in this Schedule a scheme which is expressed so to extend is referred to as a “group scheme”.
(4) In relation to a group scheme the expression “participating company” means the grantor or any other company to which for the time being the scheme is expressed to extend.
2 (1) The Board shall not approve a scheme under this Schedule if it appears to them that it contains features which are neither essential nor reasonably incidental to the purpose of providing for employees and directors benefits in the nature of rights to acquire shares or, in the case of a profit sharing scheme, in the nature of interests in shares.
(2) A profit sharing scheme shall not be approved under paragraph 1 above unless the Board are satisfied that, whether under the terms of the scheme or otherwise, every participant in the scheme is bound in contract with the grantor—
(a) to permit his shares to remain in the hands of the trustees throughout the period of retention; and
(b) not to assign, charge or otherwise dispose of his beneficial interest in his shares during that period; and
(c) if he directs the trustees to transfer the ownership of his shares to him at any time before the release date, to pay to the trustees before the transfer takes place a sum equal to income tax at the basic rate on the appropriate percentage of the locked-in value of the shares at the time of the direction; and
(d) not to direct the trustees to dispose of his shares at any time before the release date in any other way except by sale for the best consideration in money that can reasonably be obtained at the time of the sale or, in the case of redeemable shares in a workers’ cooperative, by redemption.
(2A) The Board shall not approve a profit sharing scheme unless they are satisfied—
(a) that the arrangements for the scheme do not make any provision, and are not in any way associated with any provision made, for loans to some or all of the employees of—
(i) the company that established the scheme, or
(ii) in the case of a group scheme, any participating company, and
(b) that the operation of the scheme is not in any way associated with such loans.
(2B) For the purposes of sub-paragraph (2A) above “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.
(3) The Board must be satisfied in the case of a savings-related share option scheme or a profit sharing scheme—
(a) that there are no features of the scheme (other than any which are included to satisfy requirements of this Schedule) which have or would have the effect of discouraging any description of employees or former employees who fulfil the conditions in paragraph 26(1) or, as the case may be, 36(1) below from actually participating in the scheme; and
(b) where the grantor is a member of a group of companies, that the scheme does not and would not have the effect of conferring benefits wholly or mainly on directors of companies in the group or on those employees of companies in the group who are in receipt of the higher or highest levels of remuneration.
(4) For the purposes of sub-paragraph (3) above “a group of companies” means a company and any other companies of which it has control.
3 (1) If, at any time after the Board have approved a share option scheme, any of the relevant requirements ceases to be satisfied or the grantor fails to provide information requested by the Board under paragraph 6 below, the Board may withdraw the approval with effect from that time or such later time as the Board may specify; but where rights obtained under a savings-related share option scheme before the withdrawal of approval from the scheme under this paragraph are exercised after the withdrawal, section 185(3) shall apply in respect of the exercise as if the scheme were still approved.
(2) If at any time after the Board have approved a profit sharing scheme—
(a) a participant is in breach of any of his obligations under paragraph 2(2)(a), (c) and (d) above; or
(b) there is, with respect to the operation of the scheme, any contravention of any of the relevant requirements, Schedule 10, the scheme itself or the terms of the trust referred to in paragraph 30(1)(c) below; or
(c) any shares of a class of which shares have been appropriated to the participants receive different treatment in any respect from the other shares of that class, in particular, different treatment in respect of—
(i) the dividend payable;
(ii) repayment;
(iii) the restrictions attaching to the shares; or
(iv) any offer of substituted or additional shares, securities or rights of any description in respect of the shares; or
(ca) the Board—
(i) cease to be satisfied of the matters mentioned in paragraph 2(2A) above, or
(ii) in the case of a scheme approved before 21st March 2000, are not satisfied of those matters; or
(d) the Board cease to be satisfied that the scheme complies with the requirements of paragraph 2(3) above or paragraph 36 below; or
(e) the trustees, the grantor or, in the case of a group scheme, a company which is or has been a participating company fail or fails to furnish any information which they are or it is required to furnish under paragraph 6 below ; or,
(f) the trustees appropriate shares to participants, one or more of whom have had free shares appropriated to them, at an earlier time in the same year of assessment, under a relevant share plan,
the Board may, subject to sub-paragraph (3) below, withdraw the approval with effect from that time or from such later time as the Board may specify.
(3) It shall not be a ground for withdrawal of approval of a profit sharing scheme that shares which have been newly issued receive, in respect of dividends payable with respect to a period beginning before the date on which the shares were issued, treatment which is less favourable than that accorded to shares issued before that date.
(4) For the purposes of sub-paragraph (2)(f) above the reference to persons having had free shares appropriated to them includes persons who would have had free shares appropriated to them but for their failure to obtain a performance allowance (within the meaning of paragraph 25 of Schedule 8 to the Finance Act 2000).
(5) In sub-paragraph (2)(f) and (4) above—
“free shares” has the same meaning as in Schedule 8 to the Finance Act 2000;
“relevant share plan”, in relation to a profit sharing scheme, means an employee share ownership plan that—
was established by the grantor or a connected company, and
is approved under Schedule 8 to that Act.
(6) For the purposes of sub-paragraph (5) above “connected company” means—
(a) a company which controls or is controlled by the grantor or which is controlled by a company which also controls the grantor, or
(b) a company which is a member of a consortium owning the grantor or which is owned in part by the grantor as a member of a consortium.
4 If an alteration is made in the scheme at any time after the Board have approved the scheme, the approval shall not have effect after the date of the alteration unless the Board have approved the alteration.
5 If aggrieved—
(a) in any case, by the failure of the Board to approve the scheme or to approve an alteration in the scheme or by the withdrawal of approval; or
(b) in the case of a savings-related share option scheme, by the failure of the Board to decide that a condition subject to which the approval has been given is satisfied; or
(c) in the case of a profit sharing scheme, by the failure of the Board to approve an alteration in the terms of the trust referred to in paragraph 30(1)(c) below;
the grantor may, by notice given to the Board within 30 days from the date on which it is notified of the Board’s decision, require the matter to be determined by the Special Commissioners, and the Special Commissioners shall hear and determine the matter in like manner as an appeal.
6 The Board may by notice require any person to furnish them, within such time as the Board may direct (not being less than 30 days), with such information as the Board think necessary for the performance of their functions under the relevant provisions and as the person to whom the notice is addressed has or can reasonably obtain, including in particular information—
(a) to enable the Board to determine—
(i) whether to approve a scheme or withdraw an approval already given; or
(ii) the liability to tax, including capital gains tax, of any person who has participated in a scheme; and
(b) in relation to the administration of a scheme and any alteration of the terms of a scheme.
PART II REQUIREMENTS GENERALLY APPLICABLE
7 The provisions of this Part apply in relation to all schemes unless otherwise stated.
8 The scheme must not provide for any person to be eligible to participate in it, that is to say, to obtain and exercise rights under it, or in the case of a profit sharing scheme to have shares appropriated to him, at any time when he has, or has within the preceding 12 months had, a material interest in a close company which is—
(a) a company shares in which, in the case of a profit sharing scheme, are to be appropriated or, in the case of a share option scheme, may be acquired pursuant to the exercise of rights obtained under the scheme; or
(b) a company which has control of such a company or is a member of a consortium which owns such a company.
In determining whether a company is a close company for the purposes of this paragraph, sections 414(1)(a) and 415 shall be disregarded.
8A (1) In the case of a savings-related share option scheme or a profit sharing scheme, the scheme must specify what age is to be the specified age for the purposes of the scheme.
(2) The age specified—
(a) must be the same for men and women, and
(b) must be not less than 60 and not more than 75.
9 (1) A share option scheme must provide for directors and employees to obtain rights to acquire shares (“scheme shares”) which satisfy the requirements of paragraphs 10 to 14 below (disregarding paragraph 11A).
(2) In the case of a profit sharing scheme, the shares to be acquired by the trustees as mentioned in paragraph 30 below (“scheme shares”) must satisfy the requirements of paragraphs 10 to 12 and 14 below.
10 Scheme shares must form part of the ordinary share capital of—
(a) the grantor; or
(b) a company which has control of the grantor; or
(c) a company which either is, or has control of, a company which—
(i) is a member of a consortium owning either the grantor or a company having control of the grantor; . . .
(ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11 Scheme shares must be—
(a) shares of a class listed on a recognised stock exchange; or
(b) shares in a company which is not under the control of another company; or
(c) shares in a company which is under the control of a company (other than a company which is, or would if resident in the United Kingdom be, a close company), whose shares are listed on a recognised stock exchange.
11A (1) In the case of a profit sharing scheme, scheme shares must not be shares—
(a) in an employer company, or
(b) in a company that—
(i) has control of an employer company, and
(ii) is under the control of a person or persons within sub-paragraph (2)(b)(i) below in relation to an employer company.
(2) For the purposes of this paragraph a company is “an employer company” if—
(a) the business carried on by it consists substantially in the provision of the services of the persons employed by it, and
(b) the majority of those services are provided to—
(i) a person who has, or two or more persons who together have, control of the company, or
(ii) a company associated with the company.
(3) For the purposes of sub-paragraph (2)(b)(ii) above a company shall be treated as associated with another company if both companies are under the control of the same person or persons.
(4) For the purposes of sub-paragraphs (1) to (3) above—
(a) references to a person include a partnership, and
(b) where a partner, alone or together with others, has control of a company, the partnership shall be treated as having like control of that company.
(5) For the purposes of this paragraph the question whether a person controls a company shall be determined in accordance with section 416(2) to (6).
12 (1) Scheme shares must be—
(a) fully paid up;
(b) not redeemable; and
(c) not subject to any restrictions other than those permitted by sub-paragraph (1A) below.
Sub-paragraph (b) above does not apply, in the case of a profit sharing scheme, in relation to shares in a workers’ cooperative.
(1A) Subject to sub-paragraph (1B) below, scheme shares may be subject to—
(a) restrictions which attach to all shares of the same class, or
(b) a restriction authorised by sub-paragraph (2) below.
(1B) In the case of a profit sharing scheme, scheme shares must not be subject to any restrictions affecting the rights attaching to those shares which relate to—
(a) dividends, or
(b) assets on a winding-up of the company,
other than restrictions which attach to all other ordinary shares in the same company.
(2) Except as provided below, the shares may be subject to a restriction imposed by the company’s articles of association—
(a) requiring all shares held by directors or employees of the company or of any other company of which it has control to be disposed of on ceasing to be so held; and
(b) requiring all shares acquired, in pursuance of rights or interests obtained by such directors or employees, by persons who are not (or have ceased to be) such directors or employees to be disposed of when they are acquired.
(3) A restriction is not authorised by sub-paragraph (2) above unless—
(a) any disposal required by the restriction will be by way of sale for a consideration in money on terms specified in the articles of association; and
(b) the articles also contain general provisions by virtue of which any person disposing of shares of the same class (whether or not held or acquired as mentioned in sub-paragraph (2) above) may be required to sell them on terms which are the same as those mentioned in paragraph (a) above.
(4) In the case of a profit sharing scheme, except in relation to redeemable shares in a workers’ cooperative, nothing in sub-paragraph (2) above authorises a restriction which would require a person, before the release date, to dispose of his beneficial interest in shares the ownership of which has not been transferred to him.
13 (1) In determining, in the case of a share option scheme, for the purposes of paragraph 12(1)(c) above whether scheme shares which are or are to be acquired by any person are subject to any restrictions, there shall be regarded as a restriction attaching to the shares any contract, agreement, arrangement or condition by which his freedom to dispose of the shares or of any interest in them or of the proceeds of their sale or to exercise any right conferred by them is restricted or by which such a disposal or exercise may result in any disadvantage to him or to a person connected with him.
(2) Sub-paragraph (1) does not apply to so much of any contract, agreement, arrangement or condition as contains provisions similar in purpose and effect to any of the provisions of the Model Rules set out in the Model Code for Securities Transactions by Directors of Listed Companies issued by the Stock Exchange in November 1984.
(3) In the case of schemes other than savings-related share option schemes, sub-paragraph (1) above does not apply in relation to any terms of a loan making provision about how it is to be repaid or the security to be given for it.
14 (1) Except where scheme shares are shares in a company the ordinary share capital of which consists of shares of one class only, the majority of the issued shares of the same class either must be employee-control shares or must be held by persons other than—
(a) persons who acquired their shares in pursuance of a right conferred on them or an opportunity afforded to them as a director or employee of the grantor or any other company and not in pursuance of an offer to the public;
(b) trustees holding shares on behalf of persons who acquired their beneficial interests in the shares as mentioned in sub-paragraph (a) above; and
(c) in a case where the shares fall within sub-paragraph (c), but not within sub-paragraph (a), of paragraph 11 above, companies which have control of the company whose shares are in question or of which that company is an associated company.
(2) In its application to a profit sharing scheme, sub-paragraph (1) above shall have effect with the addition after the words “ordinary share capital of which” of the words “ at the time of the acquisition of the shares by the trustees ”.
(3) For the purposes of this paragraph, shares in a company are employee-control shares if—
(a) the persons holding the shares are, by virtue of their holding, together able to control the company; and
(b) those persons are or have been employees or directors of the company or of another company which is under the control of the company.
15 (1) Except in the case of a profit sharing scheme, the scheme may provide that if any company (“the acquiring company”)—
(a) obtains control of a company whose shares are scheme shares as a result of making a general offer—
(i) to acquire the whole of the issued ordinary share capital of the company which is made on a condition such that if it is satisfied the person making the offer will have control of the company; or
(ii) to acquire all the shares in the company which are of the same class as the scheme shares;
(b) obtains control of a company whose shares are scheme shares in pursuance of a compromise or arrangement sanctioned by the court under section 425 of the Companies Act 1985 or Article 418 of the Companies (Northern Ireland) Order 1986; or
(c) becomes bound or entitled to acquire shares in a company whose shares are scheme shares under sections 428 to 430 of that Act or Articles 421 to 423 of that Order,
any participant in the scheme may at any time within the appropriate period, by agreement with the acquiring company, release his rights under the scheme (in this paragraph referred to as “the old rights”) in consideration of the grant to him of rights (in this paragraph referred to as “the new rights”) which are equivalent to the old rights but relate to shares in a different company (whether the acquiring company itself or some other company falling within paragraph 10(b) or (c) above).
(2) In sub-paragraph (1) above “the appropriate period” means—
(a) in a case falling within paragraph (a), the period of six months beginning with the time when the person making the offer has obtained control of the company and any condition subject to which the offer is made is satisfied;
(b) in a case falling within paragraph (b), the period of six months beginning with the time when the court sanctions the compromise or arrangement; and
(c) in a case falling within paragraph (c), the period during which the acquiring company remains bound or entitled as mentioned in that paragraph.
(3) The new rights shall not be regarded for the purposes of this paragraph as equivalent to the old rights unless—
(a) the shares to which they relate satisfy the conditions specified, in relation to scheme shares, in paragraphs 10 to 14 above; and
(b) the new rights will be exercisable in the same manner as the old rights and subject to the provisions of the scheme as it had effect immediately before the release of the old rights; and
(c) the total market value, immediately before the release, of the shares which were subject to the participant’s old rights is equal to the total market value, immediately after the grant, of the shares in respect of which the new rights are granted to the participant; and
(d) the total amount payable by the participant for the acquisition of shares in pursuance of the new rights is equal to the total amount that would have been payable for the acquisition of shares in pursuance of the old rights.
(4) Where any new rights are granted pursuant to a provision included in a scheme by virtue of this paragraph they shall be regarded—
(a) for the purposes of section 185 and this Schedule; and
(b) for the purposes of the subsequent application (by virtue of a condition complying with sub-paragraph (3)(b) above) of the provisions of the scheme,
as having been granted at the time when the corresponding old rights were granted.
(5) Where a scheme which was approved before 1st August 1987 is altered before 1st August 1989 so as to include such a provision as is mentioned above (“an exchange provision”), the scheme as altered may by virtue of this and the following sub-paragraphs apply that provision to rights obtained under the scheme before the date on which the alteration takes effect.
(6) If an exchange provision is applied as mentioned in sub-paragraph (5) above in a case where, on or after 17th March 1987 but before the date on which the alteration takes effect, an event has occurred by reason of which a person holding rights under the scheme would be able to take advantage of the exchange provision—
(a) the scheme may permit a person who held rights under the scheme immediately before that event to take advantage of the exchange provision; and
(b) in a case where rights then held would otherwise, by reason of the event, have ceased to be exercisable, the scheme may provide that the exchange provision shall apply as if the rights were still exercisable.
(7) The application of an exchange provision as mentioned in sub-paragraph (5) or (6) above shall not itself be regarded for the purposes of this Schedule as the acquisition of a right.
(8) Sub-paragraphs (5) and (6) above have effect subject to paragraph 4 above.
PART III REQUIREMENTS APPLICABLE TO SAVINGS-RELATED SHARE OPTION SCHEMES
16 (1) The scheme must provide for the scheme shares to be paid for with moneys not exceeding the amount of repayments made and any interest paid to them under a certified contractual savings scheme which has been approved by the Board for the purposes of this Schedule.
(2) Where the Board are satisfied that—
(a) a person has entered into a certified contractual savings scheme before 15th November 1980, and
(b) he has obtained rights under a scheme established before that date to acquire shares in a company of which he is an employee or director (or a company of which such a company has control) using repayments made under the certified contractual savings scheme;
then, repayments and interest paid under the certified contractual savings scheme shall be treated as repayments and interest paid, under a scheme approved by the Board for the purposes of this Schedule under sub-paragraph (1) above, and, accordingly, may be used for the purchase of shares under a savings-related share option scheme approved under this Schedule.
(3) The repayments and interest to which sub-paragraph (2) above applies shall not exceed the repayments and interest to which the participant would have been entitled if the terms of the scheme had corresponded to those of a certified contractual savings scheme approved by the Board under sub-paragraph (1) above.
17 Subject to paragraphs 18 to 21 below, the rights obtained under the scheme must not be capable of being exercised before the bonus date, that is to say, the date on which repayments under the certified contractual savings scheme are due; and for the purposes of this paragraph and paragraph 16 above—
(a) repayments under a certified contractual savings scheme may be taken as including or as not including a bonus;
(b) the time when repayments are due shall be, where repayments are taken as including the maximum bonus, the earliest date on which the maximum bonus is payable and, in any other case, the earliest date on which a bonus is payable under the scheme; and
(c) the question what is to be taken as so included must be required to be determined at the time when rights under the scheme are obtained.
18 The scheme must provide that if a person who has obtained rights under the scheme dies before the bonus date the rights must be exercised, if at all, within 12 months after the date of his death and if he dies within six months after the bonus date the rights may be exercised within 12 months after the bonus date.
19 The scheme must provide that if a person who has obtained rights under it ceases to hold the office or employment by virtue of which he is eligible to participate in the scheme by reason of—
(a) injury or disability or redundancy within the meaning of the Employment Rights Act 1996; or
(b) retirement on reaching the specified age or any other age at which he is bound to retire in accordance with the terms of his contract of employment,
then the rights must be exercised, if at all, within six months of his so ceasing and, if he so ceases for any other reason within three years of obtaining the rights, they may not be exercised at all except pursuant to such a provision of the scheme as is mentioned in paragraph 21(1)(e) below; and in relation to the case where he so ceases for any other reason more than three years after obtaining the rights the scheme must either provide that the rights may not be exercised or that they must be exercised, if at all, within six months of his so ceasing.
20 The scheme must provide that where a person who has obtained rights under it continues to hold the office or employment by virtue of which he is eligible to participate in the scheme after the date on which he reaches the specified age, he may exercise the rights within six months of that date.
21 (1) The scheme may provide that—
(a) if any person obtains control of a company whose shares are scheme shares as a result of making a general offer falling within paragraph 15(a)(i) or (ii) above, rights obtained under the scheme to acquire shares in the company may be exercised within six months of the time when the person making the offer has obtained control of the company and any condition subject to which the offer is made has been satisfied;
(b) if under section 425 of the Companies Act 1985 or Article 418 of the Companies (Northern Ireland) Order 1986 (power to compromise with creditors and members) the court sanctions a compromise or arrangement proposed for the purposes of or in connection with a scheme for the reconstruction of a company whose shares are scheme shares or its amalgamation with any other company or companies, rights obtained under the share option scheme to acquire shares in the company may be exercised within six months of the court sanctioning the compromise or arrangement;
(c) if any person becomes bound or entitled, under sections 428 to 430 of that Act of 1985 or Articles 421 to 423 of that Order of 1986 (power to acquire shares of shareholders dissenting from schemes or contract approved by majority), to acquire shares in a company shares in which are scheme shares, rights obtained under the scheme to acquire shares in the company may be exercised at any time when that person remains so bound or entitled;
(d) if a company whose shares are scheme shares passes a resolution for voluntary winding up, rights obtained under a scheme to acquire shares in the company may be exercised within six months of the passing of the resolution; . . .
(e) if a person ceases to hold an office or employment by virtue of which he is eligible to participate in the scheme by reason only that—
(i) that office or employment is in a company of which the grantor ceases to have control; or
(ii) that office or employment relates to a business or part of a business which is transferred to a person who is neither an associated company of the grantor nor a company of which the grantor has control;
rights under the scheme held by that person may be exercised within six months of his so ceasing; and
(f) if, at the bonus date, a person who has obtained rights under the scheme holds an office or employment in a company which is not a participating company but which is—
(i) an associated company of the grantor, or
(ii) a company of which the grantor has control,
those rights may be exercised within six months of that date.
(2) For the purposes of this paragraph a person shall be deemed to have obtained control of a company if he and others acting in concert with him have together obtained control of it.
(3) Where a scheme which has been approved before 1st August 1986 has been or is altered before 1st August 1988 so as to include such a provision as is specified in sub-paragraph (1)(e) above, the scheme as altered may by virtue of this sub-paragraph apply that provision to rights obtained under the scheme before the date on which the alteration takes effect, and where that provision is so applied in relation to such rights—
(a) the scheme may permit a person having such rights to take advantage of the provision notwithstanding that under the scheme he would otherwise be unable to exercise those rights after he has ceased to hold the office or employment in question; and
(b) if, before the date on which the alteration takes effect, a person who held such rights on 18th March 1986 ceases, in either of the circumstances set out in sub-paragraph (1)(e) above, to hold an office or employment by virtue of which he was eligible to participate in the scheme, then, so far as concerns the rights so held, the scheme may permit him to take advantage of the provision in question as if the alteration had been made immediately before he ceased to hold that office or employment; and
(c) the application of the provision shall not itself be regarded as the acquisition of a right for the purposes of this Schedule.
This sub-paragraph has effect subject to paragraph 4 above.
(4) Where a scheme approved before the date of the passing of the Finance Act 1996 is altered before 5th May 1998 so as to include such a provision as is specified in sub-paragraph (1)(f) above, the scheme may apply the provision to rights obtained under the scheme before the alteration takes effect, whether the bonus date in relation to the rights occurred before or after the passing of that Act; and where the provision is applied to such rights by virtue of this sub-paragraph, its application to such rights shall not itself be regarded as the acquisition of a right for the purposes of this Schedule.
This sub-paragraph has effect subject to paragraph 4 above.
22 Except as provided in paragraph 18 above, rights obtained by a person under the scheme must not be capable—
(a) of being transferred by him, or
(b) of being exercised later than six months after the bonus date.
23 No person shall be treated for the purposes of paragraph 19 or 21(1)(e) above as ceasing to hold an office or employment by virtue of which he is eligible to participate in the scheme until he ceases to hold an office or employment in the grantor or in any associated company or company of which the grantor has control.
24 (1) The scheme must provide for a person’s contributions under the certified contractual savings scheme to be of such amount as to secure as nearly as may be repayment of an amount equal to that for which shares may be acquired in pursuance of rights obtained under the scheme; and for this purpose the amount of repayment under the certified contractual savings scheme shall be determined as mentioned in paragraph 17 above.
(2) The scheme must not—
(a) permit the aggregate amount of a person’s contributions under certified contractual savings schemes linked to savings-related share option schemes approved under this Schedule to exceed £250 monthly, nor
(b) impose a minimum on the amount of a person’s contributions which exceeds £10 monthly.
(3) The Treasury may by order amend sub-paragraph (2) above by substituting for any amount for the time being specified in that sub-paragraph such amount as may be specified in the order.
25 The price at which scheme shares may be acquired by the exercise of a right obtained under the scheme—
(a) must be stated at the time the right is obtained, and
(b) must not be manifestly less than 80%. of the market value of shares of the same class at that time or, if the Board and the grantor agree in writing, at such earlier time or times as may be provided in the agreement,
but the scheme may provide for such variation of the price as may be necessary to take account of any variation in the share capital of which the scheme shares form part.
26 (1) Subject to paragraph 8 above, every person who—
(a) is an employee or a full-time director of the grantor or, in the case of a group scheme, a participating company, and
(b) has been such an employee or director at all times during a qualifying period not exceeding five years, and
(c) is chargeable to tax in respect of his office or employment under Case I of Schedule E,
must be eligible to participate in the scheme, that is to say, to obtain and exercise rights under it, on similar terms, and those who do participate in the scheme must actually do so on similar terms.
(2) For the purposes of sub-paragraph (1) above, the fact that the rights to be obtained by the persons participating in a scheme vary according to the levels of their remuneration, the length of their service or similar factors shall not be regarded as meaning that they are not eligible to participate in the scheme on similar terms or do not actually do so.
(3) Except as provided by paragraph 19 above or pursuant to such a provision as is referred to in paragraph 21(1)(e) or (f) above, a person must not be eligible to participate in the scheme at any time unless he is at that time a director or employee of the grantor or, in the case of a group scheme, of a participating company.
PART IV REQUIREMENTS APPLICABLE TO OTHER SHARE OPTION SCHEMES
27 (1) A person must not be eligible to obtain rights under the scheme at any time unless he is at that time a full-time director or qualifying employee of the grantor or, in the case of a group scheme, of a participating company, but the scheme may provide that a person may exercise rights under it after he has ceased to be a full-time director or qualifying employee.
(2) The scheme must not permit any person obtaining rights under it to transfer any of them but may provide that, if a person who has obtained rights under it dies before exercising them, they may be exercised after, but not more than one year after, the date of his death.
(3) Where the scheme contains the provision permitted by sub-paragraph (2) above and any rights are exercised—
(a) after the death of the person who obtained them; but
(b) before the expiry of the period of ten years beginning with his obtaining them;
subsection (3) of section 185 shall apply with the omission of the reference to subsection (5) of that section.
(4) In sub-paragraph (1) above “qualifying employee”, in relation to a company, means an employee of the company (other than one who is a director of the company or, in the case of a group scheme, of a participating company) . . . .
28 (1) The scheme must provide that no person shall obtain rights under it which would, at the time they are obtained, cause the aggregate market value of the shares which he may acquire in pursuance of rights obtained under the scheme or under any other share option scheme, not being a savings-related share option scheme, approved under this Schedule and established by the grantor or by any associated company of the grantor (and not exercised) to exceed or further exceed £30,000.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) For the purposes of sub-paragraph (1) above, the market value of shares shall be calculated as at the time when the rights in relation to those shares were obtained or, in a case where an agreement relating to them has been made under paragraph 29 below, such earlier time or times as may be provided in the agreement.
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29 (1) The price at which scheme shares may be acquired by the exercise of a right obtained under the scheme—
(a) must be stated at the time the right is obtained, and
(b) must not be manifestly less than the market value of shares of the same class at that time or, if the Board and the grantor agree in writing, at such earlier time or times as may be provided in the agreement.
(7) The scheme may provide for such variation of the price at which scheme shares may be acquired as may be necessary to take account of any variation in the share capital of which the scheme shares form part.
(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART V REQUIREMENTS APPLICABLE TO PROFIT SHARING SCHEMES
30 (1) The scheme must provide for the establishment of a body of persons resident in the United Kingdom (“the trustees”)—
(a) who, out of moneys paid to them by the grantor or, in the case of a group scheme, a participating company, are required by the scheme to acquire shares in respect of which the conditions in paragraphs 10 to 12 and 14 above are fulfilled; and
(b) who are under a duty to appropriate shares acquired by them to individuals who participate in the scheme, not being individuals who are ineligible by virtue of paragraph 8 or 35 of this Schedule; and
(c) whose functions with respect to shares held by them are regulated by a trust which is constituted under the law of a part of the United Kingdom and the terms of which are embodied in an instrument which complies with the provisions of paragraphs 31 to 34 below.
(2) If at any time after the Board have approved the scheme, an alteration is made in the terms of the trust referred to in sub-paragraph (1)(c) above, the approval shall not have effect after the date of the alteration unless the Board have approved the alteration.
(3) The scheme must provide that the total of the initial market values of the shares appropriated to any one participant in a year of assessment will not exceed the relevant amount.
(4) In this Part of this Schedule “initial market value”, in relation to a participant’s shares, means the market value of those shares determined—
(a) except where paragraph (b) below applies, on the date on which the shares were appropriated to him; and
(b) if the Board and the trustees agree in writing, on or by reference to such earlier date or dates as may be provided for in the agreement.
31 The trust instrument shall provide that, as soon as practicable after any shares have been appropriated to a participant, the trustees will give him notice of the appropriation—
(a) specifying the number and description of those shares; and
(b) stating their initial market value.
32 (1) The trust instrument must contain a provision prohibiting the trustees from disposing of any shares, except as mentioned in paragraph 1(1)(a), (b) , (c) or (cc) of Schedule 10, during the period of retention (whether by transfer to the participant or otherwise).
(2) The trust instrument must contain a provision prohibiting the trustees from disposing of any shares after the end of the period of retention and before the release date except—
(a) pursuant to a direction given by or on behalf of the participant or any person in whom the beneficial interest in his shares is for the time being vested; and
(b) by a transaction which would not involve a breach of the participant’s obligations under paragraph 2(2)(c) or (d) above.
33 The trust instrument must contain a provision requiring the trustees—
(a) subject to their obligations under paragraph 7 of Schedule 10 and to any such direction as is mentioned in paragraph 4(2) of that Schedule to pay over to the participant any money or money’s worth received by them in respect of or by reference to any of his shares other than money’s worth consisting of new shares within the meaning of paragraph 5 of that Schedule; and
(b) to deal only pursuant to a direction given by or on behalf of the participant or any person in whom the beneficial interest in his shares is for the time being vested with any right conferred in respect of any of his shares to be allotted other shares, securities or rights of any description.
34 The trust instrument must impose an obligation on the trustees—
(a) to maintain such records as may be necessary to enable the trustees to carry out their obligations under paragraph 7 of Schedule 10; and
(b) where the participant becomes liable to income tax under Schedule E by reason of the occurrence of any event, to inform him of any facts relevant to determining that liability.
35 (1) An individual shall not be eligible to have shares appropriated to him under the scheme at any time unless he is at that time or was within the preceding 18 months a director or employee of the grantor or, in the case of a group scheme, of a participating company.
(2) An individual shall not be eligible to have shares appropriated to him under the scheme at any time if in that year of assessment shares have been appropriated to him under another approved scheme established by the grantor or by—
(a) a company which controls or is controlled by the grantor or which is controlled by a company which also controls the grantor, or
(b) a company which is a member of a consortium owning the grantor or which is owned in part by the grantor as a member of a consortium.
36 (1) Subject to paragraphs 8 and 35 above, every person who at any time—
(a) is an employee or a full-time director of the grantor or, in the case of a group scheme, a participating company, and
(b) has been such an employee or director at all times during a qualifying period, not exceeding five years, ending at that time, and
(c) is chargeable to tax in respect of his office or employment under Case I of Schedule E,
must then be eligible (subject to paragraphs 8 and 35 of this Schedule) to participate in the scheme on similar terms and those who do participate must actually do so on similar terms.
(2) For the purposes of sub-paragraph (1) above, the fact that the number of shares to be appropriated to the participants in a scheme varies by reference to the levels of their remuneration, the length of their service or similar factors shall not be regarded as meaning that they are not eligible to participate in the scheme on similar terms or do not actually do so.
PART VI MATERIAL INTEREST TEST
Interests under trusts
37 (1) This paragraph applies in a case where—
(a) the individual (“the beneficiary”) was one of the objects of a discretionary trust; and
(b) the property subject to the trust at any time consisted of or included any shares or obligations of the company.
(2) If neither the beneficiary nor any relevant associate of his had received any benefit under the discretionary trust before 14th November 1986, then, as respects any time before that date, the trustees of the settlement concerned shall not be regarded, by reason only of the matters referred to in sub-paragraph (1) above, as having been associates (as defined in section 417(3) and (4)) of the beneficiary.
(3) If, on or after 14th November 1986—
(a) the beneficiary ceases to be eligible to benefit under the discretionary trust by reason of—
(i) an irrevocable disclaimer or release executed by him under seal; or
(ii) the irrevocable exercise by the trustees of a power to exclude him from the objects of the trust; and
(b) immediately after he so ceases, no relevant associate of his is interested in the shares or obligations of the company which are subject to the trust; and
(c) during the period of 12 months ending with the date when the beneficiary so ceases, neither the beneficiary nor any relevant associate of his received any benefit under the trust,
the beneficiary shall not be regarded, by reason only of the matters referred to in sub-paragraph (1) above, as having been interested in the shares or obligations of the company as mentioned in section 417(3)(c) at any time during the period of 12 months referred to in paragraph (c) above.
(4) In sub-paragraphs (2) and (3) above “relevant associate” has the meaning given to “associate” by subsection (3) of section 417 but with the omission of paragraph (c) of that subsection.
(5) Sub-paragraph (3)(a)(i) above, in its application to Scotland, shall be construed as if the words “under seal” were omitted.
Options etc.
38 (1) For the purposes of section 187(3)(a) a right to acquire shares (however arising) shall be taken to be a right to control them.
(2) Any reference in sub-paragraph (3) below to the shares attributed to an individual is a reference to the shares which, in accordance with section 187(3)(a), fall to be brought into account in his case to determine whether their number exceeds a particular percentage of the company’s ordinary share capital.
(3) In any case where—
(a) the shares attributed to an individual consist of or include shares which he or any other person has a right to acquire; and
(b) the circumstances are such that, if that right were to be exercised, the shares acquired would be shares which were previously unissued and which the company is contractually bound to issue in the event of the exercise of the right;
then, in determining at any time prior to the exercise of that right whether the number of shares attributed to the individual exceeds a particular percentage of the ordinary share capital of the company, that ordinary share capital shall be taken to be increased by the number of unissued shares referred to in paragraph (b) above.
(4) This paragraph has effect as respects any time after 5th April 1987.
Shares held by trustees of approved profit sharing schemes
39 In applying section 187(3), as respects any time before or after the passing of this Act, there shall be disregarded—
(a) the interest of the trustees of an approved profit sharing scheme in any shares which are held by them in accordance with the scheme and have not yet been appropriated to an individual; and
(b) any rights exercisable by those trustees by virtue of that interest.
Shares subject to an employee benefit trust
40 (1) Where an individual has an interest in shares or obligations of the company as a beneficiary of an employee benefit trust, the trustees shall not be regarded as associates of his by reason only of that interest unless sub-paragraph (3) below applies in relation to him.
(2) In this paragraph “employee benefit trust” has the same meaning as in paragraph 7 of Schedule 8.
(3) This sub-paragraph applies in relation to an individual if at any time on or after 14th March 1989—
(a) the individual, either on his own or with any one or more of his associates, or
(b) any associate of his, with or without other such associates,
has been the beneficial owner of, or able (directly or through the medium of other companies or by any other indirect means) to control, more than 25 per cent., or in the case of a share option scheme which is not a savings-related share option scheme more than 10 per cent., of the ordinary share capital of the company.
(4) Sub-paragraphs (9) to (12) of paragraph 7 of Schedule 8 shall apply for the purposes of this paragraph in relation to an individual as they apply for the purposes of that paragraph in relation to an employee.
SCHEDULE 10 FURTHER PROVISIONS RELATING TO PROFIT SHARING SCHEMES
Limitations on contractual obligations of participants
1 (1) Any obligation placed on the participant by virtue of paragraph 2(2) of Schedule 9 shall not prevent the participant from—
(a) directing the trustees to accept an offer for any of his shares (“the original shares”) if the acceptance or agreement will result in a new holding being equated with the original shares for the purposes of capital gains tax; or
(b) directing the trustees to agree to a transaction affecting his shares or such of them as are of a particular class, if the transaction would be entered into pursuant to a compromise, arrangement or scheme applicable to or affecting—
(i) all the ordinary share capital of the company in question or, as the case may be, all the shares of the class in question; or
(ii) all the shares, or all the shares of the class in question, which are held by a class of shareholders identified otherwise than by reference to their employment or their participation in an approved scheme; or
(c) directing the trustees to accept an offer of cash, with or without other assets, for his shares if the offer forms part of a general offer which is made to holders of shares of the same class as his or of shares in the same company and which is made in the first instance on a condition such that if it is satisfied the person making the offer will have control of that company, within the meaning of section 416; or
(cc) directing the trustees to accept an offer of a qualifying corporate bond, whether alone or with cash or other assets or both, for his shares if the offer forms part of a general offer which is made as mentioned in paragraph (c) above; or
(d) agreeing after the expiry of the period of retention to sell the beneficial interest in his shares to the trustees for the same consideration as, in accordance with sub-paragraph (d) of paragraph 2(2) of Schedule 9, would be required to be obtained for the shares themselves.
(2) No obligation placed on the participant by virtue of paragraph 2(2)(c) of Schedule 9 shall be construed as binding his personal representatives to pay any sum to the trustees.
(3) If, in breach of his obligation under paragraph 2(2)(b) of Schedule 9 a participant assigns, charges or otherwise disposes of the beneficial interest in any of his shares, then, as respects those shares, he shall be treated for the purposes of the relevant provisions as if at the time they were appropriated to him he was ineligible to participate in the scheme; and paragraph 6 below shall apply accordingly.
(4) In sub-paragraph (1)(cc) above “qualifying corporate bond” shall be construed in accordance with section 117 of the 1992 Act.
The period of retention
2 For the purposes of any of the relevant provisions, “the period of retention”, in relation to any of a participant’s shares, means the period beginning on the date on which they are appropriated to him and ending on the second anniversary of that date or, if it is earlier—
(a) the date on which the participant ceases to be a director or employee of the grantor or, in the case of a group scheme, a participating company by reason of injury or disability or on account of his being dismissed by reason of redundancy, within the meaning of the Employment Rights Act 1996 or the Employment Rights (Northern Ireland) Order 1996; or
(b) the date on which the participant reaches the relevant age; or
(c) the date of the participant’s death; or
(d) in a case where the participant’s shares are redeemable shares in a workers’ cooperative, the date on which the participant ceases to be employed by, or by a subsidiary of, the cooperative.
For the purposes of sub-paragraph (a) above, in the case of a group scheme, the participant shall not be treated as ceasing to be a director or employee of a participating company until such time as he is no longer a director or employee of any of the participating companies.
In this paragraph, the reference to the relevant age is a reference, in the case of a scheme approved before the day on which the Finance Act 1991 was passed, in the case of a man, to the age of 65, and in the case of a woman, to the age of 60 and, in the case of a scheme approved on or after that day, to the specified age.
The appropriate percentage
3 (1) For the purposes of any of the relevant provisions under which an amount counts as employment income of an individual by reason of the occurrence of an event relating to any of his shares, the “appropriate percentage” in relation to those shares is 100 per cent., unless sub-paragraph (2) below applies.
(2) Where the individual—
(a) ceases to be a director or employee of the grantor or, in the case of a group scheme, a participating company as mentioned in paragraph 2(a) above, or
(b) reaches the relevant age,
before the event occurs, the “appropriate percentage” is 50 per cent., unless paragraph 6(4) below applies.
3A (1) In paragraph 3 above the reference to the relevant age shall be construed as follows.
(2) Where the scheme is approved before 25th July 1991 and the event occurs before 30th November 1993, the relevant age is
(a) in the case of a man, 65, and
(b) in the case of a woman, 60.
(3) Where—
(a) the scheme is approved before 25th July 1991,
(b) the event occurs on or after 30th November 1993,
(c) the scheme defines the period of retention by reference to the age of 60 for both men and women, and
(d) the reference to that age is incorporated in the definition by virtue of an alteration approved by the Board under paragraph 4 of Schedule 9 before the event occurs,
the relevant age is 60.
(4) Where—
(a) the scheme is approved before 25th July 1991,
(b) the event occurs on or after 30th November 1993, and
(c) sub-paragraph (3) above does not apply,
the relevant age is in the case of a man, 65, and in the case of a woman, 60.
(5) Where the scheme is approved on or after 25th July 1991, the relevant age is the specified age.
Capital receipts
4 (1) Money or money’s worth is not a capital receipt for the purposes of section 186(3) if or, as the case may be, to the extent that—
(a) it constitutes income in the hands of the recipient for the purposes of income tax; or
(b) it consists of the proceeds of a disposal falling within section 186(4); or
(c) it consists of new shares within the meaning of paragraph 5 below.
(2) If, pursuant to a direction given by or on behalf of the participant or any person in whom the beneficial interest in the participant’s shares is for the time being vested, the trustees—
(a) dispose of some of the rights arising under a rights issue, as defined in section 186(8), and
(b) use the proceeds of that disposal to exercise other such rights,
the money or money’s worth which constitutes the proceeds of that disposal is not a capital receipt for the purposes of section 186(3).
(3) If, apart from this sub-paragraph, the amount or value of a capital receipt would exceed the sum which, immediately before the entitlement to the receipt arose, was the locked-in value of the shares to which the receipt is referable, section 186(3) shall have effect as if the amount or value of the receipt were equal to that locked-in value.
(4) Section 186(3) does not apply in relation to a capital receipt if the entitlement to it arises after the death of the participant to whose shares it is referable.
Company reconstructions
5 (1) This paragraph applies where there occurs in relation to any of a participant’s shares (“the original holding”) a transaction which results in a new holding being equated with the original holding for the purposes of capital gains tax; and any such transaction is referred to below as a “company reconstruction”.
(2) Where an issue of shares of any of the following descriptions (in respect of which a charge to income tax arises) is made as part of a company reconstruction, those shares shall be treated for the purposes of this paragraph as not forming part of the new holding, that is to say—
(a) redeemable shares or securities issued as mentioned in condition C or D in section 1000(1) of CTA 2010;
(b) share capital issued in circumstances such that section 1022 of CTA 2010 applies; and
(c) share capital to which section 1049 of CTA 2010 applies.
(3) In this paragraph—
“corresponding shares”, in relation to any new shares, means those shares in respect of which the new shares are issued or which the new shares otherwise represent;
“new shares” means shares comprised in the new holding which were issued in respect of, or otherwise represent, shares comprised in the original holding; and
“original holding” has the meaning given by sub-paragraph (1) above.
(4) Subject to the following provisions of this paragraph, in relation to a profit sharing scheme, references in the relevant provisions to a participant’s shares shall be construed, after the time of the company reconstruction, as being or, as the case may be, as including references to any new shares, and for the purposes of the relevant provisions—
(a) a company reconstruction shall be treated as not involving a disposal of shares comprised in the original holding;
(b) the date on which any new shares are to be treated as having been appropriated to the participant shall be that on which the corresponding shares were appropriated; and
(c) the conditions in paragraphs 10 to 12 and 14 of Schedule 9 shall be treated as fulfilled with respect to any new shares if they were (or were treated as) fulfilled with respect to the corresponding shares.
(5) In relation to shares comprised in the new holding, section 186(5) shall apply as if the references in that subsection to the initial market value of the shares were references to their locked-in value immediately after the company reconstruction, which shall be determined as follows—
(a) ascertain the aggregate amount of locked-in value immediately before the reconstruction of those shares comprised in the original holding which had at that time the same locked-in value; and
(b) distribute that amountpro rata among—
(i) such of those shares as remain in the new holding, and
(ii) any new shares in relation to which those shares are the corresponding shares, according to their market value immediately after the date of their reconstruction;
and section 186(5)(a) shall apply only to capital receipts after the date of the reconstruction.
(6) For the purposes of the relevant provisions if, as part of a company reconstruction, trustees become entitled to a capital receipt, their entitlement to the capital receipt shall be taken to arise before the new holding comes into being and, for the purposes of sub-paragraph (5) above, before the date on which the locked-in value of any shares comprised in the original holding falls to be ascertained.
(7) In the context of a new holding, any reference in this paragraph to shares includes securities and rights of any description which form part of the new holding for the purposes of Chapter II of Part IV of the 1992 Act.
5A (1) Paragraph 5(2) to (6) above apply where there occurs in relation to any of a participant’s shares (“the original holding”) a relevant transaction which would result in a new holding being equated with the original holding for the purposes of capital gains tax, were it not for the fact that what would be the new holding consists of or includes a qualifying corporate bond; and “relevant transaction” here means a transaction mentioned in Chapter II of Part IV of the 1992 Act.
(2) In paragraph 5(2) to (6) above as applied by this paragraph—
(a) references to a company reconstruction are to the transaction referred to in sub-paragraph (1) above;
(b) references to the new holding are to what would be the new holding were it not for the fact mentioned in sub-paragraph (1) above;
(c) references to the original holding shall be construed in accordance with sub-paragraph (1) above (and not paragraph 5(1));
(d) references to shares, in the context of the new holding, include securities and rights of any description which form part of the new holding.
(3) In sub-paragraph (1) above “qualifying corporate bond” shall be construed in accordance with section 117 of the 1992 Act.
Excess or unauthorised shares
6 (1) This paragraph applies in any case where—
(a) the total amount of the initial market value of all the shares which are appropriated to an individual in any one year of assessment (whether under a single approved profit sharing scheme or under two or more such schemes) exceeds the relevant amount; or
(b) the trustees of an approved profit sharing scheme appropriate shares to an individual at a time when he is ineligible to participate in the scheme by virtue of paragraph 8 or 35 of Schedule 9.
(2) In this paragraph—
“excess shares” means any share which caused the relevant amount to be exceeded and any share appropriated after that amount was exceeded; and
“unauthorised shares” means any share appropriated as mentioned in sub-paragraph (1)(b) above.
(3) For the purposes of sub-paragraph (1)(a) above, if a number of shares is appropriated to an individual at the same time under two or more approved profit sharing schemes, the same proportion of the shares appropriated at that time under each scheme shall be regarded as being appropriated before the relevant amount is exceeded.
(4) For the purposes of any of the relevant provisions under which an amount counts as employment income of an individual by reason of the occurrence of an event relating to any of his shares—
(a) the appropriate percentage in relation to excess or unauthorised shares shall in every case be 100 per cent.; and
(b) without prejudice to section 187(8), the event shall be treated as relating to shares which are not excess or unauthorised shares before shares which are.
(5) Excess or unauthorised shares which have not been disposed of before the release date or, if it is earlier, the date of the death of the participant whose shares they are, shall be treated for the purposes of the relevant provisions as having been disposed of by the trustees immediately before the release date or, as the case may require, the date of the participant’s death, for a consideration equal to their market value at that time.
(6) The locked-in value at any time of any excess or unauthorised shares shall be their market value at that time.
(7) Where there has been a company reconstruction to which paragraph 5 above applies, a new share (within the meaning of that paragraph) shall be treated as an excess or unauthorised share if the corresponding share (within the meaning of that paragraph) or, if there was more than one corresponding share, each of them was an excess or unauthorised share.
P.A.Y.E. deduction of tax
7 (1) Subject to sub-paragraphs (4) and (5) below, where the trustees of an approved profit sharing scheme receive a sum of money which constitutes (or forms part of)—
(a) the proceeds of a disposal of shares falling within section 186(4), or
(b) a capital receipt,
in respect of which an amount counts as employment income of the participant in accordance with section 186, the trustees shall pay out of that sum of money to the company specified in sub-paragraph (3) below an amount equal to that on which income tax is so payable; and the company shall then pay over that amount to the participant but in so doing shall make a P.A.Y.E. deduction.
(2) Where a participant disposes of his beneficial interest in any of his shares to the trustees of the scheme and the trustees are deemed by virtue of section 186(9) to have disposed of the shares in question, this paragraph shall apply as if the consideration payable by the trustees to the participant on the disposal had been received by the trustees as the proceeds of disposal of shares falling within section 186(4).
(3) The company to which the payment mentioned in sub-paragraph (1) above is to be made is the company—
(a) of which the participant is an employee or director at the time the trustees receive the sum of money referred to in that sub-paragraph, and
(b) whose employees are at that time eligible (subject to the terms of the scheme and Schedule 9) to be participants in the approved profit sharing scheme concerned,
and if there is more than one company which falls within paragraphs (a) and (b) above, such one of those companies as the Board may direct.
(4) Where the trustees of an approved profit sharing scheme receive a sum of money to which sub-paragraph (1) above applies but—
(a) there is no company which falls within paragraphs (a) and (b) of sub-paragraph (3) above, or
(b) the Board is of opinion that it is impracticable for the company which falls within those paragraphs (or, as the case may be, any of them) to make a P.A.Y.E. deduction and accordingly direct that this sub-paragraph shall apply,
then, in paying over to the participant the proceeds of the disposal or the capital receipt, the trustees shall make a P.A.Y.E. deduction in respect of an amount equal to that on which income tax is payable as mentioned in sub-paragraph (1) above as if the participant were a former employee of the trustees.
(5) Where the trustees of an approved profit sharing scheme receive a sum of money to which sub-paragraph (1) above applies and the Board direct that this sub-paragraph shall apply—
(a) the trustees shall make the payment mentioned in that sub-paragraph to the company specified in the Board’s direction; and
(b) that company shall pay over that amount to the participant but in so doing shall make a P.A.Y.E. deduction, and for that purpose if the participant is not an employee of that company he shall be treated as a former employee;
but no such direction shall be given except with the consent of the trustees, the company or companies (if any) specified in sub-paragraph (3) above and the company specified in the direction.
(6) Where, in accordance with this paragraph any person is required to make a P.A.Y.E. deduction in respect of any amount, that amount shall be treated for the purposes of section 684 of ITEPA 2003 (PAYE regulations) and PAYE regulations as PAYE income payable to the recipient, and, accordingly, such deduction shall be made as is required by those regulations.
(7) Where, in connection with a transfer of a participant’s shares to which sub-paragraph (c) of paragraph 2(2) of Schedule 9 applies, the trustees receive such a sum as is referred to in that sub-paragraph, that sum shall be treated for the purposes of the Income Tax Acts—
(a) as a sum deducted by the trustees pursuant to a requirement to make a P.A.Y.E. deduction under sub-paragraph (4) above; and
(b) as referable to the income tax . . . which, as a result of the transfer, is charged on the participant by virtue of section 186(4).
(8) Unless the Board otherwise direct, in the application of this paragraph to a sum of money which constitutes or forms part of the proceeds of a disposal of, or a capital receipt referable to, excess or unauthorised shares (within the meaning of paragraph 6 above), the trustees shall determine the amount of the payment mentioned in sub-paragraph (1) above or, as the case may be, the amount of the P.A.Y.E. deduction to be made under sub-paragraph (4) above as if the shares were not excess or unauthorised shares.
Introductory
1 The provisions of this Schedule supplement the provisions of section 148 with respect to the taxation of payments and other benefits received in connection with—
(a) the termination of a person’s employment, or
(b) any change in the duties of or emoluments from a person’s employment.
Payments and other benefits to which section 148 applies
2 (1) Section 148 applies to all payments and other benefits received directly or indirectly in consideration or in consequence of, or otherwise in connection with, the termination or change—
(a) by the employee or former employee,
(b) by the spouse or any relative or dependant of the employee or former employee, or
(c) by the personal representatives of the former employee.
(2) For the purposes of section 148 a payment or other benefit which is provided on behalf of, or to the order of, the employee or former employee is treated as received by the employee or former employee.
Payments and other benefits excluded from charge under section 148
3 Tax is not charged under section 148 on a payment or other benefit provided—
(a) in connection with the termination of the employment by the death of the employee, or
(b) on account of injury to or disability of the employee.
4 (1) Tax is not charged under section 148 on a payment or other benefit provided in pursuance of any such scheme or fund as was described in section 221(1) and (2) of the 1970 Act or as is described in section 596(1) (approved retirement benefits schemes, etc) in the following cases.
(2) The first case is where the payment or other benefit is by way of compensation for loss of employment, or for loss or diminution of emoluments, and the loss or diminution is due to ill-health.
(3) The second case is where the payment or other benefit is properly regarded as earned by past service.
5 Tax is not charged under section 148 on a payment or other benefit provided—
(a) under a Royal Warrant, Queen’s Order or Order in Council relating to members of Her Majesty’s forces, or
(b) by way of payment in commutation of annual or other periodical payments authorised by any such Warrant or Order.
6 (1) Tax is not charged under section 148 on—
(a) any benefit provided under a superannuation scheme administered by the government of an overseas territory within the Commonwealth, or
(b) any payment of compensation for loss of career, interruption of service or disturbance made in connection with any change in the constitution of any such overseas territory to a person who, before the change, was employed in the public service of that territory.
(2) In sub-paragraph (1) references to an overseas territory, to the government of such a territory, and to employment in the public service of such a territory have the same meaning as in section 615.
Application of £30,000 threshold
7 (1) This pargraph specifies how the £30,000 threshold in section 148(1) applies.
(2) Tax is charged only on the excess over £30,000, but the threshold applies to the aggregate amount of payments and other benefits provided in respect of the same person—
(a) in respect of the same employment, or
(b) in respect of different employments with the same employer or associated employers (see paragraph 8).
(3) If payments and other benefits are received in different tax years, the £30,000 is set against the amount of payments and other benefits received in earlier years before those of later years.
(4) If more than one payment or other benefit is received in a tax year in which the threshold is exceeded—
(a) the £30,000 (or the balance of it) is set against the amounts of cash benefits as they are received, and
(b) any balance at the end of the year is set against the aggregate amount of non-cash benefits received in the year.
8 (1) For the purposes of paragraph 7(2)(b) employers are associated if on the date which is the relevant date in relation to any of the payments or other benefits—
(a) one of them is under the control of the other, or
(b) one of them is under the control of a third person who controls or is under the control of the other on that or any other such date.
(2) In sub-paragraph (1)—
(a) “control” has the meaning given by section 840, and
(b) references to an employer, or to a person controlling or controlled by an employer, include the successors of the employer or person.
Exclusion or reduction of charge in case of foreign service
9 (1) If the employee’s service in the employment in respect of which the payment or other benefit is received included foreign service, then—
(a) in certain cases, tax is not charged under section 148 (see paragraph 10);
(b) in other cases the amount charged to tax is reduced (see paragraph 11).
(2) “Foreign service" for this purpose means—
(a) service in or after the tax year 1974-75 such that—
(i) the emoluments from the employment were not chargeable under Case I of Schedule E (or would not have been so chargeable, had there been any), or
(ii) a deduction equal to the whole amount of the emoluments from the employment was or would have been allowable under paragraph 1 of Schedule 2 to the Finance Act 1974, paragraph 1 of Schedule 7 to the Finance Act 1977 or section 192A or 193(1) of this Act (foreign earnings deduction);
(b) service before the tax year 1974-75 such that tax was not chargeable in respect of the emoluments of the employment—
(i) in the tax year 1956-57 or later, under Case I of Schedule E;
(ii) in earlier tax years, under Schedule E.
10 Tax is not charged under section 148 if foreign service comprises—
(a) three-quarters or more of the whole period of service down to the relevant date, or
(b) if the period of service down to the relevant date exceeded ten years, the whole of the last ten years, or
(c) if the period of service down to the relevant date exceeded 20 years, one-half or more of that period, including any ten of the last 20 years.
11 (1) Where there is foreign service and paragraph 10 does not apply, the person chargeable to tax under section 148 may claim relief in the form of a proportionate reduction of the amount charged to tax.
The amount charged to tax means the amount after any reduction under paragraph 7 (application of £30,000 threshold).
(2) The proportion is that which the length of the foreign service bears to the whole length of service in the employment before the relevant date.
(3) A person is not entitled to relief under this paragraph in so far as the relief, together with any personal relief allowed to him, would reduce the amount of income on which he is chargeable below the amount of income tax which he is entitled—
(a) to charge against any other person, or
(b) to deduct, retain or satisfy out of any payment which he is liable to make.
(4) For the purposes of sub-paragraph (3)—
(a) “personal relief” means relief under Chapter I of Part VII; and
(b) the amount of tax to which a person is or would be chargeable means the amount of tax to which he is or would be chargeable either by assessment or by deduction.
Valuation of benefits
12 (1) For the purposes of section 148, the amount of a payment or other benefit is taken to be—
(a) in the case of a cash benefit, the amount received, and
(b) in the case of a non-cash benefit, the cash equivalent of the benefit.
(2) The cash equivalent of a non-cash benefit is whichever is the greater of—
(a) the amount which would be chargeable to tax under section 19(1) if the benefit were an emolument of the employment chargeable to tax under Case I of Schedule E, or
(b) the cash equivalent determined in accordance with the provisions of section 596B (cash equivalent of benefits in kind for purposes of charge to tax on benefits under non-approved retirement benefits scheme).
Notional interest treated as paid if amount charged in respect of beneficial loan
13 (1) This paragraph applies where a person is chargeable to tax under section 148 in any tax year on an amount which consists of or includes an amount representing the cash equivalent of the benefit of a loan determined in accordance with Part II of Schedule 7.
(2) Where this paragraph applies, the person chargeable is treated as having paid interest on the loan of the same amount as the cash equivalent so determined.
This is subject to application of the £30,000 threshold: see sub-paragraph (5) below.
(3) The interest is treated as paid for all the purposes of the Tax Acts (other than section 148 and this Schedule), but not so as to make it—
(a) income of the person making the loan, or
(b) relevant loan interest to which section 369 applies (mortgage interest payable under deduction of tax).
(4) The interest is treated as accruing during and paid at the end of the tax year or, if different, the period in the tax year during which the loan is outstanding.
(5) No amount of interest is treated as paid under this paragraph in a tax year in which, after applying the £30,000 threshold in section 148(1), no amount falls to be charged to tax.
If in any tax year the effect of the £30,000 threshold is that some but not all of the amount otherwise chargeable is charged to tax, the amount of interest treated as paid is limited to the amount charged to tax.
Giving effect to the charge to tax
14 (1) Tax under section 148 is charged on the employee or former employee, whether or not he is the recipient of the payment or other benefit.
(2) After the death of the employee or former employee, any amount chargeable to tax under section 148 shall be assessed and charged upon his personal representatives and is a debt due from and payable out of the estate.
Reporting requirements
15 Provision may be made by regulations under section 203(2) requiring an employer or former employer to provide such information as may be prescribed by the regulations, within such time as may be so prescribed, as to payments or other benefits provided or to be provided in connection with the termination of a person’s employment or a change in the duties of or emoluments from a person’s employment.
Interpretation
16 In this Schedule—
“the relevant date” means the date of the termination or change in question; and
“tax year” means a year of assessment.
Part I TAX RELIEF
1 (1) Where by reason of a person’s employment—
(a) any sums are paid to that person (the employee) in respect of qualifying removal expenses,
(b) any sums are paid on behalf of the employee to another person in respect of qualifying removal expenses, or
(c) any qualifying removal benefit is provided for the employee or for others being members of his family or household,
the employee shall not thereby be regarded as receiving emoluments of the employment for any purpose of Case I or Case II of Schedule E.
(2) Sub-paragraph (1) above shall have effect subject to Part V of this Schedule.
2 (1) This paragraph applies where—
(a) any payment or benefit would (apart from paragraph 1 above) constitute emoluments of an employment for any purpose of Case I or Case II of Schedule E, and
(b) by virtue of that paragraph it is treated as not being such emoluments.
(2) The payment or benefit shall be treated as not being emoluments of the employment for any purpose of Case III of Schedule E.
Part II QUALIFYING EXPENSES AND QUALIFYING BENEFITS
Qualifying removal expenses
3 (1) Expenses are not qualifying removal expenses unless they are eligible removal expenses and the conditions set out in this paragraph and paragraph 5 below are fulfilled.
(2) The expenses must be reasonably incurred by the employee in connection with a change of his residence.
(3) The expenses must be incurred on or before the relevant day.
Qualifying removal benefits
4 (1) A benefit is not a qualifying removal benefit unless it is an eligible removal benefit and the conditions set out in this paragraph and paragraph 5 below are fulfilled.
(2) The benefit must be reasonably provided in connection with a change of the employee’s residence.
(3) The benefit must be provided on or before the relevant day.
Connection with employment
5 (1) The change of residence mentioned in paragraphs 3(2) and 4(2) above must result from—
(a) the employee becoming employed by an employer,
(b) an alteration of the duties of the employee’s employment (where his employer remains the same), or
(c) an alteration of the place where the employee is normally to perform the duties of his employment (where both his employer and the duties of his employment remain the same).
(2) The change must be made wholly or mainly to allow the employee to have his residence within a reasonable daily travelling distance of—
(a) the place where he performs, or is to perform, the duties of his employment (where sub-paragraph (1)(a) above applies);
(b) the place where he performs, or is to perform, the new duties of his employment (where sub-paragraph (1)(b) above applies);
(c) the new place where he performs, or is to perform, the duties of his employment (where sub-paragraph (1)(c) above applies);
and any reference in this sub-paragraph to the place where the employee performs, or is to perform, duties of his employment is to the place where he normally performs, or is normally to perform, those duties.
(3) The employee’s former residence must not be within a reasonable daily travelling distance of the place mentioned in sub-paragraph (2) above.
The relevant day
6 (1) Subject to sub-paragraph (2) below, the relevant day, in relation to a particular change of residence, is the day on which the relevant year ends; and for the purposes of this sub-paragraph the relevant year is the year of assessment next following the year of assessment in which—
(a) the employee begins to perform the duties of his employment (where paragraph 5(1)(a) above applies);
(b) the employee begins to perform the new duties of his employment (where paragraph 5(1)(b) above applies);
(c) the employee begins to perform the duties of his employment at the new place (where paragraph 5(1)(c) above applies).
(2) If it appears reasonable to the Board to do so, having regard to all the circumstances of a particular change of residence, they may direct that in relation to that change the relevant day is a day which—
(a) falls after the day mentioned in sub-paragraph (1) above, and
(b) is a day on which a year of assessment ends.
Part III ELIGIBLE REMOVAL EXPENSES
Introduction
7 Expenses are eligible removal expenses if they fall into one of the following categories—
(a) expenses of disposal,
(b) expenses of acquisition,
(c) expenses of abortive acquisition,
(d) expenses of transporting belongings,
(e) travelling and subsistence expenses,
(f) bridging loan expenses, and
(g) duplicate expenses;
and paragraphs 8 to 14 below apply for the purpose of interpreting the preceding provisions of this paragraph.
Expenses of disposal
8 (1) Expenses fall within paragraph 7(a) above if (and only if)—
(a) the employee has an interest in his former residence,
(b) that interest is disposed of, or is intended to be disposed of, in consequence of the change of residence, and
(c) the expenses fall within sub-paragraph (2) below.
(2) Expenses fall within this sub-paragraph if they consist of one of the following—
(a) legal expenses connected with the disposal or intended disposal of the employee’s interest in his former residence (including legal expenses connected with the redemption of any loan relating to the residence),
(b) any penalty for redeeming, for the purpose of the disposal or intended disposal, any loan relating to the residence,
(c) fees of any estate agent or auctioneer engaged in the disposal or intended disposal,
(d) expenses of advertising the disposal or intended disposal,
(e) charges for disconnecting, for the purpose of the disposal or intended disposal, public utilities serving the residence,
(f) expenses of maintaining, insuring, or preserving the security of the residence at any time when unoccupied pending the disposal or intended disposal, and
(g) any rent paid in respect of the residence at any such time.
(3) The reference in this paragraph to the employee having an interest in his former residence includes a reference to—
(a) one or more members of the employee’s family or household having such an interest;
(b) the employee and one or more members of his family or household having such an interest;
and references to the disposal or intended disposal of the employee’s interest in his former residence shall be construed accordingly.
(4) For the purposes of this paragraph a loan relates to a residence if the loan was raised to obtain an interest in the residence, or an interest in the residence forms security for the loan, or both.
Expenses of acquisition
9 (1) Expenses fall within paragraph 7(b) above if (and only if) the employee acquires an interest in his new residence and the expenses consist of one of the following—
(a) legal expenses connected with the acquisition by the employee of the interest (including legal expenses connected with any loan raised to acquire the interest),
(b) any procurement fees connected with any such loan,
(c) the costs of any insurance effected to cover risks which are incurred by the maker of any such loan and which arise because the amount of the loan is equal to the whole, or a substantial part, of the value of the interest,
(d) fees relating to any survey or inspection of the residence undertaken in connection with the acquisition by the employee of the interest,
(e) fees payable to an appropriate registry or appropriate register in connection with the acquisition by the employee of the interest,
(f) stamp duty charged on the acquisition, and
(g) charges for connecting any public utility for use by the employee, if the utility serves the residence.
(2) References in this paragraph to the employee acquiring an interest in his new residence include references to—
(a) one or more members of the employee’s family or household acquiring such an interest;
(b) the employee and one or more members of his family or household acquiring such an interest.
(3) References in this paragraph to a loan are to a loan raised by the employee, by one or more members of the employee’s family or household or by the employee and one or more members of his family or household.
(4) The reference in this paragraph to a utility for use by the employee includes a reference to a utility for use by the employee and one or more members of his family or household.
(5) For the purposes of this paragraph an appropriate registry is any of the following—
(a) Her Majesty’s Land Registry;
(b) the Land Registry in Northern Ireland;
(c) the Registry of Deeds for Northern Ireland;
and an appropriate register is any register under the management and control of the Keeper of the Registers of Scotland.
Expenses of abortive acquisition
10 Expenses fall within paragraph 7(c) above if (and only if)—
(a) they are incurred with a view to the acquisition of an interest in a residence, the interest is not acquired, but (if it were) the residence would be the employee’s new residence,
(b) they would fall within paragraph 7(b) above if the interest were acquired, and
(c) the interest is not acquired because of circumstances outside the control of the person seeking to acquire the interest, or because that person reasonably declines to proceed.
Expenses of transporting belongings
11 (1) Expenses fall within paragraph 7(d) above if (and only if) they consist of one of the following—
(a) expenses connected with transporting domestic belongings from the employee’s former residence to his new residence, and
(b) the costs of any insurance effected to cover such transporting.
(2) For the purposes of this paragraph transporting includes—
(a) packing and unpacking belongings,
(b) temporarily storing them if a direct move from the former to the new residence is not made,
(c) detaching domestic fittings from the former residence if they are to be taken to the new residence, and
(d) attaching domestic fittings to the new residence, and adapting them, if they are brought from the old residence.
(3) For the purposes of this paragraph domestic belongings are those of the employee and of members of his family or household.
Travelling and subsistence expenses
12 (1) Expenses fall within paragraph 7(e) above if (and only if) they consist of one of the following—
(a) the costs of travelling and subsistence of the employee and members of his family or household while making temporary visits to the new area for purposes connected with the change,
(b) the employee’s costs of travelling between his former residence and the place where he normally performs his new duties or (where paragraph 5(1)(c) above applies) between his former residence and the new place where he normally performs the duties of his employment,
(c) where paragraph 5(1)(b) or (c) above applies, the employee’s costs of travelling, before the alteration mentioned in paragraph 5(1)(b) or (c), between his new residence and his original place of work,
(d) costs of the employee’s subsistence (other than costs falling within paragraph (a) above),
(e) the employee’s costs of travelling between his former residence and any temporary living accommodation of the employee,
(f) where paragraph 5(1)(b) or (c) above applies, the employee’s costs of travelling, before the alteration mentioned in paragraph 5(1)(b) or (c), between his new residence and any temporary living accommodation of the employee,
(g) the costs of travelling of the employee and members of his family or household from the employee’s former residence to his new residence in connection with the change,
(h) a relevant child’s costs of subsistence while staying, for the purposes of securing the continuity of his education, in living accommodation in the old area after the change,
(i) a relevant child’s costs of travelling between the accommodation mentioned in paragraph (h) above and the employee’s new residence,
(j) a relevant child’s costs of subsistence while staying, for the purposes of securing the continuity of his education, in living accommodation in the new area before the change, and
(k) a relevant child’s costs of travelling between the accommodation mentioned in paragraph (j) above and the employee’s former residence.
(2) For the purposes of this paragraph—
(a) the employee’s new duties are the duties of his employment (where paragraph 5(1)(a) above applies) or the new duties of his employment (where paragraph 5(1)(b) above applies),
(b) the new area is the area round or near the place where the employee’s new duties are, or are to be, normally performed, or (where paragraph 5(1)(c) above applies) the area round or near the new place where the duties of the employee’s employment are, or are to be, normally performed,
(c) the employee’s original place of work is the place where, before the alteration mentioned in paragraph 5(1)(b) or (c) above, the employee normally performs the duties of his employment,
(d) a relevant child is a person who is a member of the employee’s family or household and who is aged under 19 at the material time, and
(e) the old area is the area round or near the former residence of the employee.
(3) For the purposes of this paragraph the material time is the beginning of the year of assessment in which—
(a) the employee becomes employed by an employer,
(b) the alteration of the duties of the employee’s employment becomes effective, or
(c) the alteration of the place where the employee is normally to perform the duties of his employment becomes effective.
(4) In a case where—
(a) expenses are incurred by the employee,
(b) the expenses would, apart from this sub-paragraph, fall within paragraph 7(e) above, and
(c) a deduction is allowable under any of sections 193 to 195 in respect of the whole or part of the expenses,
the expenses or, as the case may be, the part of them in respect of which the deduction is allowable shall be treated as not falling within paragraph 7(e) above.
Bridging loan expenses
13 (1) Expenses fall within paragraph 7(f) above if (and only if)—
(a) the employee has an interest in his former residence,
(b) he disposes of that interest in consequence of the change of residence,
(c) he acquires an interest in his new residence, and
(d) the expenses consist of interest falling within sub-paragraph (2) below.
(2) Interest falls within this sub-paragraph if it is payable by the employee in respect of a loan raised by him and the reason, or one of the reasons, for the loan being raised is that a period elapses between—
(a) the date when expenditure is incurred in connection with the acquisition of the employee’s interest in his new residence, and
(b) the date when the proceeds of the disposal of the employee’s interest in his former residence are available.
(3) Interest on so much of the loan as exceeds the market value of the employee’s interest in his former residence (taken at the time his interest in his new residence is acquired) shall be regarded as not falling within sub-paragraph (2) above.
(4) Interest on so much of the loan as is not used for any of the following purposes shall also be regarded as not falling within sub-paragraph (2) above—
(a) the purpose of redeeming any loan relating to the employee’s former residence and raised by him;
(b) the purpose of acquiring the employee’s interest in his new residence.
(5) For the purposes of this paragraph a loan relates to a residence if the loan was raised to obtain an interest in the residence, or an interest in the residence forms security for the loan, or both.
(6) References in this paragraph to the employee having, disposing of or acquiring an interest in a residence include references to—
(a) one or more members of the employee’s family or household having, disposing of or acquiring such an interest;
(b) the employee and one or more members of his family or household having, disposing of or acquiring such an interest;
and references to the employee’s interest shall be construed accordingly.
(7) The reference in this paragraph to interest payable by the employee includes a reference to interest payable by one or more members of the employee’s family or household or by the employee and one or more members of his family or household.
(8) References in this paragraph to a loan raised by the employee include references to a loan raised by one or more members of the employee’s family or household or by the employee and one or more members of his family or household.
Duplicate expenses
14 (1) Expenses fall within paragraph 7(g) above if (and only if)—
(a) the employee has an interest in his former residence,
(b) he disposes of that interest in consequence of the change of residence,
(c) he acquires an interest in his new residence,
(d) the expenses are incurred by the employee as a result of the change, and
(e) the expenses are incurred on the purchase of domestic goods intended to replace goods which were used at the employee’s former residence but which are not suitable for use at his new residence.
(2) In arriving at the total of the expenses any amount mentioned in sub-paragraph (3) below shall be deducted from what would be the total apart from this sub-paragraph; and accordingly an amount equal to the aggregate of such amounts shall not be treated as eligible removal expenses.
(3) The amount is any amount obtained in respect of the sale of the replaced goods.
(4) References in this paragraph to the employee having, disposing of or acquiring an interest in a residence include references to—
(a) one or more members of the employee’s family or household having, disposing of or acquiring such an interest;
(b) the employee and one or more members of his family or household having, disposing of or acquiring such an interest.
Power to amend
15 (1) The Treasury may make regulations amending the preceding provisions of this Part of this Schedule so as to secure that expenses that would not be eligible removal expenses (apart from the regulations) are such expenses.
(2) Any such regulations may include such supplementary, incidental or consequential provisions as appear to the Treasury to be necessary or expedient; and such provisions may be made by way of amendment to other Parts of this Schedule, or otherwise.
(3) Any such regulations shall have effect as regards any change of an employee’s residence which results from—
(a) the employee becoming employed by an employer on or after the specified day;
(b) an alteration, with effect from a time falling on or after the specified day, of the duties of the employee’s employment;
(c) an alteration, with effect from a time falling on or after the specified day, of the place where the employee is normally to perform the duties of his employment;
and in this sub-paragraph “the specified day” means the day specified in the regulations for the purposes of this sub-paragraph.
Part IV ELIGIBLE REMOVAL BENEFITS
Introduction
16 Benefits are eligible removal benefits if they fall into one of the following categories—
(a) benefits in respect of disposal,
(b) benefits in respect of acquisition,
(c) benefits in respect of abortive acquisition,
(d) benefits in respect of the transporting of belongings,
(e) travelling and subsistence benefits, and
(f) benefits in respect of the new residence;
and paragraphs 17 to 22 below apply for the purpose of interpreting the preceding provisions of this paragraph.
Benefits in respect of disposal
17 (1) A benefit falls within paragraph 16(a) above if (and only if)—
(a) the employee has an interest in his former residence,
(b) that interest is disposed of, or is intended to be disposed of, in consequence of the change of residence, and
(c) the benefit falls within sub-paragraph (2) below.
(2) A benefit falls within this sub-paragraph if it consists of one of the following—
(a) legal services connected with the disposal or intended disposal of the employee’s interest in his former residence (including legal services connected with the redemption of any loan relating to the residence),
(b) the waiving of any penalty for redeeming, for the purpose of the disposal or intended disposal, any loan relating to the residence,
(c) the services of an estate agent or auctioneer engaged in the disposal or intended disposal,
(d) services connected with the advertisement of the disposal or intended disposal,
(e) the disconnection, for the purpose of the disposal or intended disposal, of public utilities serving the residence, and
(f) services connected with the maintenance or insurance, or the preservation of the security, of the residence at any time when unoccupied pending the disposal or intended disposal.
(3) Sub-paragraphs (3) and (4) of paragraph 8 above apply for the purposes of this paragraph as they apply for the purposes of that.
Benefits in respect of acquisition
18 (1) A benefit falls within paragraph 16(b) above if (and only if) the employee acquires an interest in his new residence and the benefit consists of one of the following—
(a) legal services connected with the acquisition by the employee of the interest (including legal services connected with any loan raised to acquire the interest),
(b) the waiving of any procurement fees connected with any such loan,
(c) the waiving of any amount payable in respect of insurance effected to cover risks which are incurred by the maker of any such loan and which arise because the amount of the loan is equal to the whole, or a substantial part, of the value of the interest,
(d) any survey or inspection of the residence undertaken in connection with the acquisition by the employee of the interest, and
(e) the connection of any public utility for use by the employee, if the utility serves the residence.
(2) Sub-paragraphs (2) to (4) of paragraph 9 above apply for the purposes of this paragraph as they apply for the purposes of that.
Benefits in respect of abortive acquisition
19 A benefit falls within paragraph 16(c) above if (and only if)—
(a) it is provided with a view to the acquisition of an interest in a residence, the interest is not acquired, but (if it were) the residence would be the employee’s new residence,
(b) it would fall within paragraph 16(b) above if the interest were acquired, and
(c) the interest is not acquired because of circumstances outside the control of the person seeking to acquire the interest, or because that person reasonably declines to proceed.
Benefits in respect of the transporting of belongings
20 (1) A benefit falls within paragraph 16(d) above if (and only if) it consists of one of the following—
(a) the transporting of domestic belongings from the employee’s former residence to his new residence, and
(b) the effecting of insurance to cover such transporting.
(2) Sub-paragraphs (2) and (3) of paragraph 11 above apply for the purposes of this paragraph as they apply for the purposes of that.
Travelling and subsistence benefits
21 (1) A benefit falls within paragraph 16(e) above if (and only if) it consists of one of the following—
(a) subsistence, and facilities for travel, provided for the employee and members of his family or household while making temporary visits to the new area for purposes connected with the change,
(b) facilities provided for the employee for travel between his former residence and the place where he normally performs his new duties or (where paragraph 5(1)(c) above applies) between his former residence and the new place where he normally performs the duties of his employment,
(c) where paragraph 5(1)(b) or (c) above applies, facilities provided for the employee for travel, before the alteration mentioned in paragraph 5(1)(b) or (c), between his new residence and his original place of work,
(d) subsistence provided for the employee (other than subsistence falling within paragraph (a) above),
(e) facilities provided for the employee for travel between his former residence and any temporary living accommodation of the employee,
(f) where paragraph 5(1)(b) or (c) above applies, facilities provided for the employee for travel, before the alteration mentioned in paragraph 5(1)(b) or (c), between his new residence and any temporary living accommodation of the employee,
(g) facilities provided for the employee and members of his family or household for travel from the employee’s former residence to his new residence in connection with the change,
(h) subsistence provided for a relevant child while staying, for the purposes of securing the continuity of his education, in living accommodation in the old area after the change,
(i) facilities provided for a relevant child for travel between the accommodation mentioned in paragraph (h) above and the employee’s new residence,
(j) subsistence provided for a relevant child while staying, for the purposes of securing the continuity of his education, in living accommodation in the new area before the change, and
(k) facilities provided for a relevant child for travel between the accommodation mentioned in paragraph (j) above and the employee’s former residence.
(2) Where (apart from this sub-paragraph) a car or van would constitute a facility for the purposes of sub-paragraph (1) above, it shall not do so if the car or van—
(a) is provided as mentioned in that sub-paragraph,
(b) is also available at any relevant time to the employee, or to others being members of his family or household, for his or their private use not falling within that sub-paragraph, and
(c) is so available by reason of the employee’s employment and without any transfer of the property in it.
(3) Sub-paragraphs (2) and (3) of paragraph 12 above apply for the purposes of this paragraph as they apply for the purposes of that.
(4) In this paragraph “car”, “van” and “private use” have the same meanings as in Chapter II of this Part of this Act.
(5) Section 168(6) applies for the purposes of this paragraph as it applies for the purposes of Chapter II of this Part of this Act.
(6) For the purposes of this paragraph a relevant time is any time falling on or before the day which is the relevant day (within the meaning given by paragraph 6 above) in relation to the change of residence concerned.
(7) In a case where—
(a) a benefit is provided for the employee or a member of his family or household,
(b) the benefit would, apart from this sub-paragraph, fall within paragraph 16(e) above, and
(c) a deduction is allowable under any of sections 193 to 195 in respect of the whole or part of the cost of the benefit,
the benefit shall, subject to sub-paragraph (8) below, be treated as not falling within paragraph 16(e) above.
(8) Where a deduction is allowed as mentioned in sub-paragraph (7) above in respect of part only of the cost of the benefit, the extent to which the benefit is treated as falling within paragraph 16(e) above shall be determined on a just and reasonable basis.
Benefits in respect of new residence
22 (1) A benefit falls within paragraph 16(f) above if (and only if)—
(a) the employee has an interest in his former residence,
(b) he disposes of that interest in consequence of the change of residence,
(c) he acquires an interest in his new residence,
(d) the benefit is provided as a result of the change, and
(e) the benefit consists of domestic goods provided to replace goods which were used at the employee’s former residence but which are not suitable for use at his new residence.
(2) Sub-paragraph (4) of paragraph 14 above applies for the purposes of this paragraph as it applies for the purposes of that.
Power to amend
23 (1) The Treasury may make regulations amending the preceding provisions of this Part of this Schedule so as to secure that a benefit that would not be an eligible removal benefit (apart from the regulations) is such a benefit.
(2) Any such regulations may include such supplementary, incidental or consequential provisions as appear to the Treasury to be necessary or expedient; and such provisions may be made by way of amendment to other Parts of this Schedule, or otherwise.
(3) Sub-paragraph (3) of paragraph 15 above applies to regulations made under this paragraph as it applies to regulations made under that.
Part V THE QUALIFYING LIMIT
24 (1) In a case where, by reason of the employee’s employment and in connection with a particular change of residence—
(a) any sums are paid as mentioned in paragraph 1(1)(a) or (b) above, or
(b) any qualifying removal benefit is provided as mentioned in paragraph 1(1)(c) above,
paragraph 1(1) above shall apply only to the extent that the total value to the employee, found under sub-paragraph (2) below, does not exceed the qualifying limit.
(2) The total value to the employee is the total of the following—
(a) the aggregate of the amounts of any sums paid as mentioned in paragraph 1(1)(a) or (b) above in connection with the change of residence;
(b) the aggregate of any amounts represented by qualifying removal benefits which are provided as mentioned in paragraph 1(1)(c) above in connection with the change.
(3) Subject to sub-paragraphs (4) to (8) below, for the purposes of sub-paragraph (2)(b) above the amount represented by a benefit is the amount which would be the cash equivalent of the benefit under Chapter II of this Part of this Act if the benefit were chargeable under the appropriate provision of that Chapter.
(4) In the case of a benefit which—
(a) consists of living accommodation provided for a person, and
(b) is, or would be apart from this Schedule, chargeable under section 145 and not under section 146,
for the purposes of sub-paragraph (2)(b) above the amount represented by the benefit is the amount which, if the benefit were so chargeable, would be the value to the employee of the accommodation for the period in which the accommodation is provided, less the appropriate sum.
(5) For the purposes of sub-paragraph (4) above the value to the employee of accommodation in any period shall be determined in accordance with section 145, and the reference in that sub-paragraph to the appropriate sum is to the total of—
(a) so much of any sum made good by the employee to those at whose cost the accommodation is provided as is properly attributable to the provision of the accommodation, and
(b) any amounts which, if the benefit were chargeable under section 145, would be deductible by virtue of section 145(3) from the amount to be treated as emoluments under section 145(1) as regards the benefit.
(6) In the case of a benefit which—
(a) consists of living accommodation provided for a person, and
(b) is, or would be apart from this Schedule, chargeable under both section 145 and section 146,
for the purposes of sub-paragraph (2)(b) above the amount represented by the benefit is the total of the amounts mentioned in sub-paragraph (7) below.
(7) The amounts referred to in sub-paragraph (6) above are—
(a) the amount which would be found under sub-paragraph (4) above if the benefit were chargeable under section 145 and not under section 146, and
(b) the amount which, if the benefit were chargeable under section 146, would be the additional value to the employee of the accommodation for the period in which the accommodation is provided, less the appropriate sum.
(8) For the purposes of sub-paragraph (7) above the additional value to the employee of accommodation in any period shall be determined in accordance with section 146, and the reference in that sub-paragraph to the appropriate sum is to the total of—
(a) so much of any rent paid by the employee in respect of the accommodation to the person providing it as exceeds the value to the employee of the accommodation for the period (determined in accordance with section 145), and
(b) any amounts which, if the benefit were chargeable under section 146, would be deductible by virtue of subsection (9) of that section from the amount to be treated as emoluments under that section as regards the benefit.
(9) The qualifying limit, as regards any change of residence, is £8,000.
(10) The Treasury may by order substitute for the sum for the time being specified in sub-paragraph (9) above a sum of a greater amount.
(11) Any such substitution shall have effect as regards any change of an employee’s residence which results from—
(a) the employee becoming employed by an employer on or after the specified day;
(b) an alteration, with effect from a time falling on or after the specified day, of the duties of the employee’s employment;
(c) an alteration, with effect from a time falling on or after the specified day, of the place where the employee is normally to perform the duties of his employment;
and in this sub-paragraph “the specified day” means the day specified in the order for the purposes of this sub-paragraph.
Part VI GENERAL
Interpretation
25 In this Schedule—
(a) references to the residence of the employee are to his sole or main residence,
(b) references to the former residence of the employee are to his sole or main residence before the change,
(c) references to the new residence of the employee are to his sole or main residence after the change, and
(d) references to an interest in a residence are, in the case of a building, references to an estate or interest in the land concerned.
26 For the purposes of this Schedule a person is not a member of another person’s family or household unless the former is—
(a) the latter’s spouse, son, daughter, parent, servant, dependant or guest, or
(b) the spouse of a son or daughter of the latter.
27 In this Schedule references to employment include references to any office, and related expressions shall be construed accordingly.
28 References in this Schedule to subsistence are to food, drink and temporary living accommodation.
Commencement
29 This Schedule applies to any payment made, or any benefit provided, in connection with a change of an employee’s residence which results from—
(a) the employee becoming employed by an employer on or after 6th April 1993,
(b) an alteration, with effect from a time falling on or after 6th April 1993, of the duties of the employee’s employment, or
(c) an alteration, with effect from a time falling on or after 6th April 1993, of the place where the employee is normally to perform the duties of his employment.
1 This Schedule shall have effect for the purpose of supplementing the provisions of section 192A.
Amount of emoluments
1A For the purposes of section 192A and this Schedule the amount of the emoluments for a year of assessment from any employment shall be taken to be the amount remaining after any capital allowance and after any deductions under section 192(3), 193(4), 194(1), 195(7), 197AG, 198, 199, 201, 332, 592 or 594.
Emoluments eligible for relief
2 (1) This paragraph has effect where a deduction falls to be allowed under section 192A in respect of the emoluments from an employment (“the relevant employment”) for a year of assessment in which the duties of—
(a) the relevant employment; or
(b) any other employment or employments held by the person concerned which are associated with the relevant employment,
are not performed wholly outside the United Kingdom.
(2) The amount of the emoluments for the year of assessment from the relevant employment in respect of which such a deduction is allowed shall not exceed such proportion of the emoluments for that year from the relevant employment and the other employment or employments (if any) as is . . . reasonable having regard to the nature of and time devoted to the duties performed outside and in the United Kingdom respectively and to all other relevant circumstances.
(3) For the purposes of this paragraph an employment is associated with another if they are with the same person or with persons associated with each other and—
(a) a company is associated with another company if one of them has control of the other within the meaning of section 416 or both of them are under the control within the meaning of that section of the same person or persons,
(b) an individual or partnership is associated with another person (whether or not a company) if one of them has control of the other within the meaning of section 840 or both are under the control within the meaning of that section of the same person or persons;
but paragraph (b) above shall not be construed as requiring an individual to be treated in any circumstances as under the control of another person.
Qualifying periods
3 (1) For the purposes of section 192A a qualifying period is a period of consecutive days which either—
(a) consists entirely of days of absence from the United Kingdom; or
(b) consists partly of such days and partly of days included by virtue of sub-paragraph (2) below.
(2) Where, in the case of any person, a period consisting entirely of days of absence from the United Kingdom (“the relevant period”) comes to an end and there have previously been one or more qualifying periods, the relevant period and the (or, if more than one, the last) qualifying period together with the intervening days between those periods shall be treated as a single qualifying period provided that—
(a) there are no more than 183 intervening days, and
(b) the number of days in the resulting period which are not days of absence from the United Kingdom does not exceed one-half of the total number of days in that period.
(2A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) For the purposes of section 192A the emoluments from an employment attributable to a qualifying period include any emoluments from that employment for a period of leave immediately following that period but not so as to make any emoluments for one year of assessment emoluments for another.
Supplementary
4 For the purposes of this Schedule a person shall not be regarded as absent from the United Kingdom on any day unless he is so absent at the end of it.
5 Notwithstanding section 132(4)(b), there shall be treated for the purposes of section 192A and this Schedule as performed outside the United Kingdom any duties which a person performs on a ship (within the meaning of section 192A) engaged on—
(a) a voyage beginning or ending outside the United Kingdom (but exclusive of any part of it which begins and ends in the United Kingdom); or
(b) any part beginning or ending outside the United Kingdom of a voyage which begins and ends in the United Kingdom;
and for the purposes of this paragraph any area designated under section 1(7) of the Continental Shelf Act 1964 shall be treated as part of the United Kingdom.
6 Where an employment is in substance one the duties of which fall in the year of assessment to be performed in the United Kingdom, then, for the purposes of section 192A, there shall be treated as so performed any duties performed outside the United Kingdom the performance of which is merely incidental to the performance of other duties in the United Kingdom.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Introduction
1 (1) The provisions of this Schedule apply for the purposes of sections 197AD to 197AG (Schedule E exemption for mileage allowance payments and passenger payments and mileage allowance relief).
(2) Expressions defined in this Schedule for those purposes have the same meaning for the purposes of this Schedule.
(3) In this Schedule “mileage allowance payments” has the meaning given by section 197AD(2) and “passenger payments” has the meaning given by section 197AE(2).
Business travel
2 “Business travel” means travelling the expenses of which, if incurred and defrayed by the employee in question out of the emoluments of his employment, would (in the absence of sections 197AD to 197AF) be deductible under section 198(1) (general relief for necessary expenses).
Qualifying vehicles
3 (1) “Qualifying vehicle” means a car, van, motor cycle or cycle.
(2) “Car” means a mechanically propelled road vehicle which is not—
(a) a goods vehicle,
(b) a motor cycle, or
(c) a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used.
(3) “Van” means a mechanically propelled road vehicle which—
(a) is a goods vehicle, and
(b) has a design weight not exceeding 3,500 kilograms,
and which is not a motor cycle.
(4) “Motor cycle” has the meaning given by section 185(1) of the Road Traffic Act 1988.
(5) “Cycle” has the meaning given by section 192(1) of that Act.
(6) In this paragraph—
“design weight” means the weight which a vehicle is designed or adapted not to exceed when in normal use and travelling on a road laden; and
“goods vehicle” means a vehicle of a construction primarily suited for the conveyance of goods or burden of any description.
The approved amount: mileage allowance payments
4 (1) The approved amount for mileage allowance payments that is applicable to a kind of vehicle is—
M
×
R
where—
M is the number of miles of business travel by the employee (other than as a passenger), using that kind of vehicle, in the tax year in question; and
R is the rate applicable for that kind of vehicle.
(2) The rates applicable are as follows—
Kind of vehicle | Rate
Car or van | 40p per mile for the first 10,000 miles;
25p per mile after that
Motor cycle | 24p per mile.
Cycle | 20p per mile.
Note: The reference above to “the first 10,000 miles” is to the total number of miles of business travel in relation to the employment or any associated employment, by car or van, in the tax year in question.
One employment is associated with another if—
the employer is the same;
the employers are partnerships or bodies and an individual or another partnership or body has control over both of them; or
the employers are associated companies (as defined in section 416).
Section 168(12) (meaning of “control”) applies for the purposes of paragraph (b).
The Treasury may by regulations amend sub-paragraph (2) so as to alter the rates or rate bands.
The approved amount: passenger payments
5 (1) The approved amount for passenger payments is—
M
×
R
where—
M is the number of miles of business travel by the employee, by car or van, for which the employee carries a qualifying passenger in the tax year in question and in respect of which passenger payments are made; and
R is 5p per mile.
(2) If the employee carries more than one qualifying passenger for all or part of a tax year, the approved amount for passenger payments is the total of the amounts calculated under sub-paragraph (1) in respect of each qualifying passenger.
(3) In this paragraph “qualifying passenger” means a passenger who is also an employee for whom the travel is business travel.
(4) The Treasury may by regulations amend sub-paragraph (1) so as to alter the rate.
Company vehicles
6 (1) A vehicle is a “company vehicle” in a tax year if in that year—
(a) the vehicle is made available to the employee by reason of his employment and is not available for his private use, or
(b) the employee is chargeable to tax in respect of the vehicle under section 154, 157 or 159AA (charge where benefit provided or car or van available for private use), or
(c) in the case of a car or van, the employee would be chargeable to tax in respect of it under section 157 or 159AA but for section 159 or 159AB (exception for pooled cars and vans), or
(d) in the case of a cycle, the employee would be chargeable to tax in respect of it under section 154 but for section 197AC(1)(a) (exception for cycles made available).
(2) Section 168(6) (when cars and vans are made available for private use and are made available by reason of employment) applies for the purposes of sub-paragraph (1).
Employment
7 “Employment” includes an office and “employee” includes an office-holder.
Tax year
8 “Tax year” means a year of assessment.
Schedule 12A Ordinary commuting and private travel
Introduction
1 (1) The provisions of this Schedule apply for the purposes of section 198(1A)(b)(ii) (qualifying travelling expenses: exclusion of ordinary commuting and private travel).
(2) In this Schedule “employment” includes an office and “employee” includes an office-holder.
Ordinary commuting and private travel
2 (1) “Ordinary commuting” means travel between—
(a) the employee’s home, or
(b) a place that is not a workplace in relation to the employment,
and a place which is a permanent workplace in relation to the employment.
(2) “Private travel” means travel between—
(a) the employee’s home and a place that is not a workplace in relation to the employment, or
(b) between two places neither of which is a workplace in relation to the employment.
(3) In sub-paragraphs (1)(b) and (2) “workplace” means a place at which the employee’s attendance is necessary in the performance of the duties of the employment.
3 Travel between any two places that is for practical purposes substantially ordinary commuting or private travel is treated as ordinary commuting or private travel.
Permanent and temporary workplaces
4 For the purposes of paragraph 2, subject to the following provisions of this Schedule—
“permanent workplace” means a place which the employee regularly attends in the performance of the duties of the employment and which is not a temporary workplace; and
“temporary workplace” means a place which the employee attends in the performance of the duties of the employment for the purpose of performing a task of limited duration or for some other temporary purpose.
The 24 month rule and fixed term appointments
5 (1) A place is not regarded as a temporary workplace if the employee’s attendance is in the course of a period of continuous work at that place—
(a) lasting more than 24 months, or
(b) comprising all or almost all of the period for which the employee is likely to hold the employment,
or if the employee’s attendance is at a time when it is reasonable to assume that it will be in the course of such a period.
(2) A “period of continuous work" at a place means a period over which, looking at the whole period and considering all the duties of the employment, the duties of the employment fall to be performed to a significant extent at that place.
(3) An actual or contemplated modification of the place at which the duties of the employment fall to be performed is disregarded for the purposes of this paragraph if it does not have, or would not have, any substantial effect on the employee’s journey, or expenses of travelling, to and from the place where the duties fall to be performed.
Depots and bases
6 A place which the employee regularly attends in the performance of the duties of the employment—
(a) which forms the base from which the duties of the employment are performed, or
(b) is the place at which the tasks to be carried out in the performance of those duties are allocated,
is treated as a permanent, and not a temporary, workplace.
Area-based employees
7 (1) An employee is treated as having a permanent workplace consisting of an area if the following conditions are met.
(2) The conditions are that—
(a) the duties of the employment are defined by reference to an area (whether or not they also require attendance at places outside the area),
(b) in the performance of the duties of the employment the employee attends different places within the area,
(c) none of the places he attends in the performance of the duties of the employment is a permanent workplace, and
(d) applying paragraphs 4 and 5 to the area as if it were a place, the area meets the conditions for being a permanent workplace.
Duty to make returns
1 (1) A company shall for each of its accounting periods make, in accordance with this Schedule, returns to the collector of—
(a) the franked payments made and franked investment income received by it in that period,
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) the advance corporation tax (if any) payable by it in respect of the franked payments made . . . by it in that period.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) A return shall be made for—
(a) each complete quarter falling within the accounting period, that is to say, each of the periods of three months ending with 31st March, 30th June, 30th September or 31st December which falls within that period:
(b) each part of the accounting period which is not a complete quarter and ends on the first (or only), or begins immediately after the last (or only), of those dates which falls within the accounting period;
(c) if none of those dates falls within the accounting period, the whole accounting period.
(3) A return for any period for which a return is required to be made under this paragraph (“a return period”) shall be made within 14 days from the end of that period.
(4) Subject to paragraphs 4(2), . . . and 7(3) below, no return need be made under this Schedule by a company for any period in which it has—
(a) made no franked payments, . . .
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contents of return
2 (1) Subject to paragraph 7(2) below, the return made by a company for any return period shall show—
(a) the amount of the franked payments, if any, made by it in that period,
(b) the amount of franked investment income, if any, received by it in that period,
(c) if any advance corporation tax is payable in respect of the franked payments, the amount thereof,
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) The return shall specify—
(a) whether any amount of franked payments is included under paragraph (a) of sub-paragraph (1) above in consequence of the giving of a notice under section 247(3) and, if so, the amount so included;
(b) whether any estimated amount of franked payments is included under that paragraph by virtue of paragraph 7(2) below and, if so, the amount so included;
(c) whether any estimated amount of advance corporation tax is included under paragraph (c) of sub-paragraph (1) above by virtue of paragraph 7(2) below and, if so, the amount so included.
(3) For the purposes of paragraph (b) of sub-paragraph (1) above the amount of franked investment income received by a company in a return period shall be treated as including the excess, if any, of—
(a) any surplus of franked investment income carried forward to the accounting period for which the return is made; and
(b) any amount of franked investment income received by the company in that accounting period but before the beginning of the return period,
over the amount of any franked payments made by the company in that accounting period but before the beginning of the return period.
(4) For the purposes of paragraph (c) of sub-paragraph (1) above advance corporation tax shall be payable in respect of franked payments made in a return period if—
(a) the amount shown under paragraph (a) of that sub-paragraph exceeds the amount shown under paragraph (b) of that sub-paragraph, or
(b) no amount is shown under paragraph (b) of that sub-paragraph;
and the amount of that tax shall be calculated in accordance with sub-paragraph (4A) below.
(4A) The tax mentioned in sub-paragraph (4) above shall be calculated at a rate equal to nine-tenths of the rate of advance corporation tax in force for the financial year in which the return period ends—
(a) in a case falling within paragraph (a) of that sub-paragraph, on the excess mentioned in that paragraph; or
(b) in a case falling within paragraph (b) of that sub-paragraph, on the amount shown under sub-paragraph (1)(a) above.
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of tax
3 (1) Subject to paragraph 7(2) below, advance corporation tax in respect of franked payments . . . required to be included in a return under this Schedule shall be due at the time by which the return for that period is to be made, and advance corporation tax so due shall be payable without the making of any assessment.
(2) Advance corporation tax which has become so due may be assessed on the company (whether or not it has been paid when the assessment is made) if that tax, or any part of it, is not paid on or before the due date.
(3) If it appears to an officer of the Board that there is a franked payment . . . which ought to have been and has not been included in a return, or if an officer of the Board is of the opinion that a return is incorrect, any such officer may make an assessment on the company to the best of his judgment; and any advance corporation tax due under an assessment made by virtue of this sub-paragraph shall be treated for the purposes of interest on unpaid tax as having been payable at the time when it would have been payable if a correct return had been made.
International headquarters companies
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receipt of franked investment income after payment of advance corporation tax
4 (1) This paragraph shall have effect where—
(a) a return has been made of franked payments made in any return period falling within an accounting period and advance corporation tax has been paid in respect of those payments; and
(b) the company receives franked investment income after the end of the return period but before the end of the accounting period.
(2) The company shall make a return under paragraph 1 above for the return period in which the franked investment income is received whether or not it has made any franked payments . . . in that period, and, subject to sub-paragraph (3) below, shall be entitled to repayment of any advance corporation tax paid (and not repaid) in respect of franked payments made in the accounting period in question.
(3) The amount of the repayment—
(a) if no franked payments were made by the company in the return period for which a return is made by virtue of sub-paragraph (2) above, shall not exceed an amount equal to the advance corporation tax that would be payable in respect of a distribution equal to the difference between—
(i) the franked investment income received, and
(ii) the tax credit comprised in that franked investment income; and
(b) in any other case, shall not exceed an amount equal to the advance corporation tax that would be payable in respect of a distribution equal to the amount by which—
(i) the franked investment income received, exceeds
(ii) the franked payments made in the return period,
at the rate provided in paragraph 2(4A) above.
Receipt of foreign income dividends after payment of advance corporation tax
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Claims for set-off in respect of franked investment income received by a company
5 Where under paragraph 2 or 4 above franked investment income received by a company falls to be taken into account in determining—
(a) whether advance corporation tax is payable or repayable; or
(b) the amount of such tax which is payable or repayable,
the inclusion of that franked investment income in the appropriate return shall be treated as a claim by the company to have it so taken into account, and any such claim shall be supported by such evidence as an officer of the Board may reasonably require.
6 (1) Where a claim has been made under paragraph 5 above no proceedings for collecting tax which would fall to be discharged if the claim were allowed shall be instituted pending the final determination of the claim, but this sub-paragraph shall not affect the date when the tax is due.
(2) When the claim is finally determined any tax underpaid in consequence of sub-paragraph (1) above shall be paid.
(3) Where proceedings are instituted for collecting tax assessed, or interest on tax assessed, under any provision of this Schedule, effect shall not be given to any claim made after the institution of the proceedings so as to affect or delay the collection or recovery of the tax charged by the assessment or of interest thereon, until the claim has been finally determined.
(4) When the claim is finally determined any tax overpaid in consequence of sub-paragraph (3) above shall be repaid.
(5) References in this paragraph to proceedings for the collection of tax include references to proceedings by way of distraint or poinding for tax.
Claims for set-off in respect of foreign income dividends received by a company
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qualifying distributions which are not payments and payments of uncertain nature
7 (1) This paragraph applies to—
(a) any qualifying distribution which is not a payment; and
(b) any payment in respect of which the company making it would be liable to pay advance corporation tax if, but only if, it amounted to or involved a qualifying distribution and it is not in the circumstances clear whether or how far it does so.
(2) No amount is required to be shown under paragraph 2(1)(a) or (c) above in respect of the qualifying distribution or payment and, unless estimated amounts are shown by virtue of paragraph (a) below, paragraph 3(1) above shall not apply in relation to advance corporation tax in respect thereof; but—
(a) the company making the return may include under paragraph 2(1)(a) and (c) above estimated amounts in respect of the qualifying distribution or payment; and
(b) if it does so, paragraph 3(1) above shall apply in relation to advance corporation tax in respect thereof as it applies in relation to advance corporation tax in respect of franked payments which are required to be included in the return.
(3) Whether or not estimated amounts are also included under paragraph 2(1)(a) or (c) above in respect of the qualifying distribution or payment, particulars of the qualifying distribution or payment shall be given separately in the return for the return period in which it is made and if in that period no franked payment (apart from that distribution or payment) is made . . . , a return containing those particulars shall be made for that period under paragraph 1 above.
(3A) Sub-paragraph (4) below applies—
(a) if an estimated amount is not included under paragraph 2(1)(a) or (c) above in respect of the qualifying distribution or payment; or
(b) if an officer of the Board is of the opinion that an estimated amount which is included under paragraph 2(1)(a) or (c) above in respect of the qualifying distribution or payment is incorrect.
(4) Where this sub-paragraph applies, any advance corporation tax payable in respect of the qualifying distribution or payment shall be assessed on the company and shall be so assessed without regard to any franked investment income received by the company, but—
(a) relief shall be given in accordance with sub-paragraph (4A) or (4B) below;
(b) for the purposes of the application of paragraph 2(3) above to any subsequent return period, the amount of the franked payment comprising the qualifying distribution or payment shall be taken to be the amount calculated as mentioned in sub-paragraph (4A) or (4B) below, as the case may be; and
(c) any advance corporation tax due under an assessment made by virtue of this sub-paragraph shall be treated for the purposes of interest on unpaid tax as having been payable at the time when it would have been payable if correct amounts had been included under paragraph 2(1)(a) and (c) above in respect of the qualifying distribution or payment.
(4A) Where sub-paragraph (4) above applies by virtue of sub-paragraph (3A)(a) above, relief shall be given from the tax assessed (by discharge thereof) to the extent, if any, to which that tax exceeds the tax that would have been payable if the amount of the franked payment comprising the qualifying distribution or payment, calculated on the amount or value thereof shown in the assessment, had been included in the return under sub-paragraph (1)(a) of paragraph 2 above and the tax had been calculated in accordance with sub-paragraph (4) of that paragraph.
(4B) Where sub-paragraph (4) above applies by virtue of sub-paragraph (3A)(b) above, relief shall be given from the tax assessed (by discharge thereof) to the extent, if any, to which that tax exceeds the tax that would have been payable if the excess (if any) of—
(a) the amount of the franked payment comprising the qualifying distribution or payment, calculated on the amount or value thereof shown in the assessment, over
(b) the estimated amount specified under paragraph 2(2)(b) above in respect of that franked payment,
had been included in the return under sub-paragraph (1)(a) of paragraph 2 above and the tax had been calculated in accordance with sub-paragraph (4) of that paragraph.
Amended return where company becomes aware of an error
7A (1) If a company becomes aware—
(a) that anything which ought to have been included in a return made by it under this Schedule for any return period has not been so included,
(b) that anything which ought not to have been included in a return made by it under this Schedule for any return period has been so included,
(c) that an estimated amount included by virtue of paragraph 7(2)(a) above in a return under this Schedule for any period is incorrect, or
(d) that any other error has occurred in a return made by it under this Schedule for any return period,
it shall forthwith supply to the collector an amended return for that return period.
(2) The duty imposed by sub-paragraph (1) above is without prejudice to any duty that may also arise under paragraph 7A of Schedule 16.
(3) Where an amended return is supplied under this paragraph, all such assessments, adjustments, set-offs or payments or repayments of tax shall be made as may be required for securing that the resulting liabilities to tax (including interest on unpaid or overpaid tax) whether of the company or any other person are the same as they would have been if a correct return had been made.
Items included in error
8 Where any item has been included in a return under this Schedule as a franked payment made or as franked investment income received by a company but that item should have been included in a return or claim under Schedule 16, an officer of the Board may make any such assessments, adjustments or set-offs as may be required for securing that the resulting liabilities to tax (including interest on unpaid tax) whether of the company or of any other person are the same as they would have been if the item had been included in the right return or claim.
Qualifying distribution made otherwise than in an accounting period
9 Where a company makes a qualifying distribution on a date which does not fall within an accounting period the company shall make a return of that distribution within 14 days from that date, and the advance corporation tax in respect thereof shall be due at the time by which the return is to be made, except where the distribution is not a payment in which case the advance corporation tax shall be assessed on the company.
Manufactured foreign income dividends
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assessments and due date of tax
10 (1) All the provisions of the Corporation Tax Acts as to the time within which an assessment may be made, so far as they refer or relate to the accounting period for which an assessment is made, or the accounting period to which an assessment relates, shall apply in relation to an assessment under this Schedule notwithstanding that, under this Schedule, the assessment may be said to relate to a quarter or other period which is not an accounting period; and the provisions of section 36 of the Management Act as to the circumstances in which an assessment may be made out of time shall apply accordingly on the footing that any such assessment relates to the accounting period in which the quarter or other period ends or, in the case of an assessment under paragraph 9 above, to an accounting period ending on the date on which the distribution is made.
(2) Advance corporation tax assessed on a company under this Schedule shall be due within 14 days after the issue of the notice of assessment (unless due earlier under paragraph 3(1) or 9 above).
(3) Sub-paragraph (2) above has effect subject to any appeal against the assessment, but no such appeal shall affect the date when tax is due under paragraph 3(1) or 9 above.
(4) On the determination of an appeal against an assessment under this Schedule any tax overpaid shall be repaid.
(5) Any tax assessable under any one or more of the provisions of this Schedule may be included in one assessment if the tax so included is all due on the same date.
SCHEDULE 13A Surrenders of advance corporation tax
General
1 (1) In this Schedule any reference to a claim is to a claim under section 240(1A).
(2) In this Schedule “the relevant accounting period of the surrendering company” means, in relation to a claim by the surrendering company, the accounting period referred to in section 240(1).
Multiple claims
2 (1) Surrenders to different subsidiaries or to the same subsidiary at different times shall be treated as made by separate claims (however the claims are presented).
(2) Where a surrendering company makes more than one claim at the same time, the claims shall be treated as made in such sequence as the surrendering company at that time elects or as, in default of such an election, an officer of the Board determines.
Content of claims etc.
3 (1) A claim must specify—
(a) the amount the benefit of which is surrendered; and
(b) the subsidiary to whom the surrender is made.
(2) The amount specified in compliance with sub-paragraph (1)(a) above must be an amount which is quantified at the time when the claim is made.
Time limit for claims
4 A claim by the surrendering company must be made within the period of six years from the end of the relevant accounting period of the surrendering company.
Claim to be included in return where possible
5 (1) Where a claim could be made by being included in a company tax return, or an amendment of such a return, it must be so made.
(2) The provisions of Part VII of Schedule 18 to the Finance Act 1998 (general provisions as to claims and elections) do not apply to the making of claims.
6 (1) A claim not included in a return or an amendment of a return must be made to an officer of the Board and must be supported by such documents as the officer may require.
(2) The claim shall be made in such form as the Board may determine.
(3) The form of claim shall provide for a declaration to the effect that all the particulars given in the form are correctly stated to the best of the information and belief of the person making the claim.
Contents of notices of withdrawal, etc.
7 (1) A claim shall not be withdrawn except by a notice given to an officer of the Board in such form as the Board may determine.
(2) A notice withdrawing a claim must specify—
(a) the surrendering company which made the claim;
(b) the amount the benefit of which was surrendered under the claim;
(c) the subsidiary to whom the surrender was made; and
(d) the relevant accounting period of the surrendering company in relation to the claim.
(3) A notice withdrawing a claim must be accompanied by a notice signifying the consent required by section 240(5A).
(4) Where a claim included in a return is withdrawn and the withdrawal could be made by an amendment of the return, it must be so made.
Simultaneous claims and withdrawals of claims
8 Where—
(a) a claim (“claim A”) is withdrawn, and
(b) at the time when claim A is withdrawn, another claim (“claim B”) is made,
claim A shall be treated as being withdrawn before claim B is treated as made.
Time limit for withdrawing claims
9 (1) Subject to sub-paragraph (3) below, a claim shall not be withdrawn after the earlier of—
(a) the end of the period of six years from the end of the relevant accounting period of the surrendering company; and
(b) the date on which an assessment for any relevant accounting period of the subsidiary in whose favour the claim was made becomes final.
(2) In this paragraph “relevant accounting period of the subsidiary” means, in relation to a claim, any period in which a distribution is treated under section 240(2) as made by virtue of the claim.
(3) In the circumstances given by sub-paragraph (4) below, a claim may be withdrawn at any time before the end of the period of six years from the end of the relevant accounting period of the surrendering company.
(4) The circumstances are that—
(a) the claim was made—
(i) after the date on which an assessment for a relevant accounting period of the subsidiary in whose favour the claim is made becomes final; and
(ii) after a further assessment has been made on the subsidiary for that period by an officer of the Board or the Board; and
(b) immediately before the claim is withdrawn, none of the advance corporation tax which, by virtue of the claim, is treated as paid by the subsidiary has been finally dealt with to the subsidiary’s advantage.
(5) For the purposes of sub-paragraph (4) above, advance corporation tax is finally dealt with to the subsidiary’s advantage if—
(a) it is set against any liability of the subsidiary under any assessment to corporation tax which has become final; or
(b) any of it is repaid to the subsidiary.
No amendment of claims
10 Nothing in the Management Act shall be read as allowing a claim to be amended.
Further self-assessments by the surrendering company
11 (1) Where—
(a) a claim is made after an assessment to corporation tax for the relevant accounting period of the surrendering company has become final,
(b) under section 239(1), advance corporation tax has been set against the company’s liability to corporation tax for that period, and
(c) the claim is a claim to surrender the benefit of an amount which is or includes the whole or a part of the amount set-off,
the claim must be accompanied by an assessment (a self-assessment) of the corporation tax due as a result of the claim.
(2) The tax shall be treated as due and payable, in accordance with section 59D of the Management Act, on the day following the expiry of nine months from the end of the relevant accounting period.
(3) The standard provisions about enquiries into self-assessments (given by paragraph 14 below) apply to self-assessments provided under this paragraph.
12 (1) Where—
(a) by virtue of section 239(4), advance corporation tax paid in the relevant accounting period of the surrendering company has been set against the company’s liability to corporation tax for a later accounting period,
(b) the claim is made after assessments to corporation tax for both periods have become final, and
(c) the claim is a claim to surrender the benefit of an amount which is or includes the whole or a part of the amount set-off,
the claim must be accompanied by an assessment (a self-assessment) of the corporation tax due as a result of the claim.
(2) The tax shall be treated as due and payable, in accordance with section 59D of the Management Act, on the day following the expiry of nine months from the end of the later accounting period.
(3) The standard provisions about enquiries into self-assessments (given by paragraph 14 below) apply to self-assessments provided under this paragraph.
(4) For the purposes of sub-paragraph (1)(a) above, advance corporation tax which was in fact paid in the relevant accounting period of the surrendering company shall be treated as set against the liability of the company to corporation tax for the later accounting period after any other advance corporation tax available to be so treated.
Further self-assessments by subsidiary
13 (1) Sub-paragraph (3) below applies where—
(a) under section 239(1), advance corporation tax has been set against the subsidiary’s liability to corporation tax for an accounting period (“the relevant accounting period”),
(b) the advance corporation tax is, includes or is part of advance corporation tax which is treated as paid by the subsidiary in respect of that period on the assumption that section 240(2) required that treatment, and
(c) after an assessment to corporation tax for that period has become final, the subsidiary becomes aware of facts (“the true facts”) which, by virtue of section 240(1B), make that treatment incorrect.
(2) Sub-paragraph (3) below also applies where—
(a) by virtue of section 239(4), advance corporation tax has been set against the subsidiary’s liability to corporation tax for an accounting period (“the relevant accounting period”),
(b) the advance corporation tax is, includes or is part of advance corporation tax which is treated as paid by the subsidiary in respect of a previous accounting period on the assumption that section 240(2) required that treatment, and
(c) after an assessment to corporation tax for that period has become final, the subsidiary becomes aware of facts (“the true facts”) which, by virtue of section 240(1B), make that treatment incorrect.
(3) The subsidiary must, before the end of the period of three months beginning with the day on which it becomes aware of the true facts, provide an officer of the Board with an assessment (a self-assessment) of the amount of corporation tax which was due for the relevant accounting period on the basis of the true facts.
(4) The tax shall be treated as due and payable, in accordance with section 59D of the Management Act, on the day following the expiry of nine months from the end of the relevant accounting period of the subsidiary.
(5) The standard provisions about enquiries into self-assessments (given by paragraph 14 below) apply to self-assessments provided under this paragraph.
(6) For the purposes of this paragraph it shall be assumed that advance corporation tax actually paid (or correctly treated as paid) by the subsidiary has been set against the subsidiary’s liability to corporation tax before any advance corporation tax incorrectly treated as paid by the subsidiary.
Standard provisions about enquiries into self-assessments
14 (1) The standard provisions about enquiries into self-assessments . . . are as follows.
(2) An officer of the Board may, at any time before the end of the period of one year beginning with the day on which the self-assessment is received, give notice of his intention to enquire into the self-assessment.
(3) The officer’s enquiries shall end on such day as he by notice—
(a) informs the company that he has completed his enquiries, and
(b) states his conclusions as to the amount of tax which should be contained in the company’s self-assessment.
(4) At any time in the period of 30 days beginning with the day on which the enquiries end, the company may amend its self-assessment so as to make good any deficiency or eliminate any excess in the amount of tax contained in the self-assessment.
(5) At any time in the period of 30 days beginning immediately after the period mentioned in sub-paragraph (4) above, the officer may by notice to the company amend the company’s self-assessment so as to make good any deficiency or eliminate any excess in the amount of tax contained in the self-assessment.
(6) The provisions of the Management Act apply to an amendment of a self-assessment under sub-paragraph (5) above as they apply to an amendment of a company tax return under paragraph 34(2) of Schedule 18 to the Finance Act 1998.
(7) At any time before a notice is given under sub-paragraph (3) above, the company may apply for a direction that the officer shall give such a notice within such period as may be specified in the direction.
(8) Subject to sub-paragraph (9) below, an application under sub-paragraph (7) above shall be heard and determined in the same way as an appeal . . . .
(9) The Commissioners hearing an application under sub-paragraph (7) above shall give the direction applied for unless they are satisfied that the officer has reasonable grounds for not giving the notice.
Repayments
15 (1) Where—
(a) a claim is withdrawn after an assessment for the relevant accounting period of the surrendering company has become final, and
(b) an amount of corporation tax paid by the surrendering company in respect of that period would not have been payable if the claim had not been made,
the surrendering company shall be entitled by notice to claim repayment of that amount.
(2) Where—
(a) a claim is made after the date on which an assessment for any relevant accounting period of the subsidiary in whose favour the claim is made becomes final, and
(b) an amount of corporation tax paid by the subsidiary in respect of that period would not have been payable if the claim had not been made,
the subsidiary shall be entitled by notice to claim repayment of that amount.
(3) In this paragraph “relevant accounting period of the subsidiary” has the same meaning as in paragraph 9.
Child living with more than one adult: married and unmarried couples
1 (1) Paragraphs 2 to 5 below apply where at any time in a year of assessment—
(a) a husband and wife are living together or a man and a woman are living together as husband and wife, and
(b) a relevant child is resident with them.
(2) In those paragraphs—
(a) the husband and wife, or the man and the woman, are referred to as the partners,
(b) “the higher-earning partner” means the partner who has the higher total income for the year of assessment,
(c) “the lower-earning partner” means the partner who has the lower total income for the year of assessment, and
(d) “relevant child” means a child who is a qualifying child in relation to both partners.
(3) If the partners have the same total income for the year—
(a) they may elect that one of them be treated for the purposes of paragraphs 2 to 5 below as the lower-earning partner, and
(b) if they do not make an election, neither shall be entitled to a children’s tax credit for the year in respect of a relevant child.
2 Subject to paragraph 3 below, the lower-earning partner shall not be entitled to a children’s tax credit for the year in respect of a relevant child.
3 (1) This paragraph applies if no part of either partner’s income for the year falls within section 1(2)(b).
(2) If the lower-earning partner makes a claim for a children’s tax credit for the year in respect of a relevant child—
(a) paragraph 2 above shall not apply, and
(b) in calculating the credit for each partner, the amount mentioned in section 257AA(2) shall be halved.
(2A) If a relevant child is a qualifying baby the reference in sub-paragraph (2)(b) above to the amount mentioned in section 257AA(2) is to the higher amount applicable by virtue of subsection (2A) of that section.
(3) If the partners make an election under this sub-paragraph—
(a) paragraph 2 above shall not apply, and
(b) the higher-earning partner shall not be entitled to a children’s tax credit for the year in respect of a relevant child.
4 (1) This paragraph applies where—
(a) a partner is entitled to a children’s tax credit for a year of assessment,
(b) the amount by reference to which his credit falls to be calculated (Amount A) exceeds the amount which would be necessary, in accordance with section 256(2) (read with section 25(6)(c) of the Finance Act 1990 where applicable), to reduce his liability for the year to income tax on his total income to nil (Amount B), and
(c) he gives notice to an officer of the Board under this paragraph.
(2) Where the other partner would not, by virtue of paragraph 2 or 3 above, be entitled to a children’s tax credit for the year in respect of a relevant child—
(a) he shall be entitled to a children’s tax credit in respect of a relevant child notwithstanding that paragraph, and
(b) the amount by reference to which his credit shall be calculated shall be the amount of the difference between Amount A and Amount B.
(3) In any other case, the difference between Amount A and Amount B shall be added to the amount by reference to which children’s tax credit would otherwise be calculated for the other partner in respect of a relevant child.
(4) A notice under this paragraph—
(a) must be given on or before the fifth anniversary of the 31st January next following the end of the year of assessment to which it relates,
(b) shall be in such form as the Board may determine, and
(c) shall be irrevocable.
5 (1) This paragraph applies to elections under paragraph 3 above.
(2) An election—
(a) shall be made by giving notice to an officer of the Board in such form as the Board may determine, and
(b) may be made so as to have effect for a single year of assessment or for two or more consecutive years.
(3) Subject to sub-paragraph (4) below, an election must be made before the first year of assessment for which it is to have effect and on the basis of assumptions about the partners’ incomes for that year.
(4) An election may be made, on the basis of such assumptions, at a time during the first year for which it is to have effect if—
(a) the election is made within the first 30 days of that year and an officer of the Board has been given written notification before that year that the election will be made, or
(b) the partners marry in that year, or
(c) the partners start to live together as man and wife in that year, or
(ca) a relevant child is born in that year, or
(d) a relevant child becomes resident with the partners in that year and no relevant child has previously in that year been resident with the partners, or
(e) it is assumed that the partner who was the higher-earning partner in the previous year will be the lower-earning partner in that year.
(5) An election may be withdrawn—
(a) by the making of another election which supersedes the first, or
(b) by notice given to an officer of the Board, in such form as the Board may determine, by either partner.
(6) A withdrawal shall have effect for the year of assessment in which it is given and subsequent years.
(7) If the higher-earning partner for one year of assessment (Year 1) is the lower-earning partner for the next year (Year 2), an election having effect for Year 1 shall not have effect for Year 2 or subsequent years.
Child living with more than one adult: other cases
6 (1) This paragraph applies to a child for a year of assessment if—
(a) he is resident with two or more persons at the same time or at different times during the year,
(b) he is a qualifying child in relation to two or more of those persons, and
(c) paragraphs 2 to 5 above do not apply in relation to him in that year.
(2) The persons in relation to whom the child is a qualifying child are referred to in this paragraph as the taxpayers.
(3) None of the taxpayers shall be entitled to a children’s tax credit for the year of assessment by virtue of the residence of any child to whom this paragraph applies except in accordance with the following provisions of this paragraph.
(4) If a taxpayer claims a children’s tax credit for the year of assessment by virtue of the residence of any child to whom this paragraph applies, for the amount mentioned in section 257AA(2) (before any reduction) there shall be substituted his allotted proportion of that amount.
(4A) If the child is a qualifying baby the reference in sub-paragraph (4) above to the amount mentioned in section 257AA(2) is to the higher amount applicable by virtue of subsection (2A) of that section.
(5) A taxpayer’s allotted proportion is—
(a) such proportion as may be agreed between him and the other taxpayers, or
(b) in default of agreement, a proportion which is assigned to him by the Commissioners.
(6) For the purposes of sub-paragraph (5) above—
(a) a proportion may be 100 per cent.,
(b) the sum of the proportions shall not exceed 100 per cent., and
(c) “the Commissioners” means such body of General Commissioners, being the General Commissioners for a division in which one of the taxpayers resides, as the Board may direct or, if none of the taxpayers resides in the United Kingdom, the Special Commissioners.
(7) Where a person—
(a) is a member of more than one set of taxpayers in relation to whom this paragraph applies for a year of assessment,
(b) has more than one allotted proportion under this paragraph for the year, and
(c) claims a children’s tax credit for the year,
for the amount mentioned in section 257AA(2) (before any reduction) there shall be substituted the aggregate of his allotted proportions of that amount (not exceeding 100 per cent.).
(7A) Where sub-paragraph (7) above applies in relation to a person, and any child in respect of which a proportion has been, or could have been, allotted to that person is a qualifying baby, the reference in that sub-paragraph to the amount mentioned in section 257AA(2) is to the higher amount applicable by virtue of subsection (2A) of that section.
(8) Where—
(a) a taxpayer makes a claim under section 257AA, and
(b) it appears that an allotted proportion will need to be assigned to him under sub-paragraph (5)(b) above for that purpose,
the Board may direct that the claim shall be dealt with, and the assignment shall be made, by a specified body of Commissioners which could be directed under sub-paragraph (6)(c) above to make the assignment; and where a direction is given no other body of Commissioners shall have jurisdiction to determine the claim.
(9) For the purposes of any assignment to a taxpayer under sub-paragraph (5)(b) above—
(a) the Commissioners shall hear and determine the case in the same manner as an appeal, and
(b) any of the taxpayers shall be entitled to appear and be heard by the Commissioners or to make representations to them in writing.
Combined cases
7 (1) This paragraph applies where a child is a relevant child for the purposes of paragraphs 2 to 5 above in a year of assessment and—
(a) he is a relevant child for the year in relation to more than one pair of partners, or
(b) paragraph 6 above would apply to him for the year but for the fact that he is a relevant child for the purposes of paragraphs 2 to 5 above.
(2) Where this paragraph applies—
(a) paragraph 6 above shall apply, but with each pair of partners for the purposes of paragraphs 2 to 5 above being treated as a single taxpayer, and
(b) paragraphs 2 to 5 above shall apply in relation to each pair of partners, taking for the amount mentioned in section 257AA(2) (before any reduction) the amount substituted by virtue of paragraph 6 above.
(3) Where paragraph 6(4A) or (7A) above applies, the reference in sub-paragraph (2) above to the amount mentioned in section 257AA(2) is to the higher amount applicable by virtue of subsection (2A) of that section.
Change of circumstances
8 (1) For the purposes of this paragraph a change of circumstances occurs in relation to a child in a year of assessment if a relevant event takes place in that year and—
(a) as a result of the event the child becomes a qualifying child in relation to any person or stops being a qualifying child in relation to any person, or
(b) the child is, immediately before the event, a qualifying child in relation to both parties to the event.
(2) The following are relevant events—
(a) a marriage or a man and a woman starting to live together as husband and wife;
(b) a separation.
(3) A separation occurs when—
(a) a husband and wife cease to live together, or
(b) a man and a woman cease to live together as husband and wife, having been living together as husband and wife without being married.
(4) In a year of assessment in which a change of circumstances (or more than one) occurs in relation to a child, section 257AA (except subsection (4A)) and paragraphs 2 to 7 above shall apply in relation to the child’s residence as if each of the following were a separate year of assessment—
(a) the period ending with the day before the first (or only) change of circumstances,
(b) the period starting with the day of the last (or only) change of circumstances, and
(c) any period starting with the day of one change of circumstances and ending with the day before the next.
(5) For the purposes of sub-paragraph (4) above the amount specified in section 257AA(2) (before any reduction or substitution) shall be taken to be the result of the following formula—
Days
during
the
period
365
x Amount
in
s.257AA
(
2
)
(5A) If the child is a qualifying baby the references in sub-paragraph (5) above to the amount specified in section 257AA(2) are to the higher amount applicable by virtue of subsection (2A) of that section.
(6) In applying sub-paragraph (4) above a reference in section 257AA or this Schedule to a person’s income for the year shall be taken as a reference to his income for the year and not his income for the period.
Section 266(12).
PART I MODIFICATION OF SECTION 266 IN CERTAIN CASES
Spouses and civil partners
1 (1) In section 266—
(a) references to an individual's spouse include any person who—
(i) was that individual's spouse at the time the insurance or contract was made, or
(ii) became that individual's spouse after the insurance or contract was made,
unless the marriage was dissolved before 6th April 1979, and
(b) references to an individual's civil partner include any person who—
(i) was that individual's civil partner at the time the insurance or contract was made, or
(ii) became that individual's civil partner after the insurance or contract was made.
(1A) But an individual is entitled to relief by virtue of sub-paragraph (1)(a)(ii) or (b)(ii) only in respect of premiums payable after the date on which the person in question became that individual's spouse or civil partner.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premiums payable to friendly societies and industrial assurance companies
2 (1) This paragraph applies to—
(a) a policy issued in the course of an industrial assurance business; and
(b) a policy issued by a friendly society in the course of tax exempt life or endowment business (as defined in section 466).
(1A) In sub-paragraph (1)(a) “industrial assurance business” means any industrial assurance business within the meaning given by—
(a) section 1(2) of the Industrial Assurance Act 1923, or
(b) Article 3(1) of the Industrial Assurance (Northern Ireland) Order 1979,
which was carried on before 1 December 2001.
(2) Subject to paragraph 3(2) below, if a policy to which this paragraph applies was issued before the passing of the Finance Act 1976 (29th July 1976), section 266 shall have effect in relation to it as if subsections (2)(b), (3)(a), (b) and (d) were omitted; and if a policy to which this paragraph applies was issued after the passing of that Act, subsection (2)(b) of that section shall have effect in relation to it as if it permitted the insurance to be on the life of the individual’s parent or grandparent or, subject to sub-paragraph (3) below, on the life of the individual’s child or grandchild.
(3) Relief may be given in respect of premiums under a policy of insurance on the life of an individual’s child or grandchild which was or is issued after the passing of the Finance Act 1976 (29th July 1976), as if subsection (3)(d) of section 266 were omitted, but may be given only if the annual amount of the premiums, together with that of any relevant premiums, does not exceed £52 if the policy was issued in respect of an insurance made before 25th March 1982 or £64 in any other case.
(4) For the purposes of sub-paragraph (3) above, a relevant premium, in relation to an insurance made at any time on the life of an individual’s child or grandchild, is any premium under a policy of insurance on the same life, where the insurance is made at the same time or earlier, whether it is made by the individual or any other person.
(5) In this paragraph “child” includes a step-child and an illegitimate child whose parents have married each other after his birth, and “grandchild”, “parent” and “grandparent” have corresponding meanings.
3 (1) Where a policy is issued or a contract is made by a friendly society or a policy to which paragraph 2 above applies is issued by an industrial assurance company, section 266(4), (5) and (8) shall apply in relation to premiums payable under the policy or contract subject to the following provisions of this paragraph.
(2) References to the deductions authorised under section 266(5) shall be construed as including references to any amount retained by or refunded to the person paying the premium under any scheme made by the society or company in accordance with regulations made under this paragraph.
(3) The appropriate authority may make regulations authorising—
(a) the adoption by friendly societies and industrial assurance companies of any prescribed scheme for securing that in the case of policies or contracts to which the scheme applies amounts equal to 12.5 per cent. of the premiums payable are retained by or refunded to the person paying the premiums or that, in the case of such policies or contracts issued or made before 6th April 1979, the amounts expressed as the amounts of the premiums payable are treated as amounts arrived at by deducting 12.5 per cent. from the amounts payable and that the amounts of the capital sums assured or guaranteed are treated as correspondingly increased; or
(b) the adoption by any such society or company of any special scheme for that purpose which may, in such circumstances as may be prescribed, be approved by the appropriate authority.
(4) Increases treated as made in pursuance of regulations under this paragraph shall not be treated as variations of a policy or contract and shall be disregarded for the purposes of paragraph 2(3) above, sections 268(6), 460, 461(1) and 464 of, and paragraph 7 of Schedule 15 to, this Act . . . .
(5) The regulations may include such adaptations and modifications of the enactments relating to friendly societies or industrial assurance companies and such other incidental and supplementary provisions as appear to the appropriate authority necessary or expedient for the purpose of enabling such societies or companies to adopt the schemes authorised by the regulations.
(6) Subsections (4), (5) and (7) to (11) of section 6 of the Decimal Currency Act 1969 shall, with the necessary modifications, apply in relation to regulations made under this paragraph.
PART II SUPPLEMENTARY PROVISIONS AS TO RELIEF UNDER SECTION 266
4 (1) Where it appears to the Board that the relief (if any) to which a person is entitled under section 266 has been exceeded or might be exceeded unless the premiums payable by him under any policy or contract were paid in full, they may, by notice to that person and to the person to whom the payments are made, exclude the application of subsection (5) of that section in relation to any payments due or made after such date as may be specified in the notice and before such date as may be specified in a further notice to those persons.
(2) Where the application of section 266(5) is so excluded in relation to any payments, the relief (if any) to which the person by whom the payments are made is entitled under section 266 shall be given to him under paragraph 6 below.
5 Where a person is entitled to relief under section 266 in respect of a payment to which section 386 of ITEPA 2003 (payments to non-approved retirement benefits schemes) applies, section 266(5) shall not apply but the like relief shall be given to him under paragraph 6 below.
6 (1) Where in any year of assessment the relief to which a person is entitled under section 266 . . . has not been fully given in accordance with that section and the preceding provisions of this Schedule, he may claim relief for the difference, and relief for the difference shall then be given by a payment made by the Board or by discharge or repayment of tax or partly in one such manner and partly in another; and where relief so given to any person exceeds that to which he is entitled under section 266, he shall be liable to make good the excess and an inspector may make such assessments as may in his judgment be required for recovering the excess.
(2) The Management Act shall apply to any assessment under this paragraph as if it were an assessment to tax for the year of assessment in which the relief was given . . . .
7 (1) The Board may make regulations for carrying into effect section 266(4), (5), (8) and (9) and the preceding provisions of this Schedule and paragraphs 9 and 10 of Schedule 15 (“the relevant provisions”).
(2) Regulations under this paragraph may, without prejudice to the generality of sub-paragraph (1) above, provide—
(a) for the furnishing of such information by persons by whom premiums are payable as may be necessary for determining whether they are entitled to make deductions under section 266(5) and for excluding the operation of that subsection in relation to payments made by persons who fail to comply with the regulations;
(b) for rounding to a multiple of one penny any payment which, after a deduction authorised under section 266(5), is not such a multiple;
(c) for the manner in which claims for the recovery of any sum under section 266(5)(b) may be made;
(d) for the furnishing of such information by persons by or to whom premiums are payable as appears to the Board necessary for deciding such claims and for exercising their powers under paragraph 4 or 6 above; and
(e) for requiring persons to whom premiums are paid to make available for inspection by an officer authorised by the Board such books and other documents in their possession or under their control as may reasonably be required for the purposes of determining whether any information given by those persons for the purposes of the relevant provisions is correct and complete.
(3) The following provisions of the Management Act, that is to say—
(a) section 29(1)(c) (excessive relief) as it has effect apart from section 29(2) to (10) of that Act;
(b) section 30 (recovery of tax repaid in consequence of fraud or negligence etc.) apart from subsection (1B);
(c) section 86 (interest); and
(d) section 95 (incorrect return or accounts);
shall apply in relation to an amount which is paid to any person by the Board as an amount recoverable by virtue of section 266(5)(b) but to which that person is not entitled as if it were income tax which ought not to have been repaid and, where that amount was claimed by that person, as if it had been repaid as respects a chargeable period as a relief which was not due.
(4) In the application of section 86 of the Management Act by virtue of sub-paragraph (3) above in relation to sums due and payable by virtue of an assessment made for the whole or part of a year of assessment (“the relevant year of assessment”) under section 29(1)(c) or 30 of that Act, as applied by that sub-paragraph, the relevant date—
(a) is 1st January in the relevant year of assessment in a case where the person falling within section 266(5)(b) has made a relevant interim claim; and
(b) in any other case, is the later of the following dates, that is to say—
(i) 1st January in the relevant year of assessment; or
(ii) the date of the making of the payment by the Board which gives rise to the assessment.
(5) In this paragraph—
“financial year”, in relation to any person, means a financial year of that person for the purposes of the relevant regulations;
“interim claim” means an interim claim within the meaning of the relevant regulations;
“relevant interim claim” means, in relation to an assessment made for a period coterminous with, or falling wholly within, a person’s financial year, an interim claim made for a period falling wholly or partly within that financial year;
“the relevant regulations” means regulations made under sub-paragraph (1) above.
8 (1) A policy of life insurance issued in respect of an insurance made on or before 19th March 1968 shall be treated for the purposes of section 266(3)(b) as issued in respect of one made after that date if varied after that date so as to increase the benefits secured or to extend the term of the insurance.
(2) A variation effected before the end of the year 1968 shall be disregarded for the purposes of sub-paragraph (1) above if its only effect was to bring into conformity with paragraph 2 of Schedule 9 to the Finance Act 1968 (qualifying conditions for endowment policies, and now re-enacted as paragraph 2 of Schedule 15 to this Act) a policy previously conforming therewith except as respects the amount guaranteed on death, and no increase was made in the premiums payable under the policy.
(3) A policy which was issued in the course of industrial assurance business in respect of an insurance made after 13th March 1984 shall be treated for the purposes of section 266(3)(c) and this paragraph as issued in respect of an insurance made on or before that date if—
(a) the proposal form for the policy was completed on or before that date; and
(b) on or before 31st March 1984 the policy was prepared for issue by the company or society concerned; and
(c) on or before 31st March 1984 and in accordance with the normal business practice of the company or society a permanent record of the preparation of the policy was made in any book or by any other means kept or instituted by the company or society for the purpose.
(3A) In sub-paragraph (3) “industrial assurance business” means any industrial assurance business within the meaning given by—
(a) section 1(2) of the Industrial Assurance Act 1923, or
(b) Article 3(1) of the Industrial Assurance (Northern Ireland) Order 1979,
which was carried on before 1 December 2001.
(4) Subject to sub-paragraph (8) below, for the purposes of section 266(3)(c) a policy of life insurance which was issued in respect of an insurance made on or before 13th March 1984 shall be treated as issued in respect of an insurance made after that date if the policy is varied after that date so as to increase the benefits secured or to extend the term of the insurance.
(5) If a policy of life insurance which was issued as mentioned in sub-paragraph (4) above confers on the person to whom it was issued an option to have another policy substituted for it or to have any of its terms changed, then, for the purposes of that sub-paragraph and section 266(3)(c), any change in the terms of the policy which is made in pursuance of the option shall be deemed to be a variation of the policy.
(6) In any case where—
(a) one policy is replaced by another in such circumstances that the provisions of paragraph 20 of Schedule 15 apply; and
(b) the earlier policy was issued in respect of an insurance made on or before 13th March 1984; and
(c) the later policy confers on the life or lives assured thereby benefits which are substantially equivalent to those which would have been enjoyed by the life or lives assured under the earlier policy, if that policy had continued in force;
then, for the purposes of section 266(3)(c), the insurance in respect of which the later policy is issued shall be deemed to have been made before 13th March 1984; and in this sub-paragraph “the earlier policy” and “the later policy” have the same meaning as in paragraph 20 of Schedule 15.
(7) In any case where—
(a) there is a substitution of policies falling within paragraph 25(1) or (3) of Schedule 15; and
(b) the old policy was issued in respect of an insurance made on or before 13th March 1984;
then, for the purposes of section 266(3)(c), the insurance in respect of which the new policy is issued shall be deemed to have been made before 13th March 1984; and in this sub-paragraph “the old policy” and “the new policy” have the same meaning as in paragraph 17 of Schedule 15.
(8) Sub-paragraph (4) above does not apply in the case of a variation so as to increase the benefits secured, if the variation is made—
(a) on or after such day as the Board may by order appoint, and
(b) in consideration of a change in the method of payment of premiums from collection by a person collecting premiums from house to house to payment by a different method.
Section 267.
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
x
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.
PART I QUALIFYING CONDITIONS
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.
General rules applicable to whole life and term assurances
1 (1) Subject to the following provisions of this Part of this Schedule, if a policy secures a capital sum which is payable only on death, or one payable either on death or on earlier disability, it is a qualifying policy if—
(a) it satisfies the conditions appropriate to it under sub-paragraphs (2) to (5) below, and
(b) except to the extent permitted by sub-paragraph (7) below, it does not secure any other benefits.
(2) If the capital sum referred to in sub-paragraph (1) above is payable whenever the event in question happens, or if it happens at any time during the life of a specified person—
(a) the premiums under the policy must be payable at yearly or shorter intervals, and either—
(i) until the happening of the event or, as the case may require, until the happening of the event or the earlier death of the specified person, or
(ii) until the time referred to in sub-paragraph (i) above or the earlier expiry of a specified period ending not earlier than ten years after the making of the insurance; and
(b) the total premiums payable in any period of 12 months must not exceed—
(i) twice the amount of the total premiums payable in any other such period, or
(ii) one-eighth of the total premiums which would be payable if the policy were to continue in force for a period of ten years from the making of the insurance, or, in a case falling within sub-paragraph (ii) of paragraph (a) above, until the end of the period referred to in that sub-paragraph.
(3) If the capital sum referred to in sub-paragraph (1) above is payable only if the event in question happens before the expiry of a specified term ending more than ten years after the making of the insurance, or only if it happens both before the expiry of such a term and during the life of a specified person—
(a) the premiums under the policy must be payable at yearly or shorter intervals, and either—
(i) until the happening of the event or the earlier expiry of that term or, as the case may require, until the happening of the event or, if earlier, the expiry of the term or the death of the specified person, or
(ii) as in sub-paragraph (i) above, but with the substitution for references to the term of references to a specified shorter period being one ending not earlier than ten years after the making of the insurance or, if sooner, the expiry of three-quarters of that term; and
(b) the total premiums payable in any period of 12 months must not exceed—
(i) twice the amount of the total premiums payable in any other such period, or
(ii) one-eighth of the total premiums which would be payable if the policy were to continue in force for the term referred to in sub-paragraph (i) of paragraph (a) above, or, as the case may require, for the shorter period referred to in sub-paragraph (ii) of that paragraph.
(4) If the capital sum referred to in sub-paragraph (1) above is payable only if the event in question happens before the expiry of a specified term ending not more than ten years after the making of the insurance, or only if it happens both before the expiry of such a term and during the life of a specified person, the policy must provide that any payment made by reason of its surrender during the period is not to exceed the total premiums previously paid under the policy.
(5) Except where—
(a) the capital sum referred to in sub-paragraph (1) above is payable only in the circumstances mentioned in sub-paragraph (3) or (4) above; and
(b) the policy does not provide for any payment on the surrender in whole or in part of the rights conferred by it; and
(c) the specified term mentioned in sub-paragraph (3) or, as the case may be, (4) above ends at or before the time when the person whose life is insured attains the age of 75 years;
the capital sum, so far as payable on death, must not be less than 75 per cent. of the total premiums that would be payable if the death occurred at the age of 75 years, the age being, if the sum is payable on the death of the first to die of two persons, that of the older of them, if on the death of the survivor of them, that of the younger of them, and in any other case, that of the person on whose death it is payable; and if the policy does not secure a capital sum in the event of death occurring before the age of 16 or some lower age, it must not provide for the payment in that event of an amount exceeding the total premiums previously paid under it.
(6) In determining for the purposes of sub-paragraph (5) above whether a capital sum is less than 75 per cent. of the total premiums, any amount included in the premiums by reason of their being payable otherwise than annually shall be disregarded, and if the policy provides for payment otherwise than annually without providing for the amount of the premiums if they are paid annually, 10 per cent. of the premiums payable under the policy shall be treated as so included.
(7) Notwithstanding sub-paragraph (1)(b) above, if a policy secures a capital sum payable only on death, it may also secure benefits (including benefits of a capital nature) to be provided in the event of a person’s disability; and no policy is to be regarded for the purposes of that provision as securing other benefits by reason only of the fact that—
(a) it confers a right to participate in profits, or
(b) it provides for a payment on the surrender in whole or in part of the rights conferred by the policy, or
(c) it gives an option to receive payments by way of annuity, or
(d) it makes provision for the waiver of premiums by reason of a person’s disability, or for the effecting of a further insurance or insurances without the production of evidence of insurability.
(8) In applying sub-paragraph (2) or (3) above to any policy—
(a) no account shall be taken of any provision for the waiver of premiums by reason of a person’s disability, and
(b) if the term of the policy runs from a date earlier, but not more than three months earlier, than the making of the insurance, the insurance shall be treated as having been made on that date, and any premium paid in respect of the period before the making of the insurance, or in respect of that period and a subsequent period, as having been payable on that date.
(9) References in this paragraph to a capital sum payable on any event include references to any capital sum, or series of capital sums, payable by reason of that event but where what is so payable is either an amount consisting of one sum or an amount made up of two or more sums, the 75 per cent. mentioned in sub-paragraph (5) above shall be compared with the smaller or smallest amount so payable; and a policy secures a capital sum payable either on death or on disability notwithstanding that the amount payable may vary with the event.
(10) In relation to any policy issued in respect of an insurance made before 1st April 1976 this paragraph shall have effect—
(a) with the omission of sub-paragraphs (5) and (6) and in sub-paragraph (9) the words “but where what is so payable is either an amount consisting of one sum or an amount made up of two or more sums, the 75 per cent. mentioned in sub-paragraph (5) above shall be compared with the smaller or smallest amount so payable”; and
(b) with the substitution, for sub-paragraph (7)(b), of—
(b) it carries a guaranteed surrender value;
.
General rules applicable to endowment assurances
2 (1) Subject to the following provisions of this Part of this Schedule, a policy which secures a capital sum payable either on survival for a specified term or on earlier death, or earlier death or disability, including a policy securing the sum on death only if occurring after the attainment of a specified age not exceeding 16, is a qualifying policy if it satisfies the following conditions—
(a) the term must be one ending not earlier than ten years after the making of the insurance;
(b) premiums must be payable under the policy at yearly or shorter intervals, and—
(i) until the happening of the event in question; or
(ii) until the happening of that event, or the earlier expiry of a specified period shorter than the term but also ending not earlier than ten years after the making of the insurance; or
(iii) if the policy is to lapse on the death of a specified person, until one of those times or the policy’s earlier lapse;
(c) the total premiums payable under the policy in any period of 12 months must not exceed—
(i) twice the amount of the total premiums payable in any other such period, or
(ii) one-eighth of the total premiums which would be payable if the policy were to run for the specified term;
(d) the policy—
(i) must guarantee that the capital sum payable on death, or on death occurring after the attainment of a specified age not exceeding 16, will, whenever that event may happen, be equal to 75 per cent. at least of the total premiums which would be payable if the policy were to run for that term, disregarding any amounts included in those premiums by reason of their being payable otherwise than annually, except that if, at the beginning of that term, the age of the person concerned exceeds 55 years, the capital sum so guaranteed may, for each year of the excess, be less by 2 per cent. of that total than 75 per cent. thereof, the person concerned being, if the capital sum is payable on the death of the first to die of two persons, the older of them, if on the death of the survivor of them, the younger of them and in any other case the person on whose death it is payable; and
(ii) if it is a policy which does not secure a capital sum in the event of death before the attainment of a specified age not exceeding 16, must not provide for the payment in that event of an amount exceeding the total premiums previously paid thereunder; and
(e) the policy must not secure the provision (except by surrender in whole or in part of the rights conferred by the policy) at any time before the happening of the event in question of any benefit of a capital nature other than a payment falling within paragraph (d)(ii) above, or benefits attributable to a right to participate in profits or arising by reason of a person’s disability.
(2) For the purposes of sub-paragraph (1)(d)(i) above, 10 per cent. of the premiums payable under any policy that provides for the payment of premiums otherwise than annually without providing for the amount of the premiums if they are paid annually, shall be treated as attributable to the fact that they are not paid annually.
(3) Sub-paragraphs (8) and (9) of paragraph 1 above shall, with any necessary modifications, have effect for the purposes of this paragraph as they have effect for the purposes of that paragraph.
(4) In relation to any policy issued in respect of an insurance made before 1st April 1976 this paragraph shall have effect with the omission in sub-paragraph (1)(d)(i) of the words from “except that if” to the end, and in sub-paragraph (1)(e) of the words “in whole or in part of the rights conferred by the policy”.
Special types of policy
(i)Friendly Society policies
3 (1) Paragraphs 1 and 2 above do not apply to a policy issued by a friendly society in the course of exempt BLAGAB or eligible PHI business in respect of an insurance made or varied on or after 19th March 1985, but such a policy shall not be a qualifying policy unless—
(a) in the case of a policy for the assurance of a gross sum or annuity, the conditions in sub-paragraph (2) are fulfilled with respect to it; and
(b) in the case of a policy for the assurance of a gross sum, the conditions in sub-paragraphs (5) to (11) below are fulfilled with respect to it; . . .
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) The conditions referred to in sub-paragraph (1) above are as follows—
(a) subject to sub-paragraph (3) below, the period (the “term” of the policy) between—
(i) the making of the insurance or, where the contract provides for the term to begin on a date not more than three months earlier than the making of the insurance, that date, and
(ii) the time when the gross sum assured is payable (or, as the case may be, when the first instalment of the annuity is payable),
shall be not less than ten years, and must not, on any contingency other than the death, or retirement on grounds of ill health, of the person liable to pay the premiums or whose life is insured, become less than ten years;
(b) subject to sub-paragraph (4) below, the premiums payable under the policy shall be premiums of equal or rateable amounts payable at yearly or shorter intervals over the whole term of the policy of assurance, or over the whole term of the policy of assurance apart from any period after the person liable to pay the premiums or whose life is insured attains a specified age, being an age which he will attain at a time not less than ten years after the beginning of the term of the policy of assurance;
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Notwithstanding sub-paragraph (2)(a) above, the policy—
(a) may provide for a payment to a person of an age not exceeding 18 years at any time not less than five years from the beginning of the term of the policy if the premium or premiums payable in any period of 12 months in the term of the policy do not exceed £13;
(b) may provide for a payment at any time not less than five years from the beginning of the term of the policy, if it is one of a series of payments falling due at intervals of not less than five years, and the amount of any payment, other than the final payment, does not exceed four-fifths of the premiums paid in the interval before its payment.
For the purposes of paragraph (a) above, if the term begins on a date earlier than the making of the insurance, any premium paid in respect of a period before the making of the insurance, or in respect of that period and a subsequent period, shall be treated as having been payable on that date.
(4) Notwithstanding sub-paragraph (2)(b) above, the policy—
(a) may allow a payment at any time after the expiration of one-half of the term of the policy of assurance, or of ten years from the beginning of the term, whichever is the earlier, being a payment in commutation of the liability to pay premiums falling due after that time;
(b) may allow the person liable to pay the premiums to commute any liability for premiums where he ceases to reside in the United Kingdom or gives satisfactory proof of intention to emigrate;
(c) may allow any liability for premiums to be discharged in consideration of surrendering a sum which has become payable on the maturity of any other policy of assurance issued by the same friendly society (or any predecessor of it) to the person liable to pay the premiums, or to his parent, where that other policy of assurance is issued as part of the friendly society’s exempt BLAGAB or eligible PHI business; and
(d) may make provision for the waiver of premiums by reason of a person’s disability.
(4A) For the purposes of sub-paragraphs (2) and (4) above—
(a) a friendly society formed on the amalgamation of two or more friendly societies is the successor of each of those societies (and each of those societies was a predecessor of the society so formed), and
(b) an incorporated friendly society that was a registered friendly society before its incorporation is the successor of the registered friendly society (and the registered friendly society was the predecessor of the incorporated friendly society).
(5) Where the policy secures a capital sum which is payable only on death or only on death occurring after the attainment of a specified age not exceeding 16, that capital sum must be not less than 75 per cent. of the total premiums which would be payable if the death of the relevant beneficiary occurred at the age of 75.
(6) Where the policy secures a capital sum which is payable only on survival for a specified term, that capital sum must be not less than 75 per cent. of the total premiums which would be payable if the policy were to run for that term.
(7) Where the policy secures a capital sum which is payable on survival for a specified term or on earlier death, or on earlier death or disability (including a policy securing the sum on death only if occurring after the attainment of a specified age not exceeding 16), the capital sum payable on death, whenever that event occurs, must be not less than 75 per cent. of the total premiums which would be payable if the policy were to run for that term, except that if, at the beginning of that term, the age of the relevant beneficiary exceeds 55, that capital sum may, for each year of the excess, be less by 2 per cent. of that total than 75 per cent. thereof.
(8) For the purposes of sub-paragraphs (5) to (7) above—
(a) “the relevant beneficiary” means—
(i) if the capital sum concerned is payable on the death of the first to die of two persons, the older of them;
(ii) if that capital sum is payable on the death of the survivor of two persons, the younger of them; and
(iii) in any other case, the person on whose death that capital sum is payable; and
(b) in determining the total premiums payable in any circumstances—
(i) where those premiums are payable otherwise than annually, and the policy is issued by a society other than an old society, there shall be disregarded an amount equal to 10 per cent. of those premiums;
(ii) where the policy is issued by an old society, there shall be disregarded an amount equal to £10 for each year for which account is taken of those premiums or, where those premiums are payable otherwise than annually, an amount equal to 10 per cent. of those premiums if that is greater; . . .
(iii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9) If the policy does not secure a capital sum in the event of death occurring before the age of 16 or some lower age, it must not provide for the payment in that event of an amount exceeding the total premiums previously paid under it.
(10) References in this paragraph to a capital sum payable on any event include references to a capital sum or series of capital sums payable by reason of that event, but where what is so payable is either an amount consisting of one sum or an amount made up of two or more sums, any reference in sub-paragraphs (5) to (7) above to 75 per cent. of the total premiums payable in any circumstances shall be compared with the smaller or smallest amount so payable; and for the purposes of those sub-paragraphs a policy secures a capital sum payable either on death or on disability notwithstanding that the amount may vary with the event.
(11) For the purposes of sub-paragraphs (5) to (7) and (10) above, in the case of a policy which provides for any such payments as are referred to in sub-paragraph (3) above (“interim payments”), the amount of the capital sum which is payable on any event shall be taken to be increased—
(a) in the case of a policy which secures such a capital sum as is referred to in sub-paragraph (5) above, by the total of the interim payments which would be payable if the death of the relevant beneficiary (within the meaning of that sub-paragraph) occurred at the age of 75; and
(b) in the case of a policy which secures such a capital sum as is referred to in sub-paragraph (6) or (7) above, by the total of the interim payments which would be payable if the policy were to run for the specified term referred to in that sub-paragraph.
4 (1) The provisions of this paragraph have effect notwithstanding anything in paragraph 3 above.
(2) In determining whether a policy—
(a) which affords provision for sickness or other infirmity (whether bodily or mental), and
(b) which also affords assurance for a gross sum independent of sickness or other infirmity, and
(c) under which not less than 60 per cent. of the amount of the premiums is attributable to the provision referred to in paragraph (a) above,
is a qualifying policy, the conditions referred to in paragraph 3(1)(b) above shall be deemed to be fulfilled with respect to it.
(3) A policy shall cease to be a qualifying policy—
(a) if it falls within sub-paragraph (1) of paragraph 3 above and there is such a variation of its terms that any of the conditions referred to in that sub-paragraph ceases to be fulfilled; or
(b) if—
(i) it was effected in the course of the business of effecting or carrying out contracts of insurance which fall within paragraph 1 of Part I or paragraph VI of Part II of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001,
(ii) it was issued by a society other than an old society, and
(iii) the rights conferred by it are surrendered in whole or in part.
5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6 (1) A policy which was issued by any registered friendly society . . . , or branch of such a society, in the course of exempt BLAGAB or eligible PHI business. . . in respect of insurances made before 19th March 1985 and which has not been varied on or after that date is a qualifying policy notwithstanding that it does not comply with the conditions specified in paragraph 1 or 2 above.
(2) Notwithstanding paragraphs 3 to 5 or sub-paragraph (1) above, if, on or after 19th March 1985, a person becomes in breach of the limits in section 160 of the Finance Act 2012, the policy effected by that contract which causes those limits to be exceeded shall not be a qualifying policy; and in any case where—
(a) the limits in that section are exceeded as a result of the aggregation of the sums assured or premiums payable under two or more contracts, and
(b) at a time immediately before one of those contracts was entered into (but not immediately after it was entered into) the sums assured by or, as the case may be, the premiums payable under the contract or contracts which were then in existence did not exceed the limits in that section,
only those policies effected by contracts made after that time shall be treated as causing the limits to be exceeded.
6A Any expression—
(a) which is used in any provision made by any of paragraphs 3 to 6, and
(b) which is used in Part 3 of the Finance Act 2012,
has the same meaning in that provision as it has in that Part.
(ii) Industrial assurance policies
7 (1) A policy issued in the course of an industrial assurance business, and not constituting a qualifying policy by virtue of paragraph 1 or 2 above, is nevertheless a qualifying policy if—
(a) the sums guaranteed by the policy, together with those guaranteed at the time the assurance is made by all other policies issued in the course of such a business to the same person and not constituting qualifying policies apart from this paragraph, do not exceed £1,000;
(b) it satisfies the conditions with respect to premiums specified in paragraph 1(2) above;
(c) except by reason of death or surrender, no capital sum other than one falling within paragraph (d) below can become payable under the policy earlier than ten years after the making of the assurance; and
(d) where the policy provides for the making of a series of payments during its term—
(i) the first such payment is due not earlier than five years after the making of the assurance, and the others, except the final payment, at intervals of not less than five years, and
(ii) the amount of any payment, other than the final payment, does not exceed four-fifths of the premiums paid in the interval before its payment; or
(e) the policy was issued before 6th April 1976, or was issued before 6th April 1979 and is in substantially the same form as policies so issued before 6th April 1976.
(2) For the purposes of this paragraph, the sums guaranteed by a policy do not include any bonuses, or in the case of a policy providing for a series of payments during its term, any of those payments except the first, or any sum payable on death during the term by reference to one or more of those payments except so far as that sum is referable to the first such payment.
8 Where a policy issued in respect of an insurance made after 1st April 1976 in the course of an industrial assurance business is not a qualifying policy by virtue of paragraph 1 or 2 above but is a policy with respect to which the conditions in paragraph 7(1)(b) and (c) above are satisfied, it shall be a qualifying policy whether or not the condition in paragraph 7(1)(a) above is satisfied with respect to it; but where that condition is not satisfied, relief under section 266 in respect of premiums paid under the policy shall be given only on such amount (if any) as would have been the amount of those premiums had that condition been satisfied.
8A (1) Paragraphs 7 and 8 above shall have effect in relation to any policy issued on or after the appointed day as if the references to the issue of a policy in the course of an industrial assurance business were references to the issue of a policy by any company in a case in which—
(a) the company, before that day and in the course of such a business, issued any policy which was a qualifying policy by virtue of either of those paragraphs; and
(b) the policies which on 28th November 1995 were being offered by the company as available to be issued included policies of the same description as the policy issued on or after the appointed day.
(2) In this paragraph “the appointed day” means such day as the Board may by order appoint.
(iii) Family income policies and mortgage protection
9 (1) The following provisions apply to any policy which is not a qualifying policy apart from those provisions, and the benefits secured by which consist of or include the payment on or after a person’s death of—
(a) one capital sum which does not vary according to the date of death, plus a series of capital sums payable if the death occurs during a specified period, or
(b) a capital sum, the amount of which is less if the death occurs in a later part of a specified period than if it occurs in an earlier part of that period.
(2) A policy falling within sub-paragraph (1)(a) above is a qualifying policy if—
(a) it would be one if it did not secure the series of capital sums there referred to, and the premiums payable under the policy were such as would be chargeable if that were in fact the case, and
(b) it would also be one if it secured only that series of sums, and the premiums thereunder were the balance of those actually so payable.
(3) A policy falling within sub-paragraph (1)(b) above is a qualifying policy if—
(a) it would be one if the amount of the capital sum there referred to were equal throughout the period to its smallest amount, and the premiums payable under the policy were such as would be chargeable if that were in fact the case, and
(b) it would also be one if it secured only that capital sum so far as it from time to time exceeds its smallest amount, and the premiums payable thereunder were the balance of those actually so payable.
Other special provisions
(i) Short-term assurances
10 A policy which secures a capital sum payable only on death or payable either on death or on earlier disability shall not be a qualifying policy if the capital sum is payable only if the event in question happens before the expiry of a specified term ending less than one year after the making of the insurance.
(ii) Personal accident insurance
11 (1) A policy which evidences a contract of insurance to which sub-paragraph (3) below applies shall not be a qualifying policy unless it also evidences —
(a) a contract of insurance on human life; or
(b) a contract to pay annuities on human life.
(2) A policy which evidences a contract of insurance to which sub-paragraph (4) below applies shall not be a qualifying policy unless it also evidences a contract falling within section 83(2)(a) of the Insurance Companies Act 1974.
(3) This sub-paragraph applies to contracts of insurance issued in respect of insurances made on or after 25th March 1982 against risks of persons dying as a result of an accident or an accident of a specified class, not being contracts which—
(a) are expressed to be in effect for a period of not less than five years or without limit of time; and
(b) either are not expressed to be terminable by the insurer before the expiration of five years from their taking effect or are expressed to be so terminable before the expiration of that period only in special circumstances therein mentioned.
(4) This sub-paragraph applies to contracts of insurance issued in respect of insurances made before 25th March 1982 against risks of persons dying as a result of an accident or an accident of a specified class, not being contracts falling within section 83(2)(b) of the Insurance Companies Act 1974.
(iii) Exceptional risk of death or disability
12 For the purpose of determining whether any policy is a qualifying policy, there shall be disregarded—
(a) so much of any premium thereunder as is charged on the grounds that an exceptional risk of death or disability is involved; and
(b) any provision under which, on those grounds, any sum may become chargeable as a debt against the capital sum guaranteed by the policy on death or disability.
(iv) Connected policies
13 Subject to paragraph 14 below, where the terms of any policy provide that it is to continue in force only so long as another policy does so, neither policy is a qualifying policy unless, if they had constituted together a single policy issued in respect of an insurance made at the time of the insurance in respect of which the first-mentioned policy was issued, that single policy would have been a qualifying policy.
14 (1) A policy shall not be a qualifying policy if the policy is connected with another policy and the terms of either policy provide benefits which are greater than would reasonably be expected if any policy connected with it were disregarded.
(2) For the purposes of this paragraph a policy is connected with another policy if they are at any time simultaneously in force and either of them is issued with reference to the other, or with a view to enabling the other to be issued on particular terms or facilitating its being issued on those terms.
(3) In this paragraph “policy” means a policy evidencing a contract of long-term insurance, and includes any such policy issued outside the United Kingdom.
(3A) In sub-paragraph (3) “contract of long-term insurance” means a contract which falls within Part II of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.
(4) Where any person issues a policy—
(a) which by virtue of this paragraph is not a qualifying policy, or
(b) the issue of which causes another policy to cease by virtue of this paragraph to be a qualifying policy,
he shall within three months of issuing the policy give notice of that fact to the Board.
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) This paragraph shall apply to policies issued in respect of insurances made before 23rd August 1983 in accordance with sub-paragraphs (7) and (8) below.
(7) Where—
(a) a policy is issued in respect of an insurance made before 23rd August 1983, and
(b) a policy is issued in respect of an insurance made on or after that date which is connected with it within the meaning of this paragraph,
sub-paragraphs (1) to (6) above shall apply to the policy issued in respect of an insurance made before that date.
(8) Sub-paragraphs (1) to (7) above shall apply to policies issued in respect of insurances made before 23rd August 1983 (other than policies which, disregarding this paragraph, fall within sub-paragraph (7)) with the substitution—
(a) in sub-paragraph (1) for the words “and the terms of either policy” of the words “ the terms of which ”;
(b) in sub-paragraph (3) for the words from “long term business” to “1982” of the words “ ordinary long-term insurance business within the meaning of section 83(2) of the Insurance Companies Act 1974 (as enacted) or, in relation to a policy made after 25th March 1982, section 96(1) of the Insurance Companies Act 1982 ”; and
(c) in sub-paragraphs (6) and (7) for the words “23rd August 1983” of the words “ 26th March 1980 ”.
(9) In any case where payments made—
(a) after 22nd August 1983, and
(b) by way of premium or other consideration in respect of a policy issued in respect of an insurance made before that date,
exceed £5 in any period of 12 months, the policy shall be treated for the purposes of this paragraph as if it were issued in respect of an insurance made after 22nd August 1983; but nothing in this paragraph shall apply with respect to any premium paid in respect of it before that date.
(10) Sub-paragraphs (8) and (9) above do not apply in relation to policies issued in the course of industrial assurance business.
(v) Premiums paid out of sums due under previous policies
15 (1) Where, in the case of a policy under which a single premium only is payable, liability for the payment of that premium is discharged in accordance with sub-paragraph (2) below, the policy is a qualifying policy notwithstanding anything in paragraph 1(2) or (3) or paragraph 2(1)(b) or (c) above; and where, in the case of any other policy, liability for the payment of the first premium thereunder, or of any part of that premium, is so discharged, the premium or part shall be disregarded for the purposes of paragraphs 1(2)(b) and (3)(b) and 2(1)(c) above.
(2) Liability for the payment of a premium is discharged in accordance with this sub-paragraph if it is discharged by the retention by the company with which the insurance is made of the whole or a part of any sum which has become payable on the maturity of, or on the surrender more than ten years after its issue of the rights conferred by, a policy—
(a) previously issued by the company to the person making the insurance, or, if it is made by trustees, to them or any predecessors in office; or
(b) issued by the company when the person making the insurance was an infant, and securing a capital sum payable either on a specified date falling not more than one month after his attaining 25, or on the anniversary of the policy immediately following his attainment of that age,
being, unless it is a policy falling within paragraph (b) above and the premium in question is a first premium only, a policy which was itself a qualifying policy, or which would have been a qualifying policy had it been issued in respect of an insurance made after 19th March 1968.
(vi) Additional premiums under section 72(9) of the Ginance Act 1984
16 In determining whether a policy is a qualifying policy, no account shall be taken of any amount recovered, as if it were an additional premium, in pursuance of section 72(9) of the Finance Act 1984.
(viii) Substituitions and variations
17 (1) Subject to paragraph 19 below, where one policy (“the new policy”) is issued in substitution for, or on the maturity of and in consequence of an option conferred by, another policy (“the old policy”), the question whether the new policy is a qualifying policy shall, to the extent provided by the rules in sub-paragraph (2) below, be determined by reference to both policies.
(2) The rules (for the purposes of which, the question whether the old policy was a qualifying policy shall be determined in accordance with this Part of this Schedule, whatever the date of the insurance in respect of which it was issued), are as follows—
(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;
(a) if the new policy would apart from this paragraph be a qualifying policy but the old policy was not and paragraph (za) above does not apply, the new policy is not a qualifying policy unless the person making the insurance in respect of which it is issued was an infant when the old policy was issued, and the old policy was one securing a capital sum payable either on a specified date falling not later than one month after his attaining 25 or on the anniversary of the policy immediately following his attainment of that age;
(b) if the new policy would apart from this paragraph be a qualifying policy, and the old policy was also a qualifying policy, the new policy is a qualifying policy unless—
(i) it takes effect before the expiry of ten years from the making of the insurance in respect of which the old policy was issued, and
(ii) subject to sub-paragraph (4) below, the highest total of premiums payable thereunder for any period of 12 months expiring before that time is less than one half of the highest total paid for any period of 12 months under the old policy, or under any related policy issued less than ten years before the issue of the new policy (“related policy” meaning any policy in relation to which the old policy was a new policy within the meaning of this paragraph, any policy in relation to which that policy was such a policy, and so on);
(c) if the new policy would not apart from this paragraph be a qualifying policy, and would fail to be so by reason only of paragraph 1(2) or (3) or 2(1)(a), (b) or (c) above, it is nevertheless a qualifying policy if the old policy was a qualifying policy and—
(i) the old policy was issued in respect of an insurance made more than ten years before the taking effect of the new policy, and, subject to sub-paragraph (4) below, the premiums payable for any period of 12 months under the new policy do not exceed the smallest total paid for any such period under the old policy; or
(ii) the old policy was issued outside the United Kingdom, and the circumstances are as specified in sub-paragraph (3) below.
(3) The circumstances are—
(a) where the new policy referred to in sub-paragraph (2)(c) above is issued after 22nd February 1984, that the policy holder under the new policy became resident in the United Kingdom during the 12 months ending with the date of its issue;
(b) where paragraph (a) above does not apply, that the person in respect of whom the new insurance is made became resident in the United Kingdom during the 12 months ending with the date of its issue;
(c) that the issuing company certify that the new policy is in substitution for the old, and that the old was issued either by a permanent establishment of theirs outside the United Kingdom or by a company outside the United Kingdom with whom they have arrangements for the issue of policies in substitution for ones held by persons coming to the United Kingdom; and
(d) that the new policy confers on the holder benefits which are substantially equivalent to those which he would have enjoyed if the old policy had continued in force.
(4) Where the new policy is one issued on or after 1st April 1976 then, in determining under sub-paragraph (2)(a) to (c) above whether that policy would or would not (apart from sub-paragraphs (1) to (3) above) be a qualifying policy, there shall be left out of account so much of the first premium payable thereunder as is accounted for by the value of the old policy.
(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.
18 (1) Subject to paragraph 19 below and to the provisions of this paragraph, where the terms of a policy are varied, the question whether the policy after the variation is a qualifying policy shall be determined in accordance with the rules in paragraph 17 above, with references in those rules to the new policy and the old policy construed for that purpose as references respectively to the policy after the variation and the policy before the variation, and with any other necessary modifications.
(2) In applying any of those rules by virtue of this paragraph, the question whether a policy after a variation would be a qualifying policy apart from the rule shall be determined as if any reference in paragraphs 1, 2, 3(5) to (11), 4 to 9, 12 and 13 above to the making of an insurance, or to a policy’s term, were a reference to the taking effect of the variation or, as the case may be, to the term of the policy as from the variation.
(3) This paragraph does not apply by reason of—
(a) any variation which, whether or not of a purely formal character, does not affect the terms of a policy in any significant respect, or
(b) any variation effected before the end of the year 1968 for the sole purpose of converting into a qualifying policy any policy issued (but not one treated, by virtue of paragraph 8(1) and (2) of Schedule 14, as issued) in respect of an insurance made after 19th March 1968, or
(c) any variation so as to increase the benefits secured or reduce the premiums payable which is effected—
(i) on or after such day as the Board may by order appoint, and
(ii) in consideration of a change in the method of payment of premiums from collection by a person collecting premiums from house to house to payment by a different method, or
(d) any variation which alters the method for calculating the benefits secured by the policy.
(4) For the purposes of this paragraph there is no variation in the terms of a policy where—
(a) an amount of premium chargeable on the grounds that an exceptional risk of death or disability is involved becomes or ceases to be payable, or
(b) the policy is amended by the insertion, variation or removal of a provision under which, on those grounds, any sum may become chargeable as a debt against the capital sum guaranteed by the policy on death or disability.
19 (1) The following provisions of this paragraph shall have effect for determining for the purposes of this Schedule whether a policy has been varied or whether a policy which confers on the person to whom it is issued an option to have another policy substituted for it or to have any of its terms changed is a qualifying policy.
(2) If the policy is one issued in respect of an insurance made before 1st April 1976—
(a) any such option shall, until it is exercised, be disregarded in determining whether the policy is a qualifying policy; and
(b) any change in the terms of the policy which is made in pursuance of such an option shall be deemed to be a variation of the policy.
(3) If the policy is one issued in respect of an insurance made on or after 1st April 1976, the policy shall not be a qualifying policy unless it satisfies the conditions applicable to it under this Schedule before any such option is exercised and—
(a) each policy that might be substituted for it in pursuance of such an option would satisfy those conditions under the rules of paragraph 17 above; and
(b) the policy would continue to satisfy those conditions under the rules of that paragraph as applied by paragraph 18 above if each or any of the changes capable of being made in pursuance of such an option had been made and were treated as a variation;
and it shall not be treated as being varied by reason only of any change made in pursuance of such an option.
20 (1) Where, as a result of a variation in the life or lives for the time being assured, a qualifying policy (“the earlier policy”) is replaced by a new policy (“the later policy”) which in accordance with the rules in paragraph 17 above is also a qualifying policy, then, subject to sub-paragraph (2) below, for the purposes of—
(a) sections 268 to 270 . . . ; and
(b) any second or subsequent application of this paragraph;
the later policy and the earlier policy shall be treated as a single policy issued in respect of an insurance made at the time of the making of the insurance in respect of which the earlier policy was issued; and, accordingly, so long as the later policy continues to be a qualifying policy, the single policy shall also be treated as a qualifying policy for those purposes.
(2) Sub-paragraph (1) above does not apply unless—
(a) any sum which would otherwise become payable by the insurer on or in connection with the coming to an end of the earlier policy is retained by the insurer and applied in the discharge of some or all of the liability for any premium becoming due under the later policy; and
(b) no consideration in money or money’s worth (other than the benefits for which provision is made by the later policy) is receivable by any person on or in connection with the coming to an end of the earlier policy or the coming into existence of the later policy.
(3) Any sum which is applied as mentioned in sub-paragraph (2)(a) above—
(a) shall be left out of account in determining, for the purposes of sections 268 to 270 . . . , the total amount which at any time has been paid by way of premiums under the single policy referred to in sub-paragraph (1) above; . . .
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) This paragraph applies where the later policy comes into existence on or after 25th March 1982.
(viii) Policy reinstated after non-payment of premium
20ZA (1) This paragraph applies to a qualifying policy (“the original policy”) if conditions A to D are satisfied.
(2) Condition A is that one or more premiums due under the original policy are not paid on or before the date on which they become due.
(3) Condition B is that the original policy, in accordance with its terms, is treated as having lapsed or is converted into a paid-up policy—
(a) by reason only of the failure to pay that premium or those premiums, and
(b) within the period of 12 months beginning with the day following the day on which the earliest unpaid premium becomes due.
(4) Condition C is that the original policy—
(a) is reinstated on the same terms, or
(b) is replaced by another policy in the same terms (“the replacement policy”),
on or before the thirtieth day after the first anniversary of the day following the day on which the earliest unpaid premium becomes due.
(5) Condition D is that all unpaid premiums due under the original policy are paid on or before the date on which the policy is reinstated or replaced.
(6) Where condition C is satisfied by virtue of sub-paragraph (4)(b) the replacement policy is to be treated for the purposes of this Schedule as if it were the original policy.
(7) The policy is to be treated for the purposes of this Schedule as if the premiums payable under it had been paid on their due dates.
Meaning of “industrial assurance business”
20A In this Part of this Schedule “industrial assurance business” means any industrial assurance business within the meaning given by—
(a) section 1(2) of the Industrial Assurance Act 1923, or
(b) Article 3(1) of the Industrial Assurance (Northern Ireland) Order 1979,
which was carried on before 1 December 2001.
PART II CERTIFICATION OF QUALIFYING POLICIES
Policies issued in respect of insurances made on or after 1st April 1976 or varied on or after that date
21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III POLICIES ISSUED BY NON-RESIDENT COMPANIES
23 In this Part—
(a) any reference to a paragraph is a reference to that paragraph of this Schedule; and
(b) “the old policy” and “the new policy” have the same meanings as in paragraph 17.
24 (1) This paragraph applies to a policy of life insurance—
(a) which is issued in respect of an insurance made after 17th November 1983; and
(b) which is so issued by a company resident outside the United Kingdom;
and in the following provisions of this paragraph such a policy is referred to as “a new non-resident policy” and the company by which it is issued is referred to as “the issuing company”.
(2) Subject to section 55(3) of the Finance Act 1995 (transitional provision for the certification of certain policies), a new non-resident policy that falls outside sub-paragraph (2A) below shall not be a qualifying policy until such time as the conditions in sub-paragraph (3) are fulfilled with respect to it.
(2A) A policy falls outside this sub-paragraph unless, at the time immediately before the appointed date for the purposes of section 55 of the Finance Act 1995 (removal of certification requirements), it was a qualifying policy by virtue of sub-paragraphs (2)(b) and (4) of this paragraph, as they had effect in relation to that time.
(3) The conditions . . . referred to in sub-paragraph (2) above are—
(a) that the issuing company is lawfully carrying on in the United Kingdom life assurance business (as defined in section 56 of the Finance Act 2012); and
(b) that the premiums under the policy are payable to a permanent establishment in the United Kingdom of the issuing company, being a permanent establishment through which the issuing company carries on its life assurance business; and
(c) the premiums under the policy form part of those business receipts of the issuing company which arise through that permanent establishment.
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25 (1) In the application of paragraph 17 in any case where—
(a) the old policy was issued in respect of an insurance made after 17th November 1983 and could not be a qualifying policy by virtue of paragraph 24, and
(b) the new policy is not a new non-resident policy as defined in that paragraph,
the rules for the determination of the question whether the new policy is a qualifying policy shall apply with the modifications in sub-paragraph (2) below.
(2) The modifications are the following—
(a) if, apart from paragraph 24, the old policy or any related policy (within the meaning of paragraph 17(2)(b)) of which account falls to be taken would have been a qualifying policy, that policy shall be assumed to have been a qualifying policy for the purposes of paragraph 17(2); and
(b) if, apart from this paragraph, the new policy would be a qualifying policy, it shall not be such a policy unless the circumstances are as specified in paragraph 17(3); and
(c) in paragraph 17(3)(c) the words “either by a permanent establishment of theirs outside the United Kingdom or” shall be omitted;
and references in this sub-paragraph to being a qualifying policy shall have effect, in relation to any time before the appointed date for the purposes of section 55 of the Finance Act 1995 (removal of certification requirements), as including a reference to being capable of being certified as such a policy.
(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.)
(3) In the application of paragraph 17 in any case where—
(a) the old policy is a qualifying policy which was issued in respect of an insurance made on or before 17th November 1983 but, if the insurance had been made after that date, the policy could not have been a qualifying policy by virtue of paragraph 24, and
(b) the new policy is issued after that date and is not a new non-resident policy, as defined in paragraph 24,
the rules for the determination of the question whether the new policy is a qualifying policy shall apply with the modification in sub-paragraph (2)(c) above.
26 If, in the case of a substitution of policies falling within paragraph 25(1) or (3), the new policy confers such an option as results in the application to it of paragraph 19(3), the new policy shall be treated for the purposes of paragraph 19(3) as having been issued in respect of an insurance made on the same day as that on which was made the insurance in respect of which the old policy was issued.
27 (1) For the purposes of Part I and paragraph 24, a policy of life insurance which was issued—
(a) in respect of an insurance made on or before 17th November 1983, and
(b) by a company resident outside the United Kingdom,
shall be treated as issued in respect of an insurance made after that date if the policy is varied after that date so as to increase the benefits secured or to extend the term of the insurance.
(2) If a policy of life insurance which was issued as mentioned in sub-paragraph (1)(a) and (b) above confers on the person to whom it is issued an option to have another policy substituted for it or to have any of its terms changed, then for the purposes of that sub-paragraph any change in the terms of the policy which is made in pursuance of the option shall be deemed to be a variation of the policy.
Introduction
1 This Schedule shall have effect for the purposes of section 326.
Share option linked schemes
2 (1) A share option linked scheme is a scheme under which periodical contributions are to be made by an individual—
(a) who is eligible to participate in (that is, to obtain and exercise rights under) an approved SAYE option scheme, and
(b) who is to make the contributions for the purpose of enabling him to participate in that approved scheme.
(2) In sub-paragraph (1) above, “approved” and “SAYE option scheme” have the same meanings as in the SAYE code (see section 516(4) of ITEPA 2003 (approved SAYE option schemes)).
Relevant European institutions
3 A relevant European institution is an EEA firm of the kind mentioned in paragraph 5(b) of Schedule 3 to the Financial Services and Markets Act 2000 which has permission under paragraph 15 of that Schedule (as a result of qualifying for authorisation under paragraph 12 of that Schedule) to accept deposits.
Treasury specifications
4 (1) The requirements which may be specified under section 326(3)(b), (4)(b) or (5)(b) are such requirements as the Treasury think fit.
(2) In particular, the requirements may relate to—
(a) the descriptions of individuals who may enter into contracts under a scheme;
(b) the contributions to be paid by individuals;
(c) the sums to be paid or repaid to individuals.
(3) The requirements which may be specified under any of the relevant provisions may be different from those specified under any of the other relevant provisions; and the relevant provisions are section 326(3)(b), (4)(b) and (5)(b).
5 (1) Where a specification has been made under section 326(3)(b), (4)(b) or (5)(b) the Treasury may—
(a) withdraw the specification and any certification made by reference to the specification, and
(b) stipulate the date on which the withdrawal is to become effective.
(2) No withdrawal under this paragraph shall affect—
(a) the operation of the scheme before the stipulated date, or
(b) any contract entered into before that date.
(3) No withdrawal under this paragraph shall be effective unless the Treasury—
(a) send a notice by post to each relevant body informing it of the withdrawal, and
(b) do so not less than 28 days before the stipulated date;
and a relevant body is a society or institution authorised (whether unconditionally or subject to conditions being met) to enter into contracts under the scheme concerned.
6 (1) Where a specification has been made under section 326(3)(b), (4)(b) or (5)(b) the Treasury may—
(a) vary the specification,
(b) withdraw any certification made by reference to the specification obtaining before the variation, and
(c) stipulate the date on which the variation and withdrawal are to become effective;
and the Treasury may at any time certify a scheme as fulfilling the requirements obtaining after the variation.
(2) No variation and withdrawal under this paragraph shall affect—
(a) the operation of the scheme before the stipulated date, or
(b) any contract entered into before that date.
(3) No variation and withdrawal under this paragraph shall be effective unless the Treasury—
(a) send a notice by post to each relevant body informing it of the variation and withdrawal, and
(b) do so not less than 28 days before the stipulated date;
and a relevant body is a society or institution authorised (whether unconditionally or subject to conditions being met) to enter into contracts under the scheme concerned.
Treasury authorisation
7 (1) The Treasury may authorise a society or institution under section 326(7) or (8) as regards schemes generally or as regards a particular scheme or particular schemes.
(2) More than one authorisation may be given to the same society or institution.
8 (1) Where an authorisation has been given under section 326(7) or (8) the Treasury may withdraw the authorisation and stipulate the date on which the withdrawal is to become effective; and the withdrawal shall have effect as regards any contract not entered into before the stipulated date.
(2) No withdrawal under this paragraph shall be effective unless the Treasury—
(a) send a notice by post to the society or institution concerned informing it of the withdrawal, and
(b) do so not less than 28 days before the stipulated date.
(3) A withdrawal of an authorisation shall not affect the Treasury’s power to give another authorisation or other authorisations.
9 (1) Where an authorisation has been given under section 326(7) the Treasury may—
(a) stipulate that the authorisation is to be varied by being treated as given subject to specified conditions being met, and
(b) stipulate the date on which the variation is to become effective.
(2) As regards any contract entered into on or after the stipulated date the authorisation shall be treated as having been given under section 326(8) subject to the conditions being met.
(3) No variation under this paragraph shall be effective unless the Treasury—
(a) send a notice by post to the society or institution concerned informing it of the variation, and
(b) do so not less than 28 days before the stipulated date.
10 (1) Where an authorisation has been given under section 326(8) the Treasury may withdraw the conditions and stipulate the date on which the withdrawal is to become effective.
(2) As regards any contract entered into on or after the stipulated date the authorisation shall be treated as having been given under section 326(7) without any conditions being imposed.
11 (1) Where an authorisation has been given under section 326(8) the Treasury may vary the conditions and stipulate the date on which the variation is to become effective; and the variation shall have effect as regards any contract entered into on or after the stipulated date.
(2) No variation under this paragraph shall be effective unless the Treasury—
(a) send a notice by post to the society or institution concerned informing it of the variation, and
(b) do so not less than 28 days before the stipulated date.
12 (1) If the Treasury act as regards an authorisation under a relevant paragraph, the paragraph concerned shall have effect subject to their power to act later, as regards the same authorisation, under the same or (as the case may be) another relevant paragraph.
(2) If the Treasury act later as mentioned in sub-paragraph (1) above that sub-paragraph shall apply again, and so on however many times they act as regards an authorisation.
(3) If the Treasury act as regards an authorisation under a relevant paragraph the paragraph concerned shall have effect subject to their power to act later, as regards the same authorisation, under paragraph 8 above.
(4) For the purposes of this paragraph the relevant paragraphs are paragraphs 9 to 11 above.
SCHEDULE 15B Venture Capital Trusts: Relief from Income Tax
Part I Relief on investment
Entitlement to claim relief
1 (1) Subject to the following provisions of this Schedule, an individual shall, for any year of assessment, be entitled under this Part of this Schedule to claim relief in respect of an amount equal to the aggregate of the amounts (if any) which, by reference to eligible shares issued to him by venture capital trusts in the course of that year, are amounts on which he is eligible for relief in accordance with sub-paragraph (2) below.
(2) The amounts on which an individual shall be taken for the purposes of sub-paragraph (1) above to be eligible for relief shall be any amounts subscribed by him on his own behalf for eligible shares issued by a venture capital trust for raising money.
(3) An individual shall not be entitled under this Part of this Schedule to claim relief for any given year of assessment in respect of an amount of more than £200,000.
(4) An individual shall not be entitled under this Schedule to claim any relief to which he is eligible by reference to any shares unless he had attained the age of eighteen years before those shares were issued.
(5) Where an individual makes a claim for any relief to which he is entitled under this Part of this Schedule for any year of assessment, the amount of his liability for that year to income tax on his total income shall be equal to the amount to which he would be so liable apart from this Part of this Schedule less whichever is the smaller of—
(a) an amount equal to 30 per cent of the amount in respect of which he is entitled to claim relief for that year, and
(b) the amount which reduces his liability to nil.
(6) In determining for the purposes of sub-paragraph (5) above the amount of income tax to which a person would be liable apart from this Part of this Schedule, no account shall be taken of—
(a) any income tax reduction under section 289A,
(b) any income tax reduction under Chapter I of Part VII or under section 347B,
(c) any income tax reduction under section 353(1A),
(d) any income tax reduction under section 54(3A) of the Finance Act 1989,
(da) any income tax reduction under paragraph 19(2) of Schedule 16 to the Finance Act 2002 (community investment tax relief),
(e) any relief by way of a reduction of liability to tax which is given in accordance with any arrangements having effect by virtue of section 788 or by way of a credit under section 790(1), or
(f) any tax at the basic rate on so much of that person’s income as is income the income tax on which he is entitled to charge against any other person or to deduct, retain or satisfy out of any payment.
(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8) A person shall not be entitled to be given any relief under this Part of this Schedule by reference to any shares if circumstances have arisen which would have resulted, had that relief already been given, in the withdrawal or reduction of the relief.
(9) A person shall not under this Part of this Schedule be eligible for any relief on any amount by reference to any shares unless the shares are both subscribed for and issued for bona fide commercial purposes and not as part of a scheme or arrangement the main purpose of which, or one of the main purposes of which, is the avoidance of tax.
(10) An individual is not eligible for relief under this Part of this Schedule by reference to any shares which are treated as issued to him by virtue of section 195(8) of the Finance Act 2003 (tax treatment of disposal by company of its own shares).
(11) Where a company which is a venture capital trust issues to any individual eligible shares to which sub-paragraph (10) above applies, it must—
(a) at the time of the issue of those shares, give that individual a notice stating that he is not eligible for relief under this Part of this Schedule by reference to those shares, and
(b) no later than three months after the issue of those shares, give a copy of that notice to an officer of the Board.
Loan-linked investments
2 (1) An individual shall not be entitled to relief under this Part of this Schedule in respect of any shares if—
(a) there is a loan made by any person, at any time in the relevant period, to that individual or any associate of his; and
(b) the loan is one which would not have been made, or would not have been made on the same terms, if that individual had not subscribed for those shares or had not been proposing to do so.
(2) References in this paragraph to the making by any person of a loan to any individual or an associate of his include references—
(a) to the giving by that person of any credit to that individual or any associate of his; and
(b) to the assignment or assignation to that person of any debt due from that individual or any associate of his.
(3) In this paragraph—
“associate” has the meaning given in subsections (3) and (4) of section 417, except that in those subsections (as applied for the purposes of this paragraph) “relative” shall not include a brother or sister; and
“the relevant period”, in relation to relief under this Part of this Schedule in respect of any shares in a company which is a venture capital trust, means the period beginning with the incorporation of the company (or, if the company was incorporated more than two years before the date on which the shares were issued, beginning two years before that date) and ending immediately before the fifth anniversary of the date on which the shares were issued.
Loss of investment relief
3 (1) This paragraph applies, subject to sub-paragraph (5) below, where—
(a) an individual who has made any claim for relief under this Part of this Schedule makes any disposal of eligible shares in a venture capital trust, and
(b) that disposal takes place before the end of the period of five years beginning with the date on which those shares were issued to that individual.
(2) If the disposal is made otherwise than by way of a bargain made at arm’s length, any relief given under this Part of this Schedule by reference to the shares which are disposed of shall be withdrawn.
(3) Where the disposal was made by way of a bargain made at arm’s length—
(a) if, apart from this sub-paragraph, the relief given by reference to the shares that are disposed of is greater than the amount mentioned in sub-paragraph (4) below, it shall be reduced by that amount, and
(b) if paragraph (a) above does not apply, any relief given by reference to those shares shall be withdrawn.
(4) The amount referred to in sub-paragraph (3) above is an amount equal to tax at the lower rate for the year of assessment for which the relief was given on the amount or value of the consideration which the individual receives for the shares.
(5) This paragraph shall not apply in the case of any disposal of shares which is made by a person to his spouse or civil partner at a time when they are living together.
(6) Where any eligible shares issued to any individual (“the transferor”), being shares by reference to which any amount of relief under this Part of this Schedule has been given, are transferred to the transferor’s spouse or civil partner (“the transferee”) by a disposal such as is mentioned in sub-paragraph (5) above, this paragraph shall have effect, in relation to any subsequent disposal or other event, as if—
(a) the transferee were the person who had subscribed for the shares,
(b) the shares had been issued to the transferee at the time when they were issued to the transferor,
(c) there had been, in respect of the transferred shares, such a reduction under this Part of this Schedule in the transferee’s liability to income tax as is equal to the actual reduction in respect of those shares of the transferor’s liability, and
(d) that deemed reduction were (notwithstanding the transfer) to be treated for the purposes of this paragraph as an amount of relief given by reference to the shares transferred.
(7) Any assessment for withdrawing or reducing relief by reason of a disposal or other event falling within sub-paragraph (6) above shall be made on the transferee.
(8) In determining for the purposes of this paragraph any question whether any disposal relates to shares by reference to which any relief under this Part of this Schedule has been given, it shall be assumed, in relation to any disposal by any person of any eligible shares in a venture capital trust, that—
(a) as between eligible shares acquired by the same person on different days, those acquired on an earlier day are disposed of by that person before those acquired on a later day; and
(b) as between eligible shares acquired by the same person on the same day, those by reference to which relief under this Part of this Schedule has been given are disposed of by that person only after he has disposed of any other eligible shares acquired by him on that day.
(9) Where—
(a) the approval of any company as a venture capital trust is withdrawn, and
(b) the withdrawal of the approval is not one to which section 842AA(8) applies,
any person who, at the time when the withdrawal takes effect, is holding any shares by reference to which relief under this Part of this Schedule has been given shall be deemed for the purposes of this paragraph to have disposed of those shares immediately before that time and otherwise than by way of a bargain made at arm’s length.
Assessment on withdrawal or reduction of relief
4 (1) Any relief given under this Part of this Schedule which is subsequently found not to have been due shall be withdrawn by the making of an assessment to tax . . . for the year of assessment for which the relief was given.
(2) An assessment for withdrawing or reducing relief in pursuance of paragraph 3 above shall also be made as an assessment to tax . . . for the year of assessment for which the relief was given.
(3) No assessment for withdrawing or reducing relief given by reference to shares issued to any person shall be made by reason of any event occurring after his death.
Provision of information
5 (1) Where an event occurs by reason of which any relief under this Part of this Schedule falls to be withdrawn or reduced, the individual to whom the relief was given shall, within 60 days of his coming to know of the event, give a notice to the inspector containing particulars of the event.
(2) If the inspector has reason to believe that a person has not given a notice which he is required to give under sub-paragraph (1) above in respect of any event, the inspector may by notice require that person to furnish him within such time (not being less than 60 days) as may be specified in the notice with such information relating to the event as the inspector may reasonably require for the purposes of this Part of this Schedule.
(3) No obligation as to secrecy imposed by statute or otherwise shall preclude the inspector from disclosing to a venture capital trust that relief given by reference to a particular number or proportion of its shares has been given or claimed under this Part of this Schedule.
Interpretation of Part I
6 (1) In this Part of this Schedule “eligible shares”, in relation to a company which is a venture capital trust, means new ordinary shares in that trust which, throughout the period of five years beginning with the date on which they are issued, carry no present or future preferential right to dividends or to a company’s assets on its winding up and no present or future . . . right to be redeemed.
(2) In this Part of this Schedule “ordinary shares”, in relation to a company, means shares forming part of a company’s ordinary share capital.
(3) In this Part of this Schedule references to a disposal of shares shall include references to a disposal of an interest or right in or over the shares.
Part II Relief on distributions
7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Meaning of “permitted maximum”
8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interpretation of Part II
9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interpretation
1 In this Schedule “relevant payment” means any payment to which section 350(4)(a) applies.
Duty to make returns
2 (1) A company shall for each of its accounting periods make, in accordance with this Schedule, returns to the collector of the relevant payments made by it in that period and of the income tax for which it is accountable in respect of those payments.
(2) A return shall be made for—
(a) each complete quarter falling within the accounting period, that is to say, each of the periods of three months ending with 31st March, 30th June, 30th September and 31st December which falls within that period;
(b) each part of the accounting period which is not a complete quarter and ends on the first (or only), or begins immediately after the last (or only), of those dates which falls within the accounting period;
(c) if none of those dates falls within the accounting period, the whole accounting period.
(3) A return for any period for which a return is required to be made under this paragraph shall be made within 14 days from the end of that period.
Contents of returns
3 The return made by a company for any period shall show—
(a) the amount of any relevant payments made by the company in that period; and
(b) the income tax in respect of those payments for which the company is accountable.
Payment of tax
4 (1) . . . Income tax in respect of any payment required to be included in a return under this Schedule shall be due at the time by which the return is to be made, and income tax so due—
(a) shall be payable by the company without the making of any assessment; and
(b) may be assessed on the company (whether or not it has been paid when the assessment is made) if it, or any part of it, is not paid on or before the due date.
(2) If it appears to an officer of the Board that there is a relevant payment which ought to have been and has not been included in a return, or if an officer of the Board is of the opinion that a return is incorrect, any such officer may make an assessment on the company to the best of his judgment; and any income tax due under an assessment made by virtue of this sub-paragraph shall be treated for the purposes of interest on unpaid tax as having been payable at the time when it would have been payable if a correct return had been made.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Set-off of income tax borne on company income against tax payable
5 (1) Where in any accounting period a company receives any payment on which it bears income tax by deduction the company may claim to have the income tax thereon set against any income tax which it is liable to pay under this Schedule in respect of payments made by it in that period.
(2) Any such claim shall be included in a return made under paragraph 2 above for the accounting period in question and (where necessary) income tax paid by the company under this Schedule for that accounting period and before the claim is allowed shall be repaid accordingly.
6 (1) Where a claim has been made under paragraph 5 above no proceedings for collecting tax which would fall to be discharged if the claim were allowed shall be instituted pending the final determination of the claim, but this sub-paragraph shall not affect the date when the tax is due.
(2) When the claim is finally determined any tax underpaid in consequence of sub-paragraph (1) above shall be paid.
(3) Where proceedings are instituted for collecting tax assessed, or interest on tax assessed, under any provision of paragraph 4 above, effect shall not be given to any claim made after the institution of the proceedings so as to affect or delay the collection or recovery of the tax charged by the assessment or of interest thereon, until the claim has been finally determined.
(4) When the claim is finally determined any tax overpaid in consequence of sub-paragraph (3) above shall be repaid.
(5) References in this paragraph to proceedings for the collection of tax include references to proceedings by way of distraint or attachment.
7 Income tax set against other tax under paragraph 5 above shall be treated as paid or repaid, as the case may be, and the same tax shall not be taken into account both under this Schedule and under section 7(2).
Amended return where company becomes aware of an error
7A (1) If a company becomes aware—
(a) that anything which ought to have been included in a return made by it under this Schedule for any period has not been so included,
(b) that anything which ought not to have been included in a return made by it under this Schedule for any period has been so included, or
(c) that any other error has occurred in a return made by it under this Schedule for any period,
it shall forthwith supply to the collector an amended return for that period.
(2) The duty imposed by sub-paragraph (1) above is without prejudice to any duty that may also arise under paragraph 7A of Schedule 13.
(3) Where an amended return is supplied under this paragraph, all such assessments, adjustments, set-offs or payments or repayments of tax shall be made as may be required for securing that the resulting liabilities to tax (including interest on unpaid or overpaid tax) whether of the company or any other person are the same as they would have been if a correct return had been made.
Items included in error
8 Where any item has been included in a return or claim under this Schedule as a relevant payment but should not have been so included, an officer of the Board may make such assessments, adjustments or set-offs as may be required for securing that the resulting liabilities to tax (including interest on unpaid tax) whether of the company or of any other person are the same as they would have been if the item had not been included in the return or claim in question.
Relevant payment made otherwise than in accounting period
9 Where a company makes a relevant payment on a date which does not fall within an accounting period the company shall make a return of that payment within 14 days from that date, and the income tax for which the company is accountable in respect of that payment shall be due at the time by which the return is to be made.
Assessments and due date of tax
10 (1) All the provisions of the Income Tax Acts as to the time within which an assessment may be made, so far as they refer or relate to the year of assessment for which an assessment is made, or the year to which an assessment relates, shall apply in relation to any assessment under this Schedule notwithstanding that, under this Schedule, the assessment may be said to relate to a quarter or other period which is not a year of assessment, and the provisions of section 36 of the Management Act as to the circumstances in which an assessment may be made out of time shall apply accordingly on the footing that any such assessment relates to the year of assessment in which the quarter or other period ends.
(2) Income tax assessed on a company under this Schedule shall be due within 14 days after the issue of the notice of assessment (unless due earlier under paragraph 4(1) or 9 above).
(3) Sub-paragraph (2) above has effect subject to any appeal against the assessment, but no such appeal shall affect the date when tax is due under paragraph 4(1) or 9 above.
(4) On the determination of an appeal against an assessment under this Schedule any tax overpaid shall be repaid.
(5) Any tax assessable under any one or more of the provisions of this Schedule may be included in one assessment if the tax so included is all due on the same date.
Saving
11 Nothing in paragraphs 1 to 10 above shall be taken to prejudice any powers conferred by the Income Tax Acts for the recovery of income tax by means of an assessment or otherwise; and any assessment in respect of tax payable under paragraph 9 above shall be treated for the purposes of the provisions mentioned in paragraph 10(1) above as relating to the year of assessment in which the payment is made.
PART I DIVISION OF ACCOUNTING PERIODS COVERING 1st APRIL 1987
1 (1) This Part of this Schedule has effect in the circumstances set out in section 404(3)(a).
(2) In this Part of this Schedule—
(a) “the straddling period” means the accounting period of the dual resident investing company which begins before and ends on or after 1st April 1987; and
(b) “dual resident investing company” has the same meaning as in section 404.
(3) It shall be assumed for the purposes of this Chapter (except section 404(3) to (6)) and Part II of this Schedule—
(a) that an accounting period of the company ends on 31st March 1987; and
(b) that a new accounting period begins on 1st April 1987, the new accounting period to end with the end of the straddling period.
(4) In this Part of this Schedule “the component accounting periods” means the two accounting periods referred to in sub-paragraph (3) above.
2 Subject to paragraph 5 below, for the purposes referred to in paragraph 1(3) above, the losses and other amounts of the straddling period of a dual resident investing company, excluding any such excess of charges on income as is referred to in section 403(7), shall be apportioned to the component accounting periods on a time basis according to their lengths.
3 If, in the straddling period of a dual resident investing company, the company has paid any amount by way of charges on income, then, for the purposes referred to in paragraph 1(3) above, the excess of that amount referred to in section 403(7) shall be apportioned to the component accounting periods—
(a) according to the dates on which, subject to paragraph 6 below, the interest or other payments giving rise to those charges were paid (or were treated as paid for the purposes of section 338); and
(b) in proportion to the amounts of interest or other payments paid (or treated as paid) on those dates.
PART II EARLY PAYMENTS OF INTEREST ETC. AND CHARGES ON INCOME
Interpretation
4 In this Part of this Schedule—
(a) a “1986 accounting period” means an accounting period which begins or ends (or begins and ends) in the financial year 1986;
(b) a “post-1986 accounting period” means an accounting period which begins on or after 1st April 1987; and
(c) “dual resident investing company” has the same meaning as in section 404.
Early payment of interest etc.
5 (1) If the conditions in sub-paragraph (2) or (3) below are fulfilled and if the Board so direct, this paragraph applies in relation to a 1986 accounting period of a dual resident investing company.
(2) The conditions in this sub-paragraph are applicable only if the company is carrying on a trade in the 1986 accounting period, and those conditions are—
(a) that in that accounting period the company has incurred a loss, computed as for the purposes of section 393(2), in carrying on that trade; and
(b) that in that period the company has made a payment falling within section 404(6)(a)(iii); and
(c) that the payment referred to in paragraph (b) above either did not fall due in that period or would not have fallen due in that period but for the making, on or after 5th December 1986, of arrangements varying the due date for payment.
(3) The conditions in this sub-paragraph are applicable only if the company is an investment company in the 1986 accounting period, and those conditions are—
(a) that for that accounting period the company has (apart from this paragraph) such an excess as is referred to in section 403(4); and
(b) that one or more of the sums which for that accounting period may be deducted as expenses of management under section 75(1) either did not fall due in that period or would not have fallen due in that period but for the making, on or after 5th December 1986, of arrangements varying the due date for payment.
(4) The Board shall not give a direction under this paragraph with respect to a 1986 accounting period of a dual resident investing company unless it appears to the Board that the sole or main benefit that might be expected to accrue from the early payment or, as the case may be, from the arrangements was that (apart from this paragraph) the company would, for that period, have an amount or, as the case may be, a larger amount available for surrender by way of group relief.
(5) If this paragraph applies in relation to a 1986 accounting period of a dual resident investing company which is carrying on a trade then, for the purposes of this Chapter and, where appropriate, any apportionment under paragraph 2 above—
(a) the loss (if any) of the company for that period shall be computed (as mentioned in section 403(1)) as if any payment falling within sub-paragraph (2)(b) above had not been made in that period; and
(b) the loss (if any) of the company for its first post-1986 accounting period shall be computed as if any such payment were made in that period.
(6) If this paragraph applies in relation to a 1986 accounting period of a dual resident investing company which is an investment company, then, for the purposes referred to in sub-paragraph (5) above—
(a) the amount which may be deducted as expenses of management for that period, as mentioned in section 403(4), shall be computed as if any sum falling within sub-paragraph (3)(b) above had not been disbursed; and
(b) the amount which may be so deducted as expenses of management for the first of the company’s post-1986 accounting periods shall be computed as if any such sum were disbursed in that period.
Early payment of charges on income
6 (1) If, in the case of a dual resident investing company, either of the following conditions is fulfilled—
(a) that any interest or other payment which is, or is treated as, a charge on income falls due in a post-1986 accounting period but is paid (or treated for the purposes of section 338 as paid) in a 1986 accounting period, or
(b) that, on or after 5th December 1986, arrangements have been made such that any such interest or other payment which, but for the arrangements, would have fallen due in a post-1986 accounting period, fell due in a 1986 accounting period,
the interest or other payment shall, if the Board so direct, be treated for the purposes of this Chapter and, where appropriate, paragraph 3 above as paid in the post-1986 accounting period referred to in paragraph (a) or, as the case may be, paragraph (b) above.
(2) The Board shall not give a direction under this paragraph unless it appears to them that the sole or main benefit that might be expected to accrue from the early payment or, as the case may be, from the arrangements was that (apart from the direction) the interest or other payment would be attributed or apportioned to a 1986 accounting period rather than a post-1986 accounting period, so that, for the 1986 accounting period, the dual resident investing company would have an amount or, as the case may be, a larger amount available for surrender by way of group relief.
Appeals
7 Notice of the giving of a direction under paragraph 5 or 6 above shall be given to the dual resident investing company concerned; and any company to which such a notice is given may, by giving notice of appeal to the Board within 60 days of the date of the notice given to the company, appeal . . . against the direction on either or both of the following grounds—
(a) that the conditions applicable to the company under paragraph 5(2) or (3) above are not fulfilled or, as the case may be, that neither of the conditions in paragraph 6(1) above is fulfilled;
(b) that the sole or main benefit that might be expected to accrue from the early payment or, as the case may be, the arrangements was not that stated in paragraph 5(4) or, as the case may be, paragraph 6(2) above.
PART III GENERAL
8 (1) Parts I and II of this Schedule have effect in priority to section 409 and, accordingly, each of the component accounting periods resulting from the operation of Part I of this Schedule shall be regarded as a true accounting period for the purposes of that section.
(2) References in this Schedule to this Chapter do not include any provision of this Schedule.
Introductory
1 (1) This Schedule has effect as respects claims for group relief.
(2) Section 42 of the Management Act (procedure for making claims) shall not apply to such claims.
Time limits
2 (1) No claim for an accounting period of a company may be made if—
(a) the company has been assessed to corporation tax for the period, and
(b) the assessment has become final and conclusive.
(2) Sub-paragraph (1) above shall not apply in the case of a claim made before the end of 2 years from the end of the period.
(3) This paragraph applies to the withdrawal of a claim as it applies to the making of a claim.
3 (1) No claim for an accounting period of a company may be made after the end of 6 years from the end of the period, except under paragraph 5 below.
(2) This paragraph applies to the withdrawal of a claim as it applies to the making of a claim.
4 Where under paragraph 2 or 3 above a claim may not be made after a certain time, it may be made within such further time as the Board may allow.
5 (1) A claim for an accounting period of a company may be made after the end of 6 years from the end of the period if—
(a) the company has been assessed to corporation tax for the period before the end of 6 years from the end of the period,
(b) the company has appealed against the assessment, and
(c) the assessment has not become final and conclusive.
(2) No claim for an accounting period of a company may be made under this paragraph after the end of 6 years and 3 months from the end of the period.
Method of making claim
6 (1) A claim shall be made by being included in a return under section 11 of the Management Act (corporation tax return) for the period for which the claim is made.
(2) In sub-paragraph (1) above the reference to a claim being included in a return includes a reference to a claim being included by virtue of an amendment of the return.
(3) This paragraph applies to the withdrawal of a claim as it applies to the making of a claim.
Nature of claim
7 A claim may be made for less than the full amount available.
8 A claim, other than one under paragraph 5 above, shall be for an amount which is quantified at the time the claim is made.
9 (1) A claim under paragraph 5 above shall be expressed to be conditional, as to the amount claimed, on, and only on, the outcome of one or more relevant matters specified in the claim.
(2) For the purposes of this paragraph a matter is relevant if it is relevant to the determination of the assessment of the claimant company to corporation tax for the period for which the claim is made.
Consent to surrender
10 (1) A claim shall require the consent of the surrendering company.
(2) A consortium claim shall require the consent of each member of the consortium in addition to the consent of the surrendering company.
(3) Consent to surrender shall be of no effect unless, at or before the time the claim is made, notice of consent is given by the consenting company to the inspector to whom the surrendering company makes its returns under section 11 of the Management Act.
(4) Notice of consent to surrender, in the case of consent by the surrendering company, shall be of no effect unless it contains the following particulars—
(a) the name of the surrendering company;
(b) the name of the company to which relief is being surrendered;
(c) the amount of relief being surrendered;
(d) the accounting period of the surrendering company to which the surrender relates;
(e) the tax district references of the surrendering company and the company to which relief is being surrendered.
(5) Where notice of the surrendering company’s consent to surrender is given to the inspector after the surrendering company has made a return under section 11 of the Management Act for the period to which the relief being surrendered relates, the notice shall be of no effect unless the surrendering company at the same time amends the return.
(6) Where consent to surrender relates to a loss in respect of which relief has been given under section 393(1), notice of consent to surrender, in the case of the surrendering company, shall be of no effect unless, at the same time as giving the notice to the inspector, the company amends its return under section 11 of the Management Act for the period, or, if more than one, each of the periods, in which relief for the loss has been given under section 393(1).
(7) For the purposes of sub-paragraph (6) above relief under section 393(1) shall be treated as given for losses incurred in earlier accounting periods before losses incurred in later accounting periods.
(8) A claim shall require to be accompanied by a copy of the notice of consent to surrender given for the purposes of this paragraph by the surrendering company.
(9) A consortium claim shall in addition require to be accompanied by a copy of the notice of consent to surrender given for the purposes of this paragraph by each member of the consortium.
11 (1) This paragraph applies in relation to claims under paragraph 5 above.
(2) In the case of consent to surrender by the surrendering company, consent which relates to relief which is the subject of more than one claim under paragraph 5 above shall be of no effect unless it specifies an order of priority in relation to the claims.
Adjustments
12 (1) All such assessments or adjustments of assessments shall be made as may be necessary to give effect to a claim or the withdrawal of a claim.
(2) An assessment under this paragraph shall not be out of time if it is made—
(a) in the case of a claim, within one year from the date on which an assessment of the claimant company to corporation tax for the period for which the claim is made becomes final and conclusive, and
(b) in the case of the withdrawal of a claim, within one year from the date on which the claim is withdrawn.
1 (1) For the purposes of sections 403C and 413(7) and this Schedule, an equity holder of a company is any person who—
(a) holds ordinary shares in the company, or
(b) is a loan creditor of the company in respect of a loan which is not a normal commercial loan,
and any reference in that section to profits or assets available for distribution to a company’s equity holders does not include a reference to any profits or assets available for distribution to any equity holder otherwise than as an equity holder.
(2) For the purposes of sub-paragraph (1)(a) above “ordinary shares” means all shares other than relevant preference shares.
(3) In this Schedule “ relevant preference shares” means shares which—
(a) are issued for consideration which is or includes new consideration; and
(b) do not carry any right either to conversion into shares or securities of any other description except—
(i) shares to which sub-paragraph (5A) below applies,
(ii) securities to which sub-paragraph (5B) below applies, or
(iii) shares or securities in the company’s quoted parent company,
or to the acquisition of any additional shares or securities; and
(c) either—
(i) do not carry a right to dividends, or
(ii) carry a right to dividends to which paragraph 1A applies; and
(d) on repayment do not carry any rights to an amount exceeding the new consideration received by the company in respect of the issue of the shares except in so far as those rights are reasonably comparable with those general for fixed dividend shares listed on a recognised stock exchange.
(4) Subsection (7) of section 417 shall apply for the purposes of sub-paragraph (1)(b) above as it applies for the purposes of Part XI, but with the omission of the reference to subsection (9) of that section.
(5) In sub-paragraph (1)(b) above “normal commercial loan” means a loan of or including new consideration and—
(a) which does not carry any right either to conversion into shares or securities of any other description except—
(i) shares to which sub-paragraph (5A) below applies,
(ii) securities to which sub-paragraph (5B) below applies, or
(iii) shares or securities in the company’s quoted parent company,
or to the acquisition of any additional shares or securities; and
(b) which does not entitle that loan creditor to any amount by way of interest which depends to any extent on the results of the company’s business or any part of it or on the value of any of the company’s assets or which exceeds a reasonable commercial return on the new consideration lent; and
(c) in respect of which the loan creditor is entitled, on repayment, to an amount which either does not exceed the new consideration lent or is reasonably comparable with the amount generally repayable (in respect of an equal amount of new consideration) under the terms of issue of securities listed on a recognised stock exchange.
(5A) This sub-paragraph applies to any shares which—
(a) satisfy the requirements of sub-paragraph (3)(a), (c) and (d) above, and
(b) do not carry any rights either to conversion into shares or securities of any other description, except shares or securities in the company’s quoted parent company, or to the acquisition of any additional shares or securities.
(5B) This sub-paragraph applies to any securities representing a loan of or including new consideration and—
(a) which satisfies the requirements of sub-paragraph (5)(b) and (c) above, and
(b) which does not carry any such rights as are mentioned in sub-paragraph (5A)(b) above.
(5C) For the purposes of sub-paragraphs (3) and (5) to (5B) above a company (“the parent company”) is another company’s “quoted parent company” if and only if—
(a) the other company is a 75 per cent. subsidiary of the parent company,
(b) the parent company is not a 75 per cent. subsidiary of any company, and
(c) the parent company’s ordinary shares (or, if its ordinary share capital is divided into two or more classes, its ordinary shares of each class) are listed on a recognised stock exchange or dealt in on the Unlisted Securities Market;
and in this sub-paragraph “ordinary shares” means shares forming part of ordinary share capital.
(5D) In the application of sub-paragraphs (3) and (5) to (5B) above in determining for the purposes of sub-paragraph (5C)(a) above who are the equity holders of the other company (and, accordingly, whether section 413(7) prevents the other company from being treated as a 75 per cent. subsidiary of the parent company for the purposes of sub-paragraph (5C)(a)), it shall be assumed that the parent company is for the purposes of sub-paragraphs (3) and (5) to (5B) above the other company’s quoted parent company.
(5E) For the purposes of sub-paragraph (5)(b) above, the amount to which the loan creditor is entitled by way of interest—
(a) shall not be treated as depending to any extent on the results of the company’s business or any part of it by reason only of the fact that the terms of the loan provide for the rate of interest to be reduced in the event of the results of the company’s business or any part of it improving , or for the rate of interest to be increased in the event of the results of the company’s business or any part of it deteriorating , and
(b) shall not be treated as depending to any extent on the value of any of the company’s assets by reason only of the fact that the terms of the loan provide for the rate of interest to be reduced in the event of the value of any of the company’s assets increasing , or for the rate of interest to be increased in the event of the value of any of the company’s assets diminishing.
(5F) Sub-paragraph (5H) below applies where—
(a) a person makes a loan to a company on the basis mentioned in sub-paragraph (5G) below for the purpose of facilitating the acquisition of land, and
(b) none of the land which the loan is used to acquire is acquired with a view to resale at a profit.
(5G) The basis referred to above is that—
(a) the whole of the loan is to be applied in the acquisition of land by the company or in meeting the incidental costs of obtaining the loan,
(b) the payment of any amount due in connection with the loan to the person making it is to be secured on the land which the loan is to be used to acquire, and
(c) no other security is to be required for the payment of any such amount.
(5H) For the purposes of sub-paragraph (5)(b) above, the amount to which the loan creditor is entitled by way of interest shall not be treated as depending to any extent on the value of any of the company’s assets by reason only of the fact that the terms of the loan are such that the only way the loan creditor can enforce payment of an amount due is by exercising rights granted by way of security over the land which the loan is used to acquire.
(5I) In sub-paragraph (5G)(a) above the reference to the incidental costs of obtaining the loan is to any expenditure on fees, commissions, advertising, printing or other incidental matters wholly and exclusively incurred for the purpose of obtaining the loan or of providing security for it.
(6) Notwithstanding anything in sub-paragraphs (1) to (5) above but subject to sub-paragraph (7) below, where—
(a) any person has, directly or indirectly, provided new consideration for any shares or securities in the company, and
(b) that person, or any person connected with him, uses for the purposes of his trade assets which belong to the company and in respect of which there is made to the company—
(i) an annual investment allowance or a first-year allowance within the meaning of Part 2 of the Capital Allowances Act in respect of expenditure incurred by the company on the provision of plant or machinery;
(ii) a writing-down allowance within the meaning of Part 2 of the Capital Allowances Act in respect of expenditure incurred by the company on the provision of plant or machinery; or
(iii) an allowance under section Chapter 3 of Part 6 of the Capital Allowances Act in respect of expenditure incurred by the company on research and development (within the meaning of Part VII of that Act);
then, for the purposes of this Schedule, that person, and no other, shall be treated as being an equity holder in respect of those shares or securities and as being beneficially entitled to any distribution of profits or assets attributable to those shares or securities.
(7) In any case where sub-paragraph (6) above applies in relation to a bank in such circumstances that—
(a) the only new consideration provided by the bank as mentioned in paragraph (a) of that sub-paragraph is provided in the normal course of its banking business by way of a normal commercial loan as defined in sub-paragraph (5) above; and
(b) the cost to the company concerned of assets falling within paragraph (b) of that sub-paragraph which are used as mentioned in that paragraph by the bank or a person connected with the bank is less than the amount of that new consideration,
references in sub-paragraph (6) above, other than the reference in paragraph (a), to shares or securities in the company shall be construed as references to so much only of the loan referred to paragraph (a) above as is equal to the cost referred to in paragraph (b) above.
(8) In this paragraph “new consideration” has the same meaning as in section 254 and any question whether one person is connected with another shall be determined in accordance with section 839 .
1A (1) This paragraph applies to a right to dividends carried by shares in a company if—
(a) the dividends represent no more than a reasonable commercial return on the new consideration received by the company in respect of the issue of the shares, and
(b) condition A, B or C is met.
(2) Condition A is that—
(a) the dividends are of a fixed amount or at a fixed rate per cent of the nominal value of the shares, and
(b) the company is not entitled by virtue of any term subject to which the shares are issued or held to reduce the amount of, or not to pay, any of the dividends.
(3) Condition B is that—
(a) the dividends are of a rate per cent of the nominal value of the shares and the rate fluctuates in accordance with—
(i) a standard published rate of interest, or
(ii) the retail prices index, or any similar general index of prices which is published by the government, or by an agent of the government, of the country or territory in whose currency the shares are denominated, and
(b) the company is not entitled by virtue of any term subject to which the shares are issued or held to reduce the amount of, or not to pay, any of the dividends.
(4) Condition C is that condition A or B would be met but for sub-paragraph (2)(b) or (3)(b), and—
(a) the company is only entitled to reduce the amount of, or not to pay, any of the dividends in relevant circumstances, or
(b) having regard to all the circumstances, it is reasonable to assume that the company is only likely to reduce the amount of, or not to pay, any of the dividends in relevant circumstances.
(5) For the purposes of sub-paragraph (4) a company reduces the amount of, or does not pay, dividends “in relevant circumstances” if—
(a) at the time the dividend is or would be payable, the company is in severe financial difficulties, or
(b) it does so for the purpose of following a recommendation of a relevant regulatory body.
(6) The Treasury may by order specify circumstances in which a company is to be treated as in severe financial difficulties for the purposes of sub-paragraph (5)(a).
(7) In sub-paragraph (5)(b) “relevant regulatory body” means—
(a) in relation to a dividend paid by a company that is authorised for the purposes of the Financial Services and Markets Act 2000, the Financial Services Authority, and
(b) in relation to a dividend paid by any other company, a body discharging functions in relation to the company under the law of a country or territory outside the United Kingdom that correspond to functions discharged by the Financial Services Authority in relation to a company authorised as mentioned in paragraph (a).
(8) In this paragraph “new consideration” has the same meaning as in section 254.
2 (1) Subject to the following provisions of this Schedule, for the purposes of sections 403C and 413(7) the percentage to which one company is beneficially entitled of any profits available for distribution to the equity holders of another company means the percentage to which the first company would be so entitled in the relevant accounting period on a distribution in money to those equity holders of—
(a) an amount of profits equal to the total profits of the other company which arise in that accounting period (whether or not any of those profits are in fact distributed); or
(b) if there are no profits of the other company in that accounting period, profits of £100;
and in the following provisions of this Schedule that distribution is referred to as “the profit distribution”.
(1A) The total profits of a non-resident company arising in an accounting period shall be determined for the purposes of sub-paragraph (1)(a) above as if it were resident in the United Kingdom in that accounting period.
(2) For the purposes of the profit distribution, it shall be assumed that no payment is made by way of repayment of share capital or of the principal secured by any loan unless that payment is a distribution.
(3) Subject to sub-paragraph (2) above, where an equity holder is entitled as such to a payment of any description which, apart from this sub-paragraph, would not be treated as a distribution, it shall nevertheless be treated as an amount to which he is entitled on the profit distribution.
3 (1) Subject to the following provisions of this Schedule, for the purposes of sections 403C and 413(7) the percentage to which one company would be beneficially entitled of any assets of another company available for distribution to its equity holders on a winding-up means the percentage to which the first company would be so entitled if the other company were to be wound up and on that winding-up the value of the assets available for distribution to its equity holders (that is to say, after deducting any liabilities to other persons) were equal to—
(a) the excess, if any, of the total amount of the assets of the company, as shown in the balance sheet relating to its affairs as at the end of the relevant accounting period, over the total amount of those of its liabilities as so shown which are not liabilities to equity holders as such; or
(b) if there is no such excess or if the company’s balance sheet is prepared to a date other than the end of the relevant accounting period, £100.
(2) In the following provisions of this Schedule a winding-up on the basis specified in sub-paragraph (1) above is referred to as “the notional winding-up”.
(3) If, on the notional winding-up, an equity holder would be entitled as such to an amount of assets of any description which, apart from this sub-paragraph, would not be treated as a distribution of assets, it shall nevertheless be treated, subject to sub-paragraph (4) below, as an amount to which the equity holder is entitled on the distribution of assets on the notional winding up.
(4) If an amount (“the returned amount”) which corresponds to the whole or any part of the new consideration provided by an equity holder of a company for any shares or securities in respect of which he is an equity holder is applied by the company, directly or indirectly, in the making of a loan to, or in the acquisition of any shares or securities in, the equity holder or any person connected with him, then, for the purposes of this Schedule—
(a) the total amount referred to in sub-paragraph (1)(a) above shall be taken to be reduced by a sum equal to the returned amount; and
(b) the amount of assets to which the equity holder is beneficially entitled on the notional winding-up shall be taken to be reduced by a sum equal to the returned amount.
(5) In sub-paragraph (4) above “new consideration” has the same meaning as in section 254 and any question whether one person is connected with another shall be determined in accordance with section 839 .
4 (1) This paragraph applies if any of the equity holders—
(a) to whom the profit distribution is made, or
(b) who is entitled to participate in the notional winding-up,
holds, as such an equity holder, any shares or securities which carry rights in respect of dividend or interest or assets on a winding-up which are wholly or partly limited by reference to a specified amount or amounts (whether the limitation takes the form of the capital by reference to which a distribution is calculated or operates by reference to an amount of profits or otherwise).
(2) Where this paragraph applies there shall be determined—
(a) the percentage of profits to which, on the profit distribution, the first company referred to in paragraph 2(1) above would be entitled, and
(b) the percentage of assets to which, on the notional winding-up, the first company referred to in paragraph 3(1) above would be entitled,
if, to the extent that they are limited as mentioned in sub-paragraph (1) above, the rights of every equity holder falling within that sub-paragraph (including the first company concerned if it is such an equity holder) had been waived.
(3) If, on the profit distribution, the percentage of profits determined as mentioned in sub-paragraph (2)(a) above is less than the percentage of profits determined under paragraph 2(1) above without regard to that sub-paragraph, the lesser percentage shall be taken for the purposes of sections 403C and 413(7) to be the percentage of profits to which, on the profit distribution, the first company referred to in paragraph 2(1) above would be entitled as mentioned in that paragraph.
(4) If, on the notional winding-up, the percentage of assets determined as mentioned in sub-paragraph (2)(b) above is less than the percentage of assets determined under paragraph 3(1) above without regard to that sub-paragraph, the lesser percentage shall be taken for the purposes of sections 403C and 413(7) to be the percentage to which, on the notional winding-up, the first company mentioned in paragraph 3(1) above would be entitled of any assets of the other company available for distribution to its equity holders on a winding-up.
(5) In determining in a case in which paragraph 5F below applies whether any rights in respect of dividend or interest or assets on a winding-up are limited as mentioned in sub-paragraph (1) above, the limitations so mentioned shall be treated as not including so much of any limitation as has effect as mentioned in sub-paragraph (2) of that paragraph.
5 (1) This paragraph applies if, at any time in the relevant accounting period, any of the equity holders—
(a) to whom the profit distribution is made, or
(b) who is entitled to participate in the notional winding-up,
holds, as such an equity holder, any shares or securities which carry rights in respect of dividend or interest or assets on a winding-up which are of such a nature (as, for example, if any shares will cease to carry a right to a dividend at a future time) that if the profit distribution or the notional winding-up were to take place in a different accounting period the percentage to which, in accordance with paragraphs 1 to 4 above, that equity holder would be entitled of profits on the profit distribution or of assets on the notional winding-up would be different from the percentage determined in the relevant accounting period.
(2) Where this paragraph applies, there shall be determined—
(a) the percentage of profits to which, on the profit distribution, the first company referred to in paragraph 2(1) above would be entitled, and
(b) the percentage of assets to which, on the notional winding-up, the first company referred to in paragraph 3(1) above would be entitled,
if the rights of the equity holders in the relevant accounting period were the same as they would be in the different accounting period referred to in sub-paragraph (1) above.
(3) If in the relevant accounting period an equity holder holds, as such, any shares or securities in respect of which arrangements exist by virtue of which, in that or any subsequent accounting period, the equity holder’s entitlement to profits on the profit distribution or to assets on the notional winding-up could be different as compared with his entitlement if effect were not given to the arrangements, then for the purposes of this paragraph—
(a) it shall be assumed that effect would be given to those arrangements in a later accounting period, and
(b) those shares or securities shall be treated as though any variation in the equity holder’s entitlement to profits or assets resulting from giving effect to the arrangements were the result of the operation of such rights attaching to the shares or securities as are referred to in sub-paragraph (1) above.
In this sub-paragraph “arrangements” means arrangements of any kind whether in writing or not.
(4) Sub-paragraph (3) and (4) of paragraph 4 above shall apply for the purposes of this paragraph as they apply for the purposes of that paragraph and, accordingly, references therein to sub-paragraphs (2)(a) and (2)(b) of that paragraph shall be construed as references to sub-paragraphs (2)(a) and (2)(b) of this paragraph.
5A (1) In a case where paragraphs 4 and 5 above apply, each of the following percentages, namely—
(a) the percentage of profits to which, on the profit distribution, the first company referred to in paragraph 2(1) above would be entitled, and
(b) the percentage of assets to which, on the notional winding-up, the first company referred to in paragraph 3(1) above would be entitled,
shall be determined on each of the different bases set out in sub-paragraph (2) below.
(2) The bases are—
(a) the basis specified in paragraph 4(2) above;
(b) the basis specified in paragraph 5(2) above;
(c) the basis specified in paragraph 4(2) above and the basis specified in paragraph 5(2) above taken together;
(d) the basis specified in paragraph 2(1) or 3(1) above (according to the percentage concerned) without regard to paragraphs 4(2) and 5(2) above.
(3) The lowest of the four percentages of profits so determined shall be taken for the purposes of sections 403C and 413(7) to be the percentage of profits to which, on the profit distribution, the first company referred to in paragraph 2(1) above would be entitled as mentioned in that paragraph.
(4) The lowest of the four percentages of assets so determined shall be taken for the purposes of sections 403C and 413(7) to be the percentage to which, on the notional winding-up, the first company mentioned in paragraph 3(1) above would be entitled of any assets of the other company available for distribution to its equity holders on a winding-up.
5B (1) This paragraph applies if, at any time in the relevant accounting period, option arrangements exist; and option arrangements are arrangements of any kind (whether in writing or not) as regards which the two conditions set out below are fulfilled.
(2) The first condition is that the arrangements are ones by virtue of which there could be a variation in—
(a) the percentage of profits to which any of the equity holders is entitled on the profit distribution, or
(b) the percentage of assets to which any of the equity holders is entitled on the notional winding-up.
(3) The second condition is that, under the arrangements, the variation could result from the exercise of any of the following rights (option rights)—
(a) a right to acquire shares or securities in the second company referred to in paragraphs 2(1) and 3(1) above;
(b) a right to require a person to acquire shares or securities in that company.
(4) For the purposes of sub-paragraph (3) above—
(a) it is immaterial whether or not the shares or securities were issued before the arrangements came into existence;
(b) “shares” does not include relevant preference shares;
(c) “securities” does not include normal commercial loans (within the meaning given by paragraph 1(5) above);
(d) “right” does not include a right of an individual to acquire shares, if the right was obtained by reason of his office or employment as a director or employee of the company and in accordance with the provisions of a share option scheme which was approved at the time it was obtained.
(4A) In sub-paragraph (4)(d) above—
“share option scheme” means—
an SAYE option scheme within the meaning of the SAYE code (see section 516(4) of ITEPA 2003 (approved SAYE option schemes)), or
a CSOP scheme within the meaning of the CSOP code (see section 521(4) of that Act (approved CSOP schemes)); and
“approved” means—
in relation to an SAYE option scheme, approved under Schedule 3 to that Act (approved SAYE option schemes), and
in relation to a CSOP scheme, approved under Schedule 4 to that Act (approved CSOP schemes).
(5) As regards each point in time when option arrangements exist in the relevant accounting period—
(a) there shall be taken each possible state of affairs that could then subsist if the outstanding option rights, or any of them or any combination of them, became effective at that point, and
(b) taking each such state of affairs, it shall be assumed that the rights and duties of the equity holders in the relevant accounting period were to be found accordingly.
(6) The following rules shall have effect—
(a) for the purposes of sub-paragraph (5) above outstanding option rights are all such option rights under the arrangements (or sets of arrangements if more than one) as exist at the point in time concerned but have not become effective at or before that point;
(b) for the purpose of applying sub-paragraph (5) above it is immaterial whether or not the rights are exercisable at or before the point in time concerned and it is immaterial whether or not they are capable of becoming effective at or before that point;
(c) for the purposes of sub-paragraph (5) above and this sub-paragraph an option right becomes effective when the shares or securities to which it relates are acquired in pursuance of it.
(7) The determination mentioned in sub-paragraph (8) below shall be made as regards each point in time when option arrangements exist in the relevant accounting period; and for each such point in time a separate determination shall be made for each of the possible states of affairs mentioned in sub-paragraph (5) above.
(8) The determination is a determination of—
(a) the percentage of profits to which, on the profit distribution, the first company referred to in paragraph 2(1) above would be entitled, and
(b) the percentage of assets to which, on the notional winding-up, the first company referred to in paragraph 3(1) above would be entitled,
if the rights and duties of the equity holders in the relevant accounting period were found as mentioned in sub-paragraph (5) above.
(9) Where different determinations yield different percentages of profits and different percentages of assets, only one determination of each percentage (yielding the lowest figure) shall be treated as having been made.
(10) Sub-paragraphs (3) and (4) of paragraph 4 above shall apply for the purposes of this paragraph as they apply for the purposes of that paragraph and, accordingly, references there to sub-paragraphs (2)(a) and (2)(b) of that paragraph shall be construed as references to sub-paragraphs (8)(a) and (8)(b) of this paragraph.
5C (1) In a case where paragraphs 4 and 5B above apply, each of the following percentages, namely—
(a) the percentage of profits to which, on the profit distribution, the first company referred to in paragraph 2(1) above would be entitled, and
(b) the percentage of assets to which, on the notional winding-up, the first company referred to in paragraph 3(1) above would be entitled,
shall be determined on each of the different bases set out in sub-paragraph (2) below.
(2) The bases are—
(a) the basis specified in paragraph 4(2) above;
(b) the basis specified in paragraph 5B(8) above;
(c) the basis specified in paragraph 4(2) above and the basis specified in paragraph 5B(8) above taken together;
(d) the basis specified in paragraph 2(1) or 3(1) above (according to the percentage concerned) without regard to paragraphs 4(2) and 5B(8) above.
(3) The lowest of the four percentages of profits so determined shall be taken for the purposes of sections 403C and 413(7) to be the percentage of profits to which, on the profit distribution, the first company referred to in paragraph 2(1) above would be entitled as mentioned in that paragraph.
(4) The lowest of the four percentages of assets so determined shall be taken for the purposes of sections 403C and 413(7) to be the percentage to which, on the notional winding-up, the first company mentioned in paragraph 3(1) above would be entitled of any assets of the other company available for distribution to its equity holders on a winding-up.
(5) For the purposes of this paragraph the basis specified in paragraph 5B(8) above is such basis as gives the percentage of profits arrived at by virtue of paragraph 5B(9) above or (as the case may be) such basis as gives the percentage of assets arrived at by virtue of paragraph 5B(9) above.
5D (1) In a case where paragraphs 5 and 5B above apply, each of the following percentages, namely—
(a) the percentage of profits to which, on the profit distribution, the first company referred to in paragraph 2(1) above would be entitled, and
(b) the percentage of assets to which, on the notional winding-up, the first company referred to in paragraph 3(1) above would be entitled,
shall be determined on each of the different bases set out in sub-paragraph (2) below.
(2) The bases are—
(a) the basis specified in paragraph 5(2) above;
(b) the basis specified in paragraph 5B(8) above;
(c) the basis specified in paragraph 5(2) above and the basis specified in paragraph 5B(8) above taken together;
(d) the basis specified in paragraph 2(1) or 3(1) above (according to the percentage concerned) without regard to paragraphs 5(2) and 5B(8) above.
(3) The lowest of the four percentages of profits so determined shall be taken for the purposes of sections 403C and 413(7) to be the percentage of profits to which, on the profit distribution, the first company referred to in paragraph 2(1) above would be entitled as mentioned in that paragraph.
(4) The lowest of the four percentages of assets so determined shall be taken for the purposes of sections 403C and 413(7) to be the percentage to which, on the notional winding-up, the first company mentioned in paragraph 3(1) above would be entitled of any assets of the other company available for distribution to its equity holders on a winding-up.
(5) For the purposes of this paragraph the basis specified in paragraph 5B(8) above is such basis as gives the percentage of profits arrived at by virtue of paragraph 5B(9) above or (as the case may be) such basis as gives the percentage of assets arrived at by virtue of paragraph 5B(9) above.
5E (1) In a case where paragraphs 4 and 5 and 5B above apply, each of the following percentages, namely—
(a) the percentage of profits to which, on the profit distribution, the first company referred to in paragraph 2(1) above would be entitled, and
(b) the percentage of assets to which, on the notional winding-up, the first company referred to in paragraph 3(1) above would be entitled,
shall be determined on each of the different bases set out in sub-paragraph (2) below.
(2) The bases are—
(a) the basis specified in paragraph 4(2) above;
(b) the basis specified in paragraph 5(2) above;
(c) the basis specified in paragraph 5B(8) above;
(d) the basis specified in paragraph 4(2) above and the basis specified in paragraph 5(2) above taken together;
(e) the basis specified in paragraph 4(2) above and the basis specified in paragraph 5B(8) above taken together;
(f) the basis specified in paragraph 5(2) above and the basis specified in paragraph 5B(8) above taken together;
(g) the basis specified in paragraph 4(2) above and the basis specified in paragraph 5(2) above and the basis specified in paragraph 5B(8) above all taken together;
(h) the basis specified in paragraph 2(1) or 3(1) above (according to the percentage concerned) without regard to paragraphs 4(2), 5(2) and 5B(8) above.
(3) The lowest of the eight percentages of profits so determined shall be taken for the purposes of sections 403C and 413(7) to be the percentage of profits to which, on the profit distribution, the first company referred to in paragraph 2(1) above would be entitled as mentioned in that paragraph.
(4) The lowest of the eight percentages of assets so determined shall be taken for the purposes of sections 403C and 413(7) to be the percentage to which, on the notional winding-up, the first company mentioned in paragraph 3(1) above would be entitled of any assets of the other company available for distribution to its equity holders on a winding-up.
(5) For the purposes of this paragraph the basis specified in paragraph 5B(8) above is such basis as gives the percentage of profits arrived at by virtue of paragraph 5B(9) above or (as the case may be) such basis as gives the percentage of assets arrived at by virtue of paragraph 5B(9) above.
5F (1) This paragraph has effect, in the cases specified in sub-paragraphs (2) and (3) below, for the following purposes (“the relevant purposes”)—
(a) the determination, in a case where the surrendering company or the claimant company is a non-resident company, of whether that company is a 75 per cent. or a 90 per cent. subsidiary of another company;
(b) the determination of a member’s share in a consortium in any case where the surrendering company or the claimant company is a non-resident company owned by the consortium; but this paragraph does not have effect in relation to any determination in the case of amounts falling within section 402(1)(b).
(2) The first case in which this paragraph applies is where any of the equity holders—
(a) to whom the profit distribution is made, or
(b) who is entitled to participate in the notional winding-up of that company,
holds, as such an equity holder of the non-resident company, any shares or securities which carry rights in respect of dividend or interest or assets on a winding-up which have effect wholly or partly by reference to whether or not, or to what extent, the profits or assets distributed are referable to the non-resident company’s UK trade.
(3) The second case in which this paragraph applies is where—
(a) option arrangements (within the meaning of paragraph 5B above) exist at any time in the relevant accounting period; and
(b) the percentage which, in any of the states of affairs referred to in sub-paragraph (5) of that paragraph, is—
(i) the percentage of profits to which any of the equity holders of the non-resident company would be entitled on the profit distribution, or
(ii) the percentage of assets to which any of the equity holders of that company would be entitled on the notional winding-up,
would differ, at any of the times so referred to, according to whether or not, or to what extent, the profits or assets distributed are referable to the non-resident company’s UK trade.
(4) If the percentage of profits to which, on the profit distribution, a particular equity holder would be taken for the relevant purposes to be entitled would be less if the determination under paragraph 2(1) above were made on the basis specified in sub-paragraph (7) below, then that shall be the basis used for the relevant purposes in the case of that equity holder.
(5) If the percentage of assets to which, on the notional winding-up, a particular equity holder would be taken for the relevant purposes to be entitled would be less if the determination under paragraph 3(1) above were made on the basis specified in sub-paragraph (7) below, then that shall be the basis used for the relevant purposes in the case of that equity holder.
(6) If the percentage that falls to be taken for any of the purposes of section 403C or section 413(7) would, under any of paragraphs 4 to 5E above, be the lower or lowest of a number of percentages determined on different bases—
(a) each of the percentages falling to be compared for the purposes of that paragraph shall be determined both—
(i) on the basis specified in sub-paragraph (7) below, and
(ii) without making the assumption required for a determination on that basis;
and
(b) the comparison required by that paragraph, so far as made for the relevant purposes, shall be made using, in the case of each of the percentages to be compared, only the lower of the percentages determined under paragraph (a) above.
(7) That basis is the assumption—
(a) that the profit distribution or the distribution on the notional winding-up is confined to a distribution of profits or assets that are referable to the non-resident company’s UK trade; and
(b) that the amount of the distribution does not exceed whichever is the greater of £100 and the following amount—
(i) in the case of a profit distribution, the amount (if any) of so much of the company’s chargeable profits for the relevant accounting period as is referable to its UK trade; and
(ii) in the case of a distribution on a notional winding-up, its net UK assets;
and
(c) that none of the ordinary equity holders has an entitlement to a proportion of the profits or assets mentioned in paragraph (a) above that is any greater than the proportion of the distribution to which he would be entitled if—
(i) the assumptions specified in paragraphs (a) and (b) above were disregarded; but
(ii) it were assumed, where it is less, that the distribution is equal to £100.
(8) In sub-paragraph (7) above—
“net UK assets”, in relation to a non-resident company, means the excess, if any, of the total amount of the assets of the company that are referable to its UK trade (as shown in the relevant balance sheet), over the total amount of those of its liabilities (as so shown) which are so referable and are not liabilities to equity holders as such; and
“ordinary equity holder” means any equity holder whose entitlement on the profit distribution or the distribution on the notional winding-up does not differ according to whether or not, or the extent to which, the profits or assets distributed are referable to the non-resident company’s UK trade.
(9) In sub-paragraph (8) above “relevant balance sheet”, in relation to a company, means any balance sheet relating to its affairs as at the end of the relevant accounting period.
(10) For the purposes of this paragraph profits, assets or liabilities of a non-resident company shall be taken to be referable to its UK trade to the extent only that they—
(a) are attributable to, or used for the purposes of, activities the income and gains from which are, or (were there any) would be, brought into account in computing the company’s chargeable profits for any accounting period, and
(b) are not attributable to, or used for the purposes of, any activities which (within the meaning of section 403D) are made exempt from corporation tax for any accounting period by any double taxation arrangements.
6 For the purposes of sections 403C and 413(7) and paragraphs 2 to 5F above—
(a) the percentage to which one company is beneficially entitled of any profits available for distribution to the equity holders of another company, and
(b) the percentage to which one company would be beneficially entitled of any assets of another company on a winding-up,
means the percentage to which the first company is, or would be, so entitled either directly or through another body corporate or other bodies corporate or partly directly and partly through another body corporate or other bodies corporate.
7 (1) In this Schedule “the relevant accounting period” means (subject to sub-paragraphs (1A) to (1C) below)—
(a) in a case falling within subsection (7) of section 413 , the accounting period current at the time in question; and
(b) in a case falling within section 403C, the accounting period in relation to which the share in the consortium falls to be determined .
(1A) In this Schedule “the relevant accounting period” means, in the case of a non-resident company which is not within the charge to corporation tax, the accounting period which the company would have on the following assumption.
(1B) The assumption is that the company became resident in the United Kingdom (and, accordingly, within the charge to corporation tax) at the time when it became a 75 per cent. subsidiary as mentioned in section 402(2A).
(1C) For the purposes of sub-paragraph (1B) above the reference to the company's being a 75 per cent. subsidiary is to its being such a subsidiary disregarding section 413(7).
(2) For the purposes of this Schedule, a loan to a company shall be treated as a security, whether or not it is a secured loan, and, if it is a secured loan, regardless of the nature of the security.
Part 1 Meaning of conditions for the purposes of section 403F
Introduction
1 This Part of this Schedule applies, in the case of any non-resident company, for the purposes of section 403F (relief in respect of overseas losses of non-resident companies).
The equivalence condition
2 An amount meets the equivalence condition if it corresponds (in all material respects) to an amount of a kind that, for the purposes of section 403, could be available for surrender by way of group relief by a company resident in the United Kingdom.
The EEA tax loss condition: companies resident in EEA territory
3 (1) In the case of a non-resident company which is resident in an EEA territory (“the relevant territory”), an amount meets the EEA tax loss condition in relation to the relevant territory in so far as conditions A and B are met.
(2) Condition A is that the amount is calculated in accordance with the applicable rules under the law of the relevant territory for determining, in the case of the company, the amount of any loss or other amount eligible for relief from any tax under the relevant territory.
(3) Condition B is that, for the purposes of corporation tax, the amount is not attributable to a UK permanent establishment of the company.
(4) “UK permanent establishment”, in relation to the company, means any permanent establishment through which it carries on a trade in the United Kingdom.
(5) For the meaning of tax under any territory outside the United Kingdom, see paragraph 17.
The EEA tax loss condition: companies not resident in EEA territory
4 (1) In the case of a non-resident company which is not resident in any EEA territory but which carries on a trade in an EEA territory (“the relevant territory”) through a permanent establishment, an amount meets the EEA tax loss condition for any period in relation to the relevant territory in so far as conditions A and B are met.
(2) Condition A is that the amount is calculated in accordance with the applicable rules under the law of the relevant territory for determining, in the case of the company, the amount of any loss or other amount eligible for relief from any tax under the relevant territory.
(3) Condition B is that the amount is not attributable to activities of the company which are made exempt from tax under the relevant territory for the period by any double taxation arrangements.
(4) For this purpose, activities of the company are made exempt from tax under the relevant territory for the period by any double taxation arrangements if those arrangements—
(a) have the following effect, or
(b) would have the following effect if a claim were made.
(5) The effect is that the income and gains (if any) arising for the period from those activities are ignored in calculating the company's profits, income or gains chargeable to tax under the relevant territory for the period.
(6) For the purposes of this paragraph, arrangements are double taxation arrangements if they are made with a view to affording relief from double taxation in relation to—
(a) any tax under the relevant territory and any other territory outside the United Kingdom, or
(b) any tax under the relevant territory and United Kingdom income or corporation tax.
The qualifying loss condition
5 (1) This paragraph applies in the case of a non-resident company—
(a) which is resident in any EEA territory, or
(b) which is not so resident but which carries on a trade in an EEA territory through a permanent establishment,
and for the purposes of this paragraph “the EEA territory concerned” means the EEA territory in which the company is resident or (as the case may be) in which it carries on a trade through a permanent establishment.
(2) An amount meets the qualifying loss condition in so far as the amount—
(a) cannot be given qualifying relief for any period (“the current period”) or any other period, and
(b) has not been given any other qualifying relief under the law of any territory outside the United Kingdom (other than the EEA territory concerned).
(3) Paragraph 6 determines whether the amount cannot be given qualifying relief for the current period or any previous period.
(4) Paragraph 7 determines whether the amount cannot be given qualifying relief for any period after the current period.
(5) Paragraph 8 determines whether the amount has not been given qualifying relief under the law of any territory outside the United Kingdom (other than the EEA territory concerned).
Qualifying relief for current period and previous periods
6 (1) For the purposes of paragraph 5, an amount cannot be given qualifying relief for the current period or any previous period if conditions A and B are met.
(2) Condition A is that, for the purposes of any tax under the EEA territory concerned or under any relevant territory, the amount cannot be taken into account in calculating any profits, income or gains which—
(a) arise to the company or any other person in the current period or any previous period, and
(b) are chargeable to that tax for the current period or any previous period.
(3) Condition B is that, for the purposes of any tax under the EEA territory concerned or under any relevant territory, the amount cannot be relieved in the current period or any previous period—
(a) by the payment of a credit,
(b) by the elimination or reduction of a tax liability, or
(c) by any other means of any kind.
(4) An amount is to be regarded for the purposes of this paragraph as meeting conditions A and B if (but only if) every step to secure that the amount is so taken into account or relieved is taken (whether by the company or any other person).
(5) In this paragraph “relevant territory” means—
(a) if the company is resident in any EEA territory and is also resident in any other territory outside the United Kingdom, that other territory,
(b) if the company is not resident in any EEA territory but carries on a trade in an EEA territory through a permanent establishment, the territory (or territories) in which it is resident.
Qualifying relief for future periods
7 (1) For the purposes of paragraph 5, an amount cannot be given qualifying relief for any period after the current period if conditions A and B are met.
(2) Condition A is that, for the purposes of any tax under the EEA territory concerned or under any relevant territory, the amount cannot be taken into account in calculating any profits, income or gains which—
(a) might arise to the company or any other person in any period after the current period, and
(b) (if there were any) would be chargeable to that tax for any period after the current period.
(3) Condition B is that, for the purposes of any tax under the EEA territory concerned or under any relevant territory, the amount cannot be relieved in any period after the current period—
(a) by the payment of a credit,
(b) by the elimination or reduction of a tax liability, or
(c) by any other means of any kind.
(4) In determining for the purposes of conditions A and B whether an amount can be so taken into account or relieved, the time at which the determination is to be made is the time immediately after the end of the current period.
(5) In this paragraph “relevant territory” means—
(a) if the company is resident in any EEA territory and is also resident in any other territory outside the United Kingdom, that other territory,
(b) if the company is not resident in any EEA territory but carries on a trade in an EEA territory through a permanent establishment, the territory (or territories) in which it is resident.
Amount not given other qualifying relief under law of territory outside UK
8 (1) For the purposes of paragraph 5, an amount has not been given qualifying relief under the law of any territory outside the United Kingdom (other than the EEA territory concerned) if conditions A and B are met.
(2) Condition A is that, for the purposes of any tax under any territory outside the United Kingdom (other than the EEA territory concerned), the amount has not been taken into account in calculating any profits, income or gains which—
(a) have arisen to the company or any other person in any period, and
(b) were chargeable to that tax for the period (or, but for so taking the amount into account, would have been so chargeable).
(3) Condition B is that, for the purposes of any tax under any territory outside the United Kingdom (other than the EEA territory concerned), the amount has not been relieved in any period—
(a) by the payment of a credit,
(b) by the elimination or reduction of a tax liability, or
(c) by any other means of any kind.
Precedence condition
9 (1) This paragraph applies in the case of a non-resident company (“the relevant company”)—
(a) which is resident in any EEA territory, or
(b) which is not so resident but which carries on a trade in an EEA territory through a permanent establishment.
(2) An amount meets the precedence condition in relation to the EEA territory concerned in so far as relief for the amount cannot be given in any other territory outside the United Kingdom which is a qualifying territory in relation to the relevant company.
(3) For this purpose a territory is a qualifying territory in relation to the relevant company if—
(a) another company is resident in that territory (which need not be an EEA territory),
(b) that other company owns directly or indirectly any ordinary share capital in the relevant company,
(c) a third company which is resident in the United Kingdom owns directly or indirectly any ordinary share capital of that other company,
(d) the relevant company is a 75 per cent. subsidiary of that third company, and
(e) the relevant company is not a 75 per cent. subsidiary of that third company as a result of its being a 75 per cent. subsidiary of a fourth company which is resident in the United Kingdom.
(4) In this paragraph references, in relation to any amount and any territory, to relief being given for the amount in the territory are to relief being given—
(a) by taking the amount into account in calculating any profits, income or gains of any person chargeable to tax under the law of that territory,
(b) by the payment of a credit to any person under the law of that territory,
(c) by the elimination or reduction of a tax liability of any person under the law of that territory, or
(d) by any other means of any kind.
(5) “The EEA territory concerned” means the EEA territory in which the relevant company is resident or (as the case may be) in which it carries on a trade through a permanent establishment.
Part 2 Application of UK rules to non-resident company
Introduction
10 (1) This Part of this Schedule applies in the case of any loss or other amount (“the EEA amount”) arising to a non-resident company (“the EEA company”) in any period (“the loss period”) in so far as the EEA amount meets the conditions mentioned in subsection (2)(a) to (d) of section 403F.
(2) In this Part of this Schedule “the EEA territory concerned” means the EEA territory in which the EEA company is resident or (as the case may be) in which it carries on a trade through a permanent establishment.
(3) In this Part of this Schedule any reference to the appropriate part of the EEA amount is to that amount in so far as it meets the conditions mentioned in subsection (2)(a) to (d) of section 403F.
Basic rules
11 (1) The EEA amount must, on the relevant assumptions (see sub-paragraph (5)), be recalculated in accordance with the applicable UK tax rules (see paragraph 16).
(2) The amount of the EEA amount that is available for surrender by the EEA company by way of group relief is so much of the appropriate part of it as does not exceed the relevant proportion (see sub-paragraph (5)) of the amount given by that recalculation.
(3) But if the amount given by that recalculation is an amount of income or other profits, no part of the EEA amount is available for surrender by way of group relief.
(4) So far as any part of the EEA amount is available for surrender by the EEA company by way of group relief, the provisions of this Chapter have effect in that case on the basis that the relevant assumptions are made.
(5) In this paragraph—
“the relevant assumptions” are the assumptions set out in paragraphs 12 to 15, and
“the relevant proportion” means the proportion that the appropriate part of the EEA amount bears to the EEA amount.
Assumptions as to UK residence
12 (1) It is to be assumed that the EEA company is resident in the United Kingdom throughout the loss period.
(2) But this does not require it to be assumed—
(a) that there is any change in the place or places at which the EEA company carries on its activities (although see paragraph 13), or
(b) that the EEA company ceases to be resident in the United Kingdom at the end of the loss period.
(3) It is to be assumed that the EEA company becomes resident in the United Kingdom (and, accordingly, within the charge to corporation tax) at the beginning of the loss period.
Assumptions as to places in which activities carried out
13 (1) In the case of any trade carried on by the EEA company in the loss period wholly or partly in the EEA territory concerned, it is to be assumed that the trade is carried on wholly or partly in the United Kingdom.
(2) In the case of any estate, interest or rights in or over land in the EEA territory concerned which are held by the EEA company, it is to be assumed that the land is in the United Kingdom.
(3) For this purpose, the reference to domestic concepts of law in relation to the land in the EEA territory concerned is to be read so as to produce the result that most closely corresponds with that produced for the purpose of calculating the profits of a UK property business under Part 4 of CTA 2009 in relation to land in the United Kingdom.
Deemed accounting period
14 (1) It is to be assumed that an accounting period of the EEA company begins at the beginning of the loss period.
(2) It is to be assumed that the accounting period ends on the earlier of—
(a) the end of 12 months from the beginning of the loss period, or
(b) the end of the loss period.
(3) If an accounting period ends in accordance with sub-paragraph (2)(a), it is to be assumed that a further accounting period begins when the previous one ends.
(4) It is to be assumed that the further accounting period ends on the earlier of—
(a) the end of 12 months from the beginning of the further accounting period, or
(b) the end of the loss period.
Capital allowances
15 (1) This paragraph applies if, before the beginning of the loss period, the EEA company incurs any capital expenditure on the provision of plant or machinery for the purposes of any activity.
(2) It is to be assumed for the purposes of Part 2 of the Capital Allowances Act that the plant or machinery—
(a) was provided for purposes wholly other than those of the activity, and
(b) was not brought into use for the purposes of the activity until the beginning of the loss period,
and section 13 of the Capital Allowances Act (use for qualifying activity of plant or machinery provided for other purposes) is to apply accordingly.
(3) This paragraph is to be read as one with Part 2 of the Capital Allowances Act.
Applicable UK tax rules
16 (1) For the purposes of this Part of this Schedule references to recalculating the EEA amount in accordance with the applicable UK tax rules are to recalculating it in accordance with any provision made by or under the Corporation Tax Acts—
(a) which applies for the purpose of calculating for corporation tax purposes the amount of the loss or other amount to which the EEA amount corresponds, or
(b) which otherwise affects in any way the amount of that loss or other amount for which relief from corporation tax is available.
(2) For the purposes of sub-paragraph (1), the Treasury may by regulations provide for the modification of any provision made by or under the Corporation Tax Acts—
(a) which applies as mentioned in sub-paragraph (1)(a), or
(b) which otherwise affects an amount as mentioned in sub-paragraph (1)(b).
(3) Regulations under this paragraph may make provision in relation to—
(a) all classes of trade or business, or
(b) any particular class or classes of trade or business.
(4) Regulations under this paragraph may make—
(a) different provision for different cases or different purposes, and
(b) incidental, supplemental, consequential or transitional provision and savings.
(5) Regulations under this paragraph may make provision having effect before the date on which the regulations are made.
Part 3 Definitions for the purposes of this Schedule
Charge to tax under the law of any territory outside the United Kingdom
17 (1) This paragraph applies for the purposes of this Schedule.
(2) Any reference to a tax under a territory outside the United Kingdom is a reference to a tax chargeable under the law of that territory which—
(a) is charged on income and corresponds to United Kingdom income tax, or
(b) is charged on income or chargeable gains or both and corresponds to United Kingdom corporation tax.
(3) A tax chargeable under the law of a territory outside the United Kingdom is not to be regarded as failing to correspond to income or corporation tax just because—
(a) it is chargeable under the law of a province, state or other part of a country, or
(b) it is levied by or on behalf of a municipality or other local body.
PART I DETERMINATION OF RELEVANT INCOME AND DISTRIBUTIONS
Relevant income
1 (1) Subject to the provisions of this Part of this Schedule, the relevant income of a company for an accounting period is—
(a) in the case of a company which is a trading company or a member of a trading group, so much of its distributable income, other than trading income, for that period as can be distributed without prejudice to the requirements of the company’s business;
(b) in the case of a company not within paragraph (a)above whose distributable income for that period consists of or includes estate or trading income—
(i) so much of the estate or trading income as can be distributed without prejudice to the requirements of the company’s business so far as concerned with the activities or assets giving rise to estate or trading income; and
(ii) its distributable income, if any, other than estate or trading income;
(c) in the case of any other company, its distributable income for that period .
(2) In arriving at the relevant income for any accounting period—
(a) where under sub-paragraph (1)above regard is to be had to the requirements of a company’s business, regard shall be had not only to the current requirements of the business but also to such other requirements as may be necessary or advisable for the maintenance and development of that business but, for this purpose, the provisions of paragraph 8below shall apply;
(b) the amount of the estate or trading income shall be taken as the amount included in respect of it in the distributable income.
(3) In arriving at the relevant income for any accounting period of a company which is a trading company or a member of a trading group, regard shall be had not only to the current requirements of the company’s business and to such requirements as may be necessary or advisable for the maintenance and development of that business as fall within sub-paragraph (2)(a)above, but also to any other requirements necessary or advisable for the acquisition of a trade or of a controlling interest in a trading company or in a company which is a member of a trading group by virtue of paragraph 7(2)(a)below; but, for this purpose, paragraph 9below shall apply.
(4) For the purposes of sub-paragraph (3)above, the acquisition of a controlling interest in a company means the acquisition, whether on a single occasion or otherwise, of such ordinary share capital of that company as enables the acquiring company to exercise the greater part of the voting power in that company.
(5) For the purposes of sub-paragraph (3)above, the requirements of a company’s business which are necessary or advisable for such an acquisition as is mentioned in that sub-paragraph include such requirements as are necessary or advisable for—
(a) the redemption or repayment of any share or loan capital or debt (including any premium thereon)issued or incurred in or towards payment for that acquisition, or issued or incurred for the purpose of raising money to be applied in or towards payment therefor, or
(b) meeting any obligation of the company in respect of that acquisition,
so far as any sum so expended or applied, or intended to be expended or applied, does not fall to be treated for the purposes of this Chapter as a distribution by the company.
Maximum amount of relevant income
2 (1) Subject to paragraphs 10and 12below, the relevant income of a company shall in no case be taken to exceed the company’s distributable investment income for the accounting period plus 50per cent. of the estate or trading income for the period.
(2) In the application of sub-paragraph (1)above to a company which is a trading company or a member of a trading group, the trading income shall be disregarded; and in the application of that sub-paragraph to a trading company, the estate income—
(a) if it is less than the appropriate fraction of the relevant maximum amount, shall be treated as reduced by one-half of the amount required to make it up to that fraction of the relevant maximum amount; or
(b) if it is less than the appropriate fraction of the relevant minimum amount, shall be disregarded;
and in this sub-paragraph the appropriate fraction is—
A
A
+
B
where—
Ais the amount of the estate income, and
Bis the amount of the trading income.
(3) The relevant maximum and minimum amounts referred to above shall be determined as follows—
(a) where the company has no associated company in the accounting period, those amounts are £75,000and £25,000respectively;
(b) where the company has one or more associated companies in the accounting period—
(i) the relevant maximum amount is—
£75,000
1
+
X
(ii) the relevant minimum amount is—
£25,000
1
+
X
where Xis the number of those associated companies.
(4) In applying sub-paragraphs (2)and (3)above to any accounting period of a trading company, an associated company shall be disregarded if—
(a) it was not a trading company, or has not carried on any trade, at any time in that accounting period; or
(b) where it was an associated company during part only of that accounting period, it was not a trading company, or has not carried on any trade, at any time in that part of that accounting period;
and for the purposes of this paragraph a company is to be treated as an associated company of another at a given time if at that time one of the two has control of the other or both are under the control of the same person or persons.
(5) In determining how many associated companies a trading company has in an accounting period or whether a trading company has an associated company in an accounting period, an associated company shall be counted even if it was an associated company for part only of the accounting period, and two or more associated companies shall be counted even if they were associated companies for different parts of the accounting period.
(6) For an accounting period of less than 12months the relevant maximum and minimum amounts determined in accordance with sub-paragraphs (1)to (5)above shall be proportionately reduced.
Distributions
3 (1) For the purposes of this Chapter the distributions of a company for an accounting period shall, subject to sub-paragraphs (2)to (4)and paragraph 12below, be taken to consist of—
(a) any dividends which are declared in respect of the period and are paid during the period or within a reasonable time thereafter;
(b) all distributions made in the period except dividends which, in relation to any previous period, would fall under paragraph (a)above; and
(c) anything that would be a distribution but for section 213or 219 (or both).
(2) Where a period of account is not an accounting period, dividends which, if it were an accounting period, would be treated under sub-paragraph (1)(a)above as distributions for that accounting period shall be apportioned to any accounting period or part of an accounting period falling within the period of account in proportion to the distributable income of each such period or part.
(3) For the purposes of determining whether there is any such excess as is referred to in section 424(1),no account shall be taken of a distribution which, in relation to the company making it, is a bonus distribution unless—
(a) it is made to a person other than a close company, or
(b) it is made to a close company and the share capital or security of which it consists is subsequently distributed, by that or any other close company, by a distribution falling within section 14(2)(b)to a person other than a close company.
(4) Where a bonus distribution has occurred and, by virtue of paragraph (a)or paragraph (b)of sub-paragraph (3)above, it falls to be taken into account for the purpose of determining whether there is any such excess as is referred to in section 424(1),no account shall be taken for that purpose of a qualifying distribution which consists of the repayment of the share capital or, as the case may be, the principal of the security, which constituted the bonus distribution.
(5) In sub-paragraphs (3)and (4)above “bonus distribution” means a distribution which in relation to the company making it is a distribution by virtue only of paragraph (c)of section 209(2).
Distributable income and estate or trading income
4 (1) For the purposes of this Chapter, the distributable income of a company for an accounting period shall be the amount of its distributable profits for the period exclusive of the part attributable to chargeable gains; and for the purposes of this sub-paragraph—
(a) the distributable profits of a company for an accounting period shall be the aggregate of the following amounts, that is to say—
(i) the amount of any profits on which corporation tax falls finally to be borne, less the amount of that tax;
(ii) an amount equal to the qualifying distributions comprised in any franked investment income, other than franked investment income against which relief is given under section 242or 243;and
(iii) an amount equal to any group income ;
(b) the part of a company’s distributable profits attributable to chargeable gains shall be taken to be the amount of the chargeable gains on which corporation tax is finally borne less the amount of that tax; and
(c) the amount on which corporation tax falls finally to be borne (but not the amount of that tax)shall be computed as if section 242did not include subsection (5)or (6)of that section (and as if section 243did not apply section 242(5)) ;
and for the purposes of sub-paragraph (a)(ii)above relief under section 242or 243shall be treated as having been given first against franked investment income which is not trading income and secondly, so far as it cannot be so given, against franked investment income which is trading income.
(2) For the purposes of this Chapter, the distributable investment income of a company for an accounting period shall be the amount of the distributable income, exclusive of the part attributable to estate or trading income, and less whichever is the smaller of—
(a) 10per cent. of the estate or trading income; and
(b) £1,000or, if the company is a trading company or a member of a trading group, £3,000or (in either case)if the accounting period is of less than 12months, a proportionately reduced amount.
5 (1) For the purposes of this Chapter, “estate or trading income” means estate income and trading income.
(2) For those purposes “estate income” means income which is chargeable to tax under Schedule A or Schedule B, and income (other than yearly or other interest)which is chargeable to tax under Schedule D, and which arises from the ownership or occupation of land (including any interest in or right over land)or from the letting furnished of any building or part of a building, but does not include trading income.
(3) For those purposes “trading income” means income which is not investment income for the purposes of paragraph 7(1)below; and, where the following conditions are satisfied with respect to a close company, that is to say—
(a) that its activities consist wholly or mainly of the carrying on of a trade; and
(b) that the trade consists wholly or mainly of one or more of the following, that is to say, life assurance business (within the meaning of section 431),insurance business of any other class, banking, money lending, financing of hire-purchase or similar transactions, or dealing in securities;
its income incidental to that trade shall also be trading income.
(4) For the purposes of sub-paragraph (3)above income of a company is incidental to its trade if, and only if—
(a) it is derived from investments (other than investments in a 51per cent. subsidiary)or is interest on a debt; and
(b) any profit on the sale of the investments would be a trading receipt, and the debt, if proved to be a bad debt, would be allowed as a deduction in computing the company’s trading income for the purposes of corporation tax.
6 (1) The amount for part of an accounting period of any description of income referred to in paragraph 4or 5above shall be a proportionate part of the amount for the whole period.
(2) In determining the amount for any period of any description of income referred to in paragraph 4or 5above, any deduction from the company’s profits for charges on income, expenses of management or other amounts which can be deducted from or set against or treated as reducing profits of more than one description shall be treated as made—
(a) first, from the company’s income charged to corporation tax other than estate or trading income;
(b) secondly, so far as it cannot be made under paragraph (a)above, from the company’s estate or trading income so charged;
(c) thirdly, so far as it cannot be made under paragraph (a)or (b)above, from the amount included in the company’s profits in respect of chargeable gains.
(3) In the application of sub-paragraph (2)above to a company which is a trading company or a member of a trading group there shall be substituted for paragraph (b)the following paragraphs—
(b) secondly, so far as it cannot be made under (a)above, from the company’s estate income so charged;
(bb) thirdly, so far as it cannot be made under (a)or (b)above, from the company’s trading income so charged;
and in paragraph (c)for “thirdly” there shall be substituted “ fourthly ”, and for “(a) or (b)” there shall be substituted “ (a), (b) or (bb) ”.
Meaning of “trading company” and “member of a trading group”
7 (1) For the purposes of this Chapter, a “trading company” is any company which exists wholly or mainly for the purpose of carrying on a trade, and any other company whose income does not consist wholly or mainly of investment income, that is to say, income which, if the company were an individual, would not be earned income ;but for this purpose any amount which is apportioned to a company under section 423(1)shall be deemed to be income of the company and to be investment income.
(2) Subject to sub-paragraph (3)below, for the purposes of this Chapter, a company is to be treated as a member of a trading group if, but only if—
(a) it exists wholly or mainly for the purpose of co-ordinating the administration of a group of two or more companies each of which is under its control and exists wholly or mainly for the purpose of carrying on a trade; or
(b) it is under the control of another company resident in the United Kingdom and not itself under the control of a third company, and it exists wholly or mainly for the purpose of a trade or trades carried on by that other company or by a group which, consisting of that other company and a company or companies also under its control and resident in the United Kingdom, exists wholly or mainly for the purpose of carrying on that trade or trades.
(3) A company shall not be treated as a member of a trading group by reason only of any company having the control of another if that control is exercised through a company which is not resident in the United Kingdom or through a company whose control depends on a holding a profit on the sale of which would be treated as a trading receipt of the company.
Requirements of a company’s business
8 (1) For the purposes of paragraph 1(2)above there shall be regarded as income available for distribution and not as having been applied, or as being applicable, to the current requirements of a company’s business, or to such other requirements as may be necessary or advisable for the maintenance and development of that business—
(a) any sum expended or applied, or intended to be expended or applied, out of the income of the company—
(i) in or towards payment for the business, undertaking or property which the company was formed to acquire or which was the first business, undertaking or property of a substantial character in fact acquired by the company, or
(ii) in redemption or repayment of any share or loan capital or debt (including any premium thereon)issued or incurred in or towards payment for any such business, undertaking or property, or issued or incurred for the purpose of raising money applied or to be applied in or towards payment therefor, or
(iii) in meeting any obligations of the company in respect of the acquisition of any such business, undertaking or property, or
(iv) in redemption or repayment of any share or loan capital or debt (including any premium thereon)issued or incurred otherwise than for adequate consideration; and
(b) any sum expended or applied, or intended to be expended or applied, in pursuance or in consequence of any fictitious or artificial transactions; and
(c) in the case of a company which is neither a trading company nor a member of a trading group, any sum expended or applied, or available to be expended or applied, out of the income of the company in or towards the redemption, repayment or discharge of any loan capital or debt (including any premium thereon)in respect of which any person is a loan creditor of the company; and
(d) in the case of a company which is neither a trading company nor a member of a trading group, any sum expended or applied, or available to be expended or applied, out of the income of the company in or towards the acquisition of an estate or interest in land or the construction or extension of a building, not being a construction or extension which constitutes an improvement or development of farm land or market garden land.
Sub-paragraph (d)above does not apply where the acquisition, construction or extension concerned was made in pursuance of a contract entered into before 24thMarch 1973.
(2) For the purposes of sub-paragraph (1)(a)(iv)above, share or loan capital or debt shall be deemed to be issued or incurred otherwise than for adequate consideration if—
(a) it is issued or incurred for consideration the value of which to the company is substantially less than the amount of the capital or debt (including any premium thereon);or
(b) it is issued or incurred in or towards, or for the purpose of raising money applied or to be applied in or towards, the redemption or repayment of any share or loan capital or debt which itself was issued or incurred for such consideration as is mentioned in paragraph (a)above or which represents, directly or indirectly, any share or loan capital or debt which itself was issued or incurred for such consideration.
(3) In relation to any loan capital or debt mentioned in sub-paragraph (1)(c)above which was issued or incurred by the company for money borrowed by it for the purpose of financing expenditure on any acquisition, construction or extension falling within sub-paragraph (1)(d)above, the expression “loan creditor” in sub-paragraph (1)(c)above shall be construed as if, in the definition of that expression in subsections (7)to (9)of section 417,subsection (9)were omitted.
(4) References in sub-paragraphs (1)(a)and (2)(b)above to the redemption or repayment of a company’s share capital shall be construed as including references to the purchase by the company of its own shares.
(5) References in sub-paragraphs (1)to (4)above to money applied or to be applied for any purpose shall be deemed to include references to money applied or to be applied in or towards the replacement of that money.
9 (1) Paragraph 1(3)above shall not apply to—
(a) the acquisition of a trade, or of an asset to be used in a trade, or of an interest in any such asset, which at the date of the acquisition or at any time within one year previously was owned by an associated company of the acquiring company; or
(b) the intended acquisition of a trade, or of such an asset or interest as is referred to in paragraph (a) above, which, at the end of the accounting period for which the acquiring company’s relevant income is to be ascertained, is owned by a company which is then an associated company of the acquiring company;
and, where the trade, asset or interest was, or is, in part owned as mentioned above, paragraph 1(3)above shall not apply with respect to that part.
(2) Paragraph 1(3)above shall not apply to—
(a) the acquisition of shares which at the date of the acquisition or at any time within one year previously were owned by an associated company of the acquiring company or by a person who then had control of the acquiring company; or
(b) the intended acquisition of shares which at the end of the accounting period for which the acquiring company’s relevant income is to be ascertained are owned by a company which is then an associated company of the acquiring company or by a person who has control of the acquiring company;
and where shares were, or are, in part owned as mentioned above, paragraph 1(3)above shall not apply with respect to that part.
(3) Paragraph 1(3)above shall not apply to—
(a) the acquisition of shares in a company which immediately before the acquisition or at any time within one year previously was an associated company of the acquiring company; or
(b) the intended acquisition of shares in a company which, at the end of the accounting period for which the acquiring company’s relevant income is to be ascertained, is an associated company of the acquiring company.
(4) Section 416(1)—
(a) shall not apply for the purposes of paragraph (a)of sub-paragraphs (1), (2)and (3)above; and
(b) shall apply for the purposes of paragraph (b)of each of those sub-paragraphs with the omission of the words “or at any time within one year previously”.
(5) For the purposes of paragraph (a)of sub-paragraphs (1), (2)and (3)above, another company is an associated company of the acquiring company if—
(a) the acquiring company controlled that other company or that other company controlled the acquiring company either at the date of the acquisition of the trade, asset or interest or at any time within one year previously; or
(b) a person who had control of the acquiring company at that date also controlled that other company either at that date or at any time within one year previously.
(6) In ascertaining for the purposes of sub-paragraphs (2)and (5)above or for the purposes of section 416(1)as it applies for the purposes of paragraph (b)of sub-paragraphs (1), (2)and (3)above, whether any person has control of a company—
(a) there shall be left out of account for the purposes of section 416(2)(c)the rights of another company as loan creditor in respect of a debt incurred or redeemable loan capital issued in connection with the acquisition from that company of any trade, any asset to be used in a trade, or any interest in any such asset;
(b) section 417(3)(a)shall have effect as if the reference to a partner of a participator were omitted;
(c) section 417(3)(a)and (b)shall have effect as if the expression “relative” did not have the meaning assigned to it by section 417(4)but meant husband or wife or, in the case of a director of the company, husband or wife or any child or remoter issue who is an infant; and
(d) section 417(3)(c)shall have effect as if the reference to any other person interested were a reference (and a reference only)to the trustees or to the personal representatives as defined in section 701.
(7) For the purposes of this paragraph the time of acquisition of a trade, asset or interest, or shares, acquired under a contract shall be—
(a) the time at which the contract is made, or
(b) if it is conditional (and in particular if it is conditional on the exercise of an option),the time at which the condition is satisfied,
and not, if different, the time at which the trade, asset, interest or shares is or are conveyed or transferred.
(8) For the purposes of paragraph 1(3)above there shall be regarded as income available for distribution and not as having been applied, or as being applicable, to such requirements of a company’s business as may be necessary or advisable for such an acquisition as is mentioned in paragraph 1(3)above any sum expended or applied, or intended to be expended or applied, as mentioned in paragraph 8(1)(a)(iv)or (b)above; and paragraph 8(2)and (5)above shall apply for the purposes of this sub-paragraph as they apply for the purposes of paragraph 8.
Cessations and liquidations
10 (1) Where a close company ceases to carry on the trade, or the business of holding investments, in which its activities wholly or mainly consisted, the relevant income of the company for any accounting period in which that event occurs, or which ends in or within the 12months ending with that event, shall be calculated as if—
(a) paragraph 1(1)(a)and (b)(i)above referred respectively to the whole of the company’s distributable income other than trading income and to the whole of the estate or trading income and not to so much thereof as can be distributed without prejudice to the requirements there mentioned, and paragraphs 1(2)(a)and 8above were omitted;
(b) in paragraph 2(1)above the words “50 per cent. of” were omitted.
(2) Where sub-paragraph (1)above applies for an accounting period and the company could not make distributions without prejudice to the claims of creditors (excluding those mentioned in sub-paragraph (3)below),the excess mentioned in section 424(1)shall be disregarded to the extent to which the company could not make distributions up to the amount of its relevant income without prejudice to those claims.
(3) Subject to sub-paragraph (4)below, the creditors to be excluded for the purposes of sub-paragraph (2)above are all participators and associates of participators, and all creditors in respect of debts originally created in favour of or due to a person who was then a participator or associate of a participator.
(4) A creditor is not to be excluded in respect of any debt which either—
(a) arose in the ordinary course of the company’s trade or the company’s business of holding investments and also in the ordinary course of a trade or profession of the creditor or, as the case may be, of the participator or associate who was the original creditor; or
(b) is a debt for remuneration chargeable to income tax under Schedule E; or
(c) is a debt for any rent or other payment due for the use of
(i) tangible property,
(ii) copyright in a literary, dramatic, musical or artistic work within the meaning of Part Iof the Copyright, Designs and Patents Act 1988 (or any similar right under the law of a country to which that Part does not extend),or
(iii) design right, , and not representing more than a reasonable commercial consideration for that use.
(5) Where sub-paragraph (1)above applies for any accounting period, there shall be disregarded for the purposes of any apportionment made by virtue of section 424(2)so much of the relevant income of the company for that period as is equal to the amount which would be disregarded under sub-paragraph (2)above.
(6) Where a resolution is passed or an order is made for the winding up of a close company, or where any other act is done for a like purpose in the case of a winding up otherwise than under the Insolvency Act 1986,sub-paragraphs (1)to (5)above shall apply for any accounting period ending in or with the 12months ending with the passing of the resolution or other event, or for any later accounting period, as they apply, in a case falling within sub-paragraph (1)above, for an accounting period in which a close company ceases to carry on a trade.
Legal restrictions on distributions
11 (1) Subject to paragraph 12below, where a company is subject to any restriction imposed by law as regards the making of distributions, the excess mentioned in section 424(1)shall be disregarded to the extent to which the company could not make distributions up to the amount of its relevant income without contravening that restriction.
(2) Except where paragraph 10(1)above applies, there shall be disregarded for the purposes of any apportionment made by virtue of section 424(2)so much of the relevant income of the company as is equal to any amount which would be disregarded under sub-paragraph (1)above.
Stock dividends
12 (1) Where a company issues to a close company any relevant share capital, sub-paragraphs (2)and (3)below shall apply as regards that share capital, and in this paragraph—
“the relevant accounting period” means the accounting period of the close company in which the due date of issue falls;
“relevant share capital” means share capital to which section 249applies; and
“appropriate amount in cash” has the meaning given by section 251(2).
(2) The relevant income of the close company for the relevant accounting period, as determined under paragraph 1above, and the amount which, under paragraph 2above (read, where appropriate, with paragraph 10above)the relevant income of the close company for that period cannot exceed, shall each be increased by an amount equal to the appropriate amount in cash (or, if it would otherwise be nil, be treated as equal to the appropriate amount in cash).
(3) The amount, if any, which would otherwise be disregarded under paragraph 11(1)above shall be reduced by an amount equal to the appropriate amount in cash.
(4) Where a close company issues any relevant share capital in a case falling within section 249(4), (5)or (6)or sub-paragraph (1)above (read in each case with section 249(3)),the company shall be treated for the purposes of paragraph 3(1)and (2)above—
(a) as if a dividend of an amount equal to the appropriate amount in cash had been paid on the due date of issue; and
(b) where, in relation to that share capital, “the appropriate amount in cash” has the meaning given by section 251(2)(a),as if that dividend had been declared in respect of the accounting period (if any)in respect of which the relevant cash dividend (as defined in section 251(3))was declared.
PART II PROCEDURE
Notice of amount to be apportioned
13 (1) Where in the case of any company the inspector proposes to apportion an amount under section 423he shall serve on the company a notice showing the amount to be apportioned and, subject to any appeal under this paragraph and to paragraph 15below, that notice shall be treated as conclusively establishing, both in relation to the company and for the purposes of any assessment under section 426,that an apportionment can be made in respect of that amount.
(2) After a notice under sub-paragraph (1)above has been served on the company it shall not be altered except on appeal or in accordance with paragraph 15below.
(3) The company may by giving notice of appeal to the inspector within 30days of the date of any notice under sub-paragraph (1)above appeal against that notice; and any notice under that sub-paragraph shall state the time within which notice of appeal may be given under this sub-paragraph.
(4) Subject to paragraph 18(2)below, any appeal under this paragraph shall be to the General Commissioners except that the company may elect (in accordance with section 46(1)of the Management Act)to bring the appeal before the Special Commissioners instead of the General Commissioners.
(5) The notice of appeal shall specify the grounds of appeal, but on the hearing of the appeal the Commissioners may allow the appellant to put forward any ground not specified in the notice, and take it into consideration if satisfied that the omission was not wilful or unreasonable.
(6) If a company fails or refuses, on being required to do so under paragraph 17below, to furnish a statement of any amount which in the case of that company could be apportioned under section 423,or renders a statement with which the inspector is not satisfied, the inspector may make an estimate of that amount to the best of his judgment, and any relevant decision taken by the inspector under this sub-paragraph may be reviewed on appeal under this paragraph.
(7) Sections 113(1B)and (3)and 114(2)of the Management Act (supplementary provisions as to assessments and notices of assessment)shall apply to any notice under sub-paragraph (1)above as if the determination of the amount to be shown therein were the making of an assessment and the notice were a notice of assessment.
Notice of manner of apportionment
14 (1) Where notice has been served on a company under paragraph 13above showing an amount to be apportioned, the inspector shall serve on the company a notice showing the manner in which that amount is apportioned, (that is to say, the sum apportioned or sub-apportioned to each participator or, if the inspector thinks fit, to each class of share)and, subject to any appeal under this paragraph and to paragraph 15below, that notice shall be treated, in relation to the company, as conclusively establishing the manner of apportionment.
(2) Paragraph 13(2)to (5)and (7)above shall apply also to a notice under this paragraph, but any appeal against such a notice by virtue of this sub-paragraph shall be to the Special Commissioners.
(3) The manner of apportionment shown in a notice under this paragraph may also be questioned on an appeal against any assessment made under section 426;and any relevant decision taken by the inspector under section 425(2)or (3)may be reviewed on an appeal under this paragraph or on an appeal against any such assessment.
Revision of apportionment
15 (1) If the inspector discovers that the amount apportioned in the case of any company is or has become insufficient, he shall serve on the company a further notice under paragraph 13(1)above showing the further amount which ought in his opinion to be apportioned, and a further notice relating to that amount shall then be served under paragraph 14above.
(2) Where the amount shown in a notice under sub-paragraph (1)of paragraph 13above is excessive because the company’s distributable income is smaller than it was taken to be for the purposes of that notice or because the company’s distributions were greater than they were taken to be for those purposes, the inspector shall serve on the company a further notice under that sub-paragraph showing a reduced amount; and where such a notice is served—
(a) a further notice shall also be served under paragraph 14above making such amendments in any previous notice under that paragraph as may be required to take account of the reduction in the amount apportioned; and
(b) there shall be made such adjustments by repayment or discharge of tax as may be required to secure that liabilities to tax under sections 426to 430are what they would have been if the notices originally served under paragraphs 13and 14above had been as amended by further notices served by virtue of this paragraph.
Protection by transmission of accounts
16 (1) A close company may, at any time after the general meeting at which the accounts for any period of account are adopted, forward to the inspector a copy of those accounts, together with a copy of the report (if any)of the directors for that period and such further information (if any)as it may think fit, and may request the inspector to proceed under this paragraph in relation to any accounting period comprised in that period of account.
(2) Sub-paragraph (1)above shall not apply if the company is neither a trading company nor a member of a trading group and has no estate or trading income.
(3) Where the inspector receives a request made in accordance with sub-paragraph (1)above in relation to any accounting period, then, subject to sub-paragraph (4)below, he shall, within three months after receipt of the request, intimate to the company whether or not he proposes to make an apportionment in respect of the company for the accounting period under section 423.
(4) On receiving a request made in accordance with sub-paragraph (1)above the inspector may, not later than three months after the receipt of the request, call on the company to furnish him with such further particulars as he may reasonably require; and, if the inspector does so, the time for giving the intimation required by sub-paragraph (3)above shall not expire before three months after he has been furnished with those particulars.
(5) Where the inspector receives a request made in accordance with sub-paragraph (1)above in relation to any accounting period, and does not within the time limited by sub-paragraphs (3)and (4)above intimate his intention to make an apportionment in respect of the period, no such apportionment shall be made unless either—
(a) the information accompanying the request, and any further particulars furnished to the inspector in connection therewith, are not such as to make full and accurate disclosure of all facts and considerations which are material to be known to him, or
(b) within 12months of the end of the period any of the provisions of paragraph 10above have effect in relation to the company.
Information
17 (1) The inspector may, by notice, require any company which is, or appears to him to be, a close company to furnish him within such time (not being less than 30days)as may be specified in the notice with such particulars as he thinks necessary for the purposes of this Chapter.
(2) If for those purposes any person in whose name any shares are registered is so required by notice by the inspector, he shall state whether or not he is the beneficial owner of the shares and, if not the beneficial owner of the shares or any of them, shall furnish the name and address of the person or persons on whose behalf the shares are registered in his name.
(3) Sub-paragraph (2)above shall apply in relation to loan capital as it applies in relation to shares.
(4) The inspector may, for the purposes of this Chapter, by notice require—
(a) any company which appears to him to be a close company to furnish him with particulars of any bearer securities issued by the company, and the names and addresses of the persons to whom the securities were issued and the respective amounts issued to each person; and
(b) any person to whom securities were so issued, or to or through whom such securities were subsequently sold or transferred, to furnish him with such further information as he may require with a view to enabling him to ascertain the names and addresses of the persons beneficially interested in the securities.
In this sub-paragraph “securities” includes shares, stocks, bonds, debentures and debenture stock and also any promissory note or other instrument evidencing indebtedness to a loan creditor of the company.
(5) Any power which the inspector may exercise under this paragraph for the purposes of this Chapter may also be exercised for the purposes of sections 419to 422 .
Exercise of functions by the Board
18 (1) Any functions conferred by this Chapter on the inspector may also be exercised by the Board; and references in this Chapter to the inspector shall be construed accordingly.
(2) Where by virtue of this paragraph a notice is served by the Board under paragraph 13(1)above any appeal under that paragraph shall be to the Special Commissioners.
1 (1) This Schedule shall have effect for determining for the purposes of this Chapter the assets of a company which are the assets of its overseas life assurance fund.
(2) The Treasury may by order amend any of the following provisions of this Schedule (including any modification of any of those provisions made by paragraph 14A of Schedule 19AC).
2 (1) Assets of a company at the end of a period of account which—
(a) were assets of the overseas life assurance fund at the end of the immediately preceding period of account, and
(b) are assets of the long-term insurance fund of the company throughout the period,
shall be assets of the overseas life assurance fund throughout the period .
(2) Where in a period of account assets of a company which were assets of the overseas life assurance fund at the end of the immediately preceding period of account are disposed of by the company, or otherwise cease to be assets of the long-term insurance fund of the company, they shall be assets of the overseas life assurance fund from the beginning of the period until they are disposed of or, as the case may be, they cease to be assets of the long-term insurance fund.
(3) Where—
(a) in any period of account assets are acquired by a company as assets of the long-term insurance fund , or otherwise become assets of that fund,
(b) the assets are disposed of by the company, or otherwise cease to be assets of that fund, later in the same period,
(c) throughout the part of the period during which the assets are assets of the long-term insurance fund they are assets within paragraph 5(5)(a) or assets within paragraph 5(5)(c) below, and
(d) it is appropriate having regard to all the circumstances (including a comparison between the relationship of the value of the assets of the overseas life assurance fund and the liabilities of the overseas life assurance business and that of the value of the assets of the long-term insurance fund and the liabilities of the company’s long-term business) that they be assets of the overseas life assurance fund,
they shall be assets of the overseas life assurance fund for the part of the period during which they are assets of the long-term insurance fund.
3 (1) Where the value of the assets mentioned in paragraph 2(1) above at the end of the period is less than the amount mentioned in paragraph 4 below (or where there are no assets within paragraph 2(1)), assets which—
(a) are assets of the long-term insurance fund of the company at the end of the period,
(b) have a value at that time equal to the difference (or to that amount), and
(c) are designated in accordance with paragraph 5 below,
shall become assets of the overseas life assurance fund at the relevant time.
(2) In sub-paragraph (1) above “the relevant time” means—
(a) where the asset is not an asset of the long-term insurance fund of the company throughout the period, the time when it became such an asset, and
(b) in any other case, the end of the period.
(3) Where the value of the assets mentioned in paragraph 2(1) above at the end of the period is greater than the amount mentioned in paragraph 4 below, assets which—
(a) are assets of the long-term insurance fund of the company at the end of the period,
(b) have a value at that time equal to the difference, and
(c) are designated in accordance with paragraph 5 below,
shall cease to be assets of the overseas life assurance fund at the end of the period.
4 (1) The amount referred to in paragraph 3 above shall be determined by the formula—
A
+
B
-
C
-
D
where—
A is the liabilities of the company’s overseas life assurance business at the end of the period of account,
B is the aggregate of—
(a) the appropriate part of the free assets amount at that time, and
(b) the appropriate part of any liabilities of the company’s long-term insurance fund at that time which represent a money debt,
C is the value, at that time, of any land in the United Kingdom which is an asset linked solely to the company’s overseas life assurance business, and
D is the relevant fraction of the value, at that time, of any land in the United Kingdom which is an asset linked both to the company’s overseas life assurance business and to some other category of business.
This is subject to sub-paragraph (1A) below.
(1A) If for the purposes of sub-paragraph (1) above A is below nil then the amount referred to in paragraph 3 above shall be nil.
(2) In sub-paragraph (1) above, in B, the “appropriate part" of the company’s free assets amount at the end of the period of account, or of any liabilities of its long-term insurance fund at that time which represent a money debt, is—
(a) where none (or none but an insignificant proportion) of the liabilities of the company’s long-term business at that time are with-profits liabilities, the part which bears to the whole the proportion A/B; and
(b) in any other case, the part which bears to the whole the proportion C/D.
For this purpose—
A is the amount of the liabilities of the company’s overseas life assurance business at the end of the period of account (but taking that amount to be nil if it would otherwise be below nil),
B is the whole amount of the liabilities of the company’s long-term business at that time,
C is the amount of the with-profits liabilities of the company’s overseas life assurance business at that time, and
D is the whole amount of the with-profits liabilities of the company’s long-term business at that time.
This is subject to sub-paragraph (2A) below.
(2A) If for the purposes of sub-paragraph (2) above B is nil then, in sub-paragraph (1) above, in B, the appropriate part” of the company's free assets amount, at the end of the period of account, or of any liabilities of its long-term insurance fund at that time which represents a money debt, means the part which bears to the whole such proportion as is just and reasonable.
(3) In this Schedule “land” includes buildings and other structures, land covered with water, and any estate, interest, easement, servitude, right or licence in or over land.
(4) In sub-paragraph (1) above, in D, “the relevant fraction” is the fraction of which—
(a) the numerator is the value, at the end of the period of account, of such of the liabilities of the company’s overseas life assurance business as were liabilities in respect of benefits to be determined by reference to the value of the asset; and
(b) the denominator is the value, at that time, of all the liabilities of the company’s long-term business which were liabilities in respect of benefits to be so determined.
(5) In this paragraph—
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“money debt" has the same meaning as in Chapter II of Part IV of the Finance Act 1996 .
5 (1) Any designation of assets required for the purposes of paragraph 3 above shall be made by a company in accordance with the following provisions of this paragraph.
(2) When designating assets for the purposes of paragraph 3(1) above, a company shall not designate an asset falling within any paragraph of sub-paragraph (5) below unless it designates all assets falling within each of the preceding paragraphs of that sub-paragraph.
(3) When designating assets for the purposes of paragraph 3(3) above, a company shall not designate an asset falling within any paragraph of sub-paragraph (5) below unless it designates all assets falling within each of the succeeding paragraphs of that sub-paragraph.
(4) When an asset falls within more than one paragraph of sub-paragraph (5) below, it shall be taken for the purposes of this paragraph to fall only within the first of them.
(5) The categories of assets referred to in sub-paragraphs (2) and (3) above are—
(a) assets , other than land in the United Kingdom, linked solely to overseas life assurance business;
(b) so many of any assets denominated in an overseas currency, other than any non-overseas linked assets, as have a value at the end of the period not exceeding the amount of the company’s non-linked liabilities in respect of benefits expressed in that currency so far as referable to overseas life assurance business;
(c) assets, other than land in the United Kingdom, which—
(i) are shown in the books of the company as being held as assets of a fund where all, or all but an insignificant part, of the liabilities of the fund are in respect of overseas life assurance business carried on by the company at or through a permanent establishment outside the United Kingdom; or
(ii) are managed under the control of a person whose normal place of work is at a permanent establishment outside the United Kingdom at or through which the company carries on overseas life assurance business;
(d) assets other than land in the United Kingdom;
(e) land in the United Kingdom;
but assets linked solely to pension business, life reinsurance business or basic life assurance and general annuity business are not within any paragraph of this sub-paragraph (and may not be designated for the purposes of paragraph 3 above).
(5A) For the purposes of sub-paragraph (5)(a) above, in determining whether assets are linked solely to overseas life assurance business, assets linked to policies or contracts which, by virtue of regulation 18 or 19 of the Insurance Companies (Overseas Life Assurance Business) (Compliance) Regulations 1995 are to be treated as referring to basic life assurance and general annuity business, shall be treated as linked solely to overseas life assurance business.
(6) For the purposes of sub-paragraph (5)(b) above assets are “non-overseas linked assets” if they are linked assets and none of the policies or contracts providing for the benefits concerned are policies or contracts the effecting of which constitutes the carrying on of overseas life assurance business.
(6A) For the purposes of sub-paragraph (5)(b) above “non-linked liabilities" means liabilities other than liabilities in respect of benefits to be determined by reference to the value of linked assets falling within sub-paragraph (5)(a) above.
(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Entitlement to certain payments on account
1 (1) An insurance company carrying on pension business shall for each provisional repayment period in an accounting period be entitled on a claim made in that behalf to a payment (in this Schedule referred to as a “provisional repayment”) of an amount equal , subject to paragraph 2 below, to the aggregate of—
(a) the appropriate portion of any income tax borne by deduction on any payment received by the company in that provisional repayment period and referable to its pension business, and
(b) the appropriate portion of any tax credit in respect of a distribution received by the company in that provisional repayment period and referable to its pension business,
or of such lesser amount as may be specified in the claim.
(2) For the purposes of this paragraph, a “provisional repayment period” of a company—
(a) shall begin whenever—
(i) the company begins to carry on pension business;
(ii) an accounting period of the company begins, at a time when the company is carrying on such business; or
(iii) a provisional repayment period of the company ends, at a time when the company is carrying on such business; and
(b) shall end on the first occurrence of either of the following—
(i) the expiration of three months from the beginning of the provisional repayment period; or
(ii) the end of an accounting period of the company.
(3) In the application of subsections (5) to (9) of section 432A for the purpose of determining the amounts to which a company is entitled by way of provisional repayments in the case of any accounting period of the company, the reference in subsection (5) to “the relevant fraction” shall be taken as a reference to the provisional fraction for that accounting period.
(4) For the purposes of this paragraph—
(a) the provisional fraction for an accounting period of a company is the fraction which would, on the basis of the company’s latest company tax return, be the relevant fraction for the purposes of section 432A(5) for the accounting period to which that return relates; but
(b) if there is no company tax return on the basis of which that fraction can be ascertained, the provisional fraction shall be taken to be nil;
but this sub-paragraph is subject to paragraph 2 below.
(5) In sub-paragraph (1) above “the appropriate portion” means—
(a) in the case of an insurance company carrying on pension business and no other category of long-term business, the whole; and
(b) in the case of an insurance company carrying on more than one category of long-term business—
(i) where the payment or distribution in question is income arising from an asset linked to pension business, the whole; . . .
(ii) if and to the extent that the payment or distribution in question is income which is not referable to a category of business by virtue of subsection (3) or (4) of section 432A, the provisional fraction; and
(iii) except as provided by sub-paragraph (i) or (ii) above, none.
(6) Paragraphs 57 to 60 of Schedule 18 to the Finance Act 1998 (general provisions as to procedure on claims and elections) do not apply to a claim for a provisional repayment.
(6A) A claim for a provisional repayment shall be in such form as the Board may determine and the form of claim shall provide for a declaration to the effect that all the particulars given in the form are correctly stated to the best of the knowledge and belief of the person making the claim.
(7) A provisional repayment for a provisional repayment period shall be regarded as a payment on account of the amounts (if any) which the company would, apart from this Schedule, be entitled to be . . . repaid in respect of its pension business for the accounting period in which that provisional repayment period falls, in respect of—
(a) income tax borne by deduction on payments received by the company in that accounting period and referable to its pension business, . . .
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
on a claim such as is mentioned in paragraph 9(2) of Schedule 18 to the Finance Act 1998. . . in respect of that accounting period.
(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(10) In this paragraph—
“latest company tax return”, in the case of an accounting period of a company (“the current accounting period”), means, subject to sub-paragraph (11) below, the company tax return for the latest preceding accounting period of the company for which such a return has been delivered before the making of the first claim for a provisional repayment for the current accounting period; and
“self-assessment” means an assessment included in a company tax return, and includes a reference to such an assessment as amended.
(11) In any case where—
(a) there is a company tax return which would, apart from this sub-paragraph, be the latest such return in the case of an accounting period of a company,
(b) the self-assessment required to be included in that return has been amended, and
(c) that amendment was made before the making of the first claim for a provisional repayment for the accounting period mentioned in paragraph (a) above,
the return which is to be regarded as the latest company tax return in the case of that accounting period shall be that return as it stands amended immediately after the making of that amendment of the self-assessment (or, if the self-assessment has been so amended more than once, that return as it stands amended immediately after the making of the last such amendment) but ignoring amendments which do not give rise to any change in the fraction which, on the basis of the return as it has effect from time to time, would be the relevant fraction for the purposes of section 432A(5) for the accounting period to which the return relates.
Changes in the provisional fraction
2 (1) This paragraph applies in any case where—
(a) a claim has been made for a provisional repayment for at least one provisional repayment period in an accounting period of a company;
(b) subsequently, a further such claim is made for a provisional repayment period falling within that accounting period; and
(c) had that further claim been the first claim made for a provisional repayment for that accounting period, the provisional fraction for the accounting period would have been a different fraction (whether in consequence of the delivery of a company tax return for a later preceding accounting period or the application of paragraph 1(11) above);
and in this paragraph the “substituted provisional fraction” means the different fraction mentioned in paragraph (c) above.
(2) Where this paragraph applies—
(a) the amount of any provisional repayment to which the company is entitled for the provisional repayment period mentioned in sub-paragraph (1)(b) above shall be an amount determined in accordance with sub-paragraph (3) below or such lesser amount as may be specified in the claim; and
(b) in relation to any later provisional repayment period in the same accounting period, the substituted provisional fraction shall, subject to any further application of this paragraph, be treated as the provisional fraction for the accounting period.
(3) The amount referred to in sub-paragraph (2) above is the amount (if any) by which total entitlement exceeds total past payments, and for this purpose—
“total entitlement” means the aggregate of the provisional repayments to which the company would have been entitled (apart from this paragraph) for—
the provisional repayment period to which the claim relates, and
any earlier provisional repayment period in the same accounting period,
had the substituted provisional fraction been the provisional fraction for the accounting period as from the beginning of that period; and
“total past payments” means the aggregate of any amounts already paid by way of provisional repayments for provisional repayment periods falling within that accounting period.
(4) Expressions used in this paragraph and in paragraph 1 above have the same meaning in this paragraph as they have in that paragraph.
Repayment, with interest, of excessive provisional repayments
3 (1) In any case where—
(a) an insurance company’s self-assessment for an accounting period becomes final, and
(b) the aggregate amount of the provisional repayments made to the company for that accounting period exceeds the appropriate amount,
the excess, together with the amount of any relevant interest, shall be treated for the purposes of paragraph 52 of Schedule 18 to the Finance Act 1998 as if it were an amount of corporation tax for that accounting period which had been repaid to the insurance company and which ought not to have been so repaid.
(1ZA) In its application by sub-paragraph (1) above, section 30 of the Management Act shall have effect as if, instead of the provision made by subsection (5), it provided that an assessment under that section by virtue of sub-paragraph (1) above is not out of time under section 34 of that Act if it is made no later than the end of the accounting period following that in which the assessment mentioned in paragraph (a) of that sub-paragraph is finally determined.
(1A) For the purposes of sub-paragraph (1)(b) above, the appropriate amount for an accounting period of a company is the amount (if any) which, on the assumptions in sub-paragraphs (1B) and (1C) below and disregarding any provisional repayments, the company would be entitled to be . . . repaid, when its self-assessment for the period becomes final, in respect of its pension business for that accounting period on a claim such as is mentioned in paragraph 9(2) of Schedule 18 to the Finance Act 1998. . . in respect of—
(a) income tax borne by deduction on payments received by the company in that accounting period and referable to its pension business, . . .
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1B) The first assumption is that no . . . repayments have been made to the company in respect of—
(a) income tax such as is mentioned in paragraph (a) of sub-paragraph (1A) above, . . .
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
before the company’s self-assessment for the accounting period in question becomes final.
(1C) The second assumption is that in making any set off under—
(a) section 7(2), or
(b) paragraph 5 of Schedule 16, . . .
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
income tax borne by deduction on income which is not referable to pension business is set off before income tax so borne on income which is referable to pension business.
(1D) Paragraph 53 of Schedule 18 to the Finance Act 1998 (time limit for recovery of excessive repayments etc.) does not apply to an assessment under paragraph 52 of that Schedule made by virtue of this paragraph.
But such an assessment is not out of time under paragraph 46 of that Schedule (general six year time limit for assessments) if it is made not later than the end of the accounting period following that in which the self-assessment mentioned in sub-paragraph (1)(a) above becomes final.
(2) In this paragraph, “relevant interest” means interest—
(a) on so much of the excess referred to in sub-paragraph (1) above as is or was from time to time outstanding,
(b) for any period for which it is or was so outstanding, and
(c) at the rate applicable under section 178 of the Finance Act 1989 for the purposes of section 87A of the Management Act (interest on overdue corporation tax).
(3) In the application of section 87A of the Management Act in relation to an amount assessed to corporation tax under paragraph 52 of Schedule 18 to the Finance Act 1998 by virtue of this paragraph—
(a) the amount so assessed shall be taken to have become due and payable on the date on which that assessment was made; and
(b) the words “(in accordance with section 59D of this Act)” in subsection (1) shall accordingly be disregarded.
(4) In determining the amount of any relevant interest, any question whether the excess mentioned in sub-paragraph (1) above (in the following provisions of this paragraph referred to as “the principal”) or any part of it is or was “outstanding” at any time shall be determined in accordance with sub-paragraphs (5) to (8) below.
(5) So much of the principal as does not exceed the amount of the last provisional repayment made to the company for the accounting period in question shall be taken to have become outstanding on the date on which that provisional repayment was made.
(6) So much (if any) of the principal as—
(a) exceeds the amount of the provisional repayment referred to in sub-paragraph (5) above, but
(b) does not exceed the amount of the preceding provisional repayment for that accounting period,
shall be taken to have become outstanding on the date on which that preceding provisional repayment was made; and so on with any remaining portion of the principal and any preceding provisional repayments for that accounting period.
(7) So much (if any) of the principal as has become outstanding as mentioned in sub-paragraph (5) or (6) above and has at any time neither been repaid to the Board nor been assessed to corporation tax under paragraph 52 of Schedule 18 to the Finance Act 1998 by virtue of this paragraph shall be taken to remain outstanding at that time (and an amount shall accordingly be taken to cease being outstanding only when it is repaid to the Board or when it is so assessed).
(8) For the purposes of sub-paragraph (7) above, any repayment made by the company in respect of an amount . . . repaid to it in respect of—
(a) income tax such as is mentioned in paragraph (a) of sub-paragraph (1A) above, . . .
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
shall be treated as a repayment in respect of the principal, taking an earlier such repayment by the company before a later.
(9) In this paragraph “self-assessment” means an assessment included in a company tax return and includes a reference to such an assessment as amended.
Reduced entitlement during transitional period
4 (1) The Board may by regulations make provision for the amount of any provisional repayment to which a company would otherwise be entitled for any accounting period ending after the opening transitional date and before the closing transitional date to be reduced by a prescribed percentage.
(2) The regulations may require a company claiming a provisional repayment for a provisional repayment period falling within such an accounting period to specify in the claim—
(a) the maximum amount to which it could have been entitled by way of provisional repayment for that provisional repayment period apart from the regulations;
(b) the maximum reduced entitlement for that provisional repayment period; and
(c) the amount of the provisional repayment claimed for that provisional repayment period.
(3) The regulations may make provision—
(a) for the charging of interest in any case where an insurance company claims, and is paid, by way of provisional repayment an amount in excess of the maximum reduced entitlement for the provisional repayment period to which the claim relates;
(b) for the period for which, and the rate at which, any such amount is to carry interest under the regulations;
(c) for any such interest to be treated for the purposes of section 30 of the Management Act as if it were an amount of corporation tax which had been repaid and which ought not to have been repaid; and
(d) for section 87A of that Act to apply in relation to an amount assessed to corporation tax under section 30 of that Act by virtue of the regulations with modifications corresponding to those specified in paragraph 3(3) above.
(4) The regulations may prescribe for the purposes of sub-paragraph (1) above different percentages for accounting periods ending after different dates.
(5) Sub-paragraphs (2) to (4) above are without prejudice to the generality of sub-paragraph (1) above.
(6) In this paragraph—
“the maximum reduced entitlement”, in relation to an insurance company and a provisional repayment period, means the maximum amount (as reduced in accordance with the regulations) to which the company could have been entitled by way of provisional repayment for that provisional repayment period;
“the opening transitional date” and “the closing transitional date” mean respectively such date as the Board may specify for the purpose in the first regulations made under this paragraph;
“prescribed” means specified in the regulations;
“the regulations” means any regulations under this paragraph.
Transitional application of pay and file provisions
5 (1) This paragraph applies in relation to an accounting period of an insurance company if—
(a) the accounting period—
(i) begins on or after the commencement day; and
(ii) ends on or before the day appointed for the purposes of section 10;
(b) the company carries on pension business for the whole or part of the accounting period; and
(c) the company makes a claim for a provisional repayment for the accounting period;
and in this paragraph “transitional accounting period” means an accounting period in relation to which this paragraph applies.
(2) An insurance company shall be entitled—
(a) to make a claim for payment of a tax credit in respect of any income of a transitional accounting period, and
(b) to make a claim for the purposes of section 7(5), so far as relating to section 7(2) or 11(3), in respect of any income tax falling to be set off against corporation tax for a transitional accounting period,
(and may do so whether or not the income in question is referable to the company’s pension business).
(3) For the purposes of sub-paragraph (2) above, sections 7(2) and 11(3) shall have effect in relation to a transitional accounting period as if the words from “and accordingly” to the end, in each provision, were omitted.
(4) A claim under sub-paragraph (2) above may only be made at such time or within such period as the Board may by regulations provide.
(5) In the application of this Schedule in relation to a transitional accounting period, paragraph 1 above shall have effect as if the reference in each of sub-paragraphs (7) and (10) to a claim such as is mentioned in section 7(6) or in section 42(5A) of the Management Act were a reference to a claim under paragraph (a) or (b) of sub-paragraph (2) above.
(6) If and to the extent that the provisions of section 826, or of section 87A of the Management Act, would not, apart from this sub-paragraph, have effect in relation to a transitional accounting period, they shall be treated as having effect for all purposes in relation to that accounting period; and—
(a) in the application of section 826 by virtue of this sub-paragraph, the reference in subsection (1)(a) of that section to an accounting period which ends after the appointed day shall be treated as a reference to a transitional accounting period; and
(b) in the application of section 87A of the Management Act by virtue of this sub-paragraph, corporation tax shall be taken to become due and payable on the day following the expiration of the period within which it is required under section 10(1)(b) to be paid.
(7) If and to the extent that the amendments of section 30 of the Management Act specified in subsections (1) to (4) of section 88 of the Finance (No.2) Act 1987 would not, apart from this sub-paragraph, have effect in relation to a transitional accounting period, they shall be treated as having effect for all purposes in relation to that transitional accounting period.
(8) Subsection (7) of section 88 of the Finance (No.2) Act 1987 shall have effect for the purposes of sub-paragraph (7) above as if the reference in paragraph (a) of that subsection to accounting periods ending after the appointed day were a reference to transitional accounting periods.
(9) In this paragraph “the commencement day” means the day appointed under section 49 of the Finance Act 1991.
Interpretation
6 (1) In this Schedule—
“provisional fraction” shall be construed in accordance with paragraphs 1(4) and 2 above;
“provisional repayment” means a provisional repayment under paragraph 1 above;
“provisional repayment period” shall be construed in accordance with paragraph 1 above.
(2) Any reference in this Schedule to a provisional repayment for an accounting period is a reference to a provisional repayment for a provisional repayment period falling within that accounting period.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Sub-paragraph (5) below applies in any case where an insurance company—
(a) which has delivered a return under section 11 of the Management Act for an accounting period ending before the self-assessment appointed day, but
(b) which has not delivered its first company tax return for an accounting period ending on or after that day,
makes the first claim for a provisional repayment for a particular accounting period ending on or after that day.
(5) Where this sub-paragraph applies—
(a) the provisional fraction for the accounting period to which the claim mentioned in sub-paragraph (4) above relates shall be determined in accordance with paragraph 1(3), (4), and (6) and sub-paragraph (3) above, as they have effect in relation to accounting periods ending before that day; and
(b) paragraph 2 above, as originally enacted, shall have effect in relation to that accounting period as it has effect in relation to accounting periods ending before that day.
(6) In this paragraph “the self-assessment appointed day” means the day appointed under section 199 of the Finance Act 1994 for the purposes of Chapter III of Part IV of that Act (self-assessment management provisions).
Part 1 INTRODUCTORY
1 (1) In their application to a BLAGAB group reinsurer the life assurance provisions of the Corporation Tax Acts shall have effect with the following modifications.
(2) In this paragraph “BLAGAB group reinsurer” means an insurance special purpose vehicle which—
(a) would fall within the definition of “insurance company” in section 431 if the words after paragraph (b) of the definition were disregarded, and
(b) meets the BLAGAB group reinsurer conditions.
(3) For the purposes of sub-paragraph (2), an insurance special purpose vehicle meets the BLAGAB group reinsurance conditions if—
(a) it carries on basic life assurance and general annuity business,
(b) all of its life assurance business is reinsurance business and that business is of a type excluded from section 431G(3) by regulations made by the Board, and
(c) section 431G(3)(b) does not apply.
Part 2 MODIFICATIONS OF THIS ACT
2 This Act shall have effect with the following modifications.
Modification of section 76 (expenses of insurance companies)
3 (1) Modify section 76 (expenses of insurance companies) as follows.
(2) In subsection (3) for the words from “means” to the end substitute—
means—
(a) in the case of a company preparing IAD accounts, expenses included in item II.8 or 9(a) of the long-term business technical account, and
(b) in the case of a company preparing IAS accounts, such of the expenses included in the income statement in the IAS accounts as are equivalent to expenses that would be included in item II.8 or 9(a) of the long-term business technical account in IAD accounts,
but does not include any of the amounts falling within subsection (4), (5) or (6) below.
.
(4) In subsection (7)—
(a) omit Step 6;
(b) in Step 7—
(i) in paragraph (a) for “Subtotal 3” substitute “ Subtotal 2 ”;
(ii) for “Subtotal 4” substitute “ the expenses deduction ”;
(c) omit Step 8.
(5) In subsection (8) omit paragraphs (b) and (c).
(6) In subsection (12)(a) for “Step 8” insert “ Step 7 ”.
(7) In subsection (15) after the definition of “expenses payable” insert—
“long-term business technical account” means the technical account for life-assurance business included in the IAD accounts, or where the technical account included in the IAD accounts for non-life-insurance business of the company is used for all business, such part of that account as relates to the long-term business of the company;
.
Modification of section 431 (interpretative provisions relating to insurance companies)
4 (1) Modify section 431(2) (interpretative provisions relating to insurance companies) as follows.
(2) Insert the following definitions in the appropriate places—
“IAD accounts” means accounts drawn up in accordance with the Council Directive of 19th December 1991 on the annual accounts of insurance undertakings (No. 91/674/EEC) ;
,
“IAS accounts” means accounts prepared in accordance with international accounting standards;
.
(3) In the definition of “insurance company” at the end insert “ unless it meets the BLAGAB group reinsurer conditions (within the meaning of paragraph 1 of Schedule 19ABA ”.
(4) For the definition of “liabilities” substitute—
“liabilities” means—
technical provisions (item C), and
technical provisions for linked liabilities (item D),
in the liabilities in the balance sheet format in paragraph 9 of Schedule 9A to the Companies Act 1985 in the IAD accounts or equivalent provisions in the IAS accounts;;
;
(5) For the definition of “long-term insurance fund” substitute—
“long-term insurance fund” means—
the technical account for life assurance business of the company included in the IAD accounts,
where the technical account included in the IAD accounts for non-life-insurance business of the company is used for all business, such part of that account as relates to the long-term business of the company, or
such part of the income statement as relates to the life assurance business of the company included in the IAS accounts,
and references to assets of the long-term insurance fund shall be read as references to assets from which any income or gain is or would be included in that technical account or that part of the technical account or that part of the income statement;.
.
(6) For the definition of “periodical return” substitute—
“periodical return” means—
in relation to a company preparing IAD accounts, the IAD accounts, and
in relation to a company preparing IAS accounts, the IAS accounts;
;
(7) Omit the definition of “period of account”;
(8) For the definition of “value” substitute—
“value” means the value taken into account for the purposes of IAD accounts or IAS accounts
.
Modification of section 432B (apportionment of receipts brought into account)
5 (1) Modify section 432B (apportionment of receipts brought into account) as follows.
(2) In subsection (1) for “sections 432C to 432G” substitute “ sections 432C and 432G ”.
(3) In subsection (2) for “sections 432C to 432G” substitute “ sections 432C and 432G ”.
(4) Omit subsection (3).
Modification of section 432E (section 432B apportionment: participating funds)
6 Omit section 432E (section 432B apportionment: participating funds).
Modification of section 432F (section 432B apportionment: supplementary provisions)
7 Omit section 432F (section 432B apportionment: supplementary provisions).
Modification of section 444AA (transfers of business: deemed periodic return)
8 In section 444AA (transfers of business: deemed periodical returns) in subsection (5) for paragraphs (a) and (b) substitute—
(a) in respect of the amount of the relevant long-term business provisions immediately before the transfer, and
(b) in respect of the value, immediately before the transfer, of the assets transferred.
.
Modification of section 444ABA (relevant non-transferred assets)
8A In section 444ABA (relevant non-transferred assets) in subsection (1) for the definition of BTO substitute—
BTO is the lesser of VA and APL, where—
VA is the value of the assets transferred by the insurance business transfer scheme shown (or treated as shown) in the periodical return of the transferor for the period of account of the transferor including the transfer date, and
APL is the amount of the profit or loss for the financial year shown in the balance sheet in the periodical return for the last period of account of the transferor ending before the transfer date, together with—
i)in the case of IAD accounts, the amount of profit or loss shown as being brought forward in that balance sheet, and
in the case of IAS accounts, the amount of retained earnings shown as being brought forward in that balance sheet.
.
Modification of section 444ABB (retained assets)
8B (1) Modify section 444ABB (retained assets) as follows.
(2) In subsection (1)—
(a) for “RL13” (in both places) substitute “ RL ”, and
(b) in the definition of RL13 for “AL13” substitute “ APL ”.
(3) In subsection (1A) for paragraphs (a) to (c) substitute—
(a) APL is the amount of the profit or loss for the financial year shown in the balance sheet in the periodical return for the last period of account of the transferor ending before the transfer date, together with—
(i) i)in the case of IAD accounts, the amount of profit or loss shown as brought forward in that balance sheet, and
(ii) in the case of IAS accounts, the amount of retained earnings shown as brought forward in that balance sheet;
(b) VE is the amount (if any) by which VA exceeds VTL where—
(i) i)VA is the value of the assets transferred by the insurance business transfer scheme shown (or treated as shown) in the periodical return of the transferor for the period of account of the transferor including the transfer date, and
(ii) VTL is the value of the liabilities transferred by the insurance business transfer scheme (but excluding those which arise from deposit back arrangements); and
(c) relevant retained liabilities are any liabilities of the company's long-term business which are owed by the company immediately after the transfer date and are shown (or treated as shown)—
(i) i)at items C3 (net of reinsurance) and G in IAD accounts, or
(ii) at equivalent items in the balance sheet in IAS accounts.
.
Modification of section 444ABD (transferor's period of account including transfer)
8C (1) Modify section 444ABD (transferor's period of account including transfer) as follows.
(2) In subsection (1) for paragraphs (a) and (b) substitute—
(a) the value of the liabilities transferred by the insurance business transfer scheme (but excluding those which arise from deposit back arrangements), exceeds
(b) the value, immediately before the transfer, of the assets transferred by the insurance business transfer scheme,
.
(3) In subsection (1E) for “amount” (in the first place) substitute “ value ”.
Modification of section 444AC (transfer schemes: reduction of income of transferee)
8D (1) Modify section 444AC (transfer schemes: reduction of income of transferee) as follows.
(2) In subsection (4) for the words from “lesser of” to the end substitute—
the amount of the profit or loss for the financial year shown in the balance sheet in the periodical return for the last period of account of the transferor ending before the transfer date, together with—
(a) in the case of IAD accounts, the amount of profit or loss shown as being brought forward in that balance sheet, and
(b) in the case of IAS accounts, the amount of retained earnings shown as being brought forward in that balance sheet.
.
(3) Omit subsection (5).
Modification of section 444AE (transfers of business: FAFTS)
8E (1) In a case where the transferor or the transferee is a BLAGAB group reinsurer (or both are), omit section 444AE (transfers of business: FAFTS).
Modification of section 444AEA (transfer schemes: anti-avoidance rule)
8F In section 444AEA (transfer schemes: anti-avoidance rule), in subsection (6), in the definition of “surplus-increasing transfer of assets”, for “increases the amount of total surplus shown in line 39 of Form 58” substitute “ gives rise to an amount that increases the profits or reduces the losses shown ”.
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Part 3 MODIFICATION OF THE FINANCE ACT 1989
Modification of the Finance Act 1989
12 The Finance Act 1989 shall have effect with the following modifications.
Modification of section 82B (unappropriated surplus on valuation)
13 Omit section 82B (unappropriated surplus on valuation).
Modification of section 82D (treatment of profits: life assurance—adjustment consequent on change in Insurance Prudential Sourcebook)
14 Omit section 82D (treatment of profits: life assurance—adjustment consequent on change in Insurance Prudential Sourcebook).
Modification of section 82E (section 82D: treatment of transferors under insurance business transfer schemes)
15 Omit section 82E (section 82D: treatment of transferors under insurance business transfer schemes).
Modification of section 82 (section 82D: treatment of transferees under insurance business transfer schemes)
16 Omit section 82F (section 82D: treatment of transferees under insurance business transfer schemes).
Modification of section 83 (receipts to be taken into account)
17 In section 83 (receipts to be taken into account)—
(a) after paragraph (b) insert—
(ba) a transfer from the fund for future appropriations,
;
(b) after subsection (2) insert—
(2YA) A transfer to the fund for future appropriations shall be treated as brought into account for that period as a decrease in the value of non-linked assets and taken into account as an expense of the period of account.
;
(c) omit subsections (2A) to (2E).
Modification of section 83XA (structural assets)
18 In section 83XA (structural assets) in subsection (3)) for the words from “means” to the end substitute “ means assets listed under 1 and 2 in C(II) in Article 6 of the Council Directive of 19th December 1991 on the annual accounts and consolidated accounts of insurance undertakings (No. 91/674/EEC) ”.
Modification of section 83YA (changes in value of assets brought into account: non-profit companies)
19 Omit section 83YA (changes in value of assets brought into account: non-profit companies).
Modification of section 83YB (meaning of “appropriate line 51” amount for purposes of section 83YA)
20 Omit section 83YB (meaning of “appropriate line 51” amount for purposes of section 83YA).
Modification of section 83YC to 83YF (financing-arrangement-funded transfers)
20A Omit sections 83YC to 83YF (financing-arrangement-funded transfers).
Modification of section 83A (meaning of brought into account)
21 (1) Modify section 83A (meaning of “brought into account”) as follows.
(2) For subsection (2) substitute—
(2) The accounts recognised for the purposes of those sections are—
(a) such technical accounts (or such parts of those accounts) included in the IAD accounts, or
(b) such parts of the income statements included in the IAS accounts,
as relate to the whole of the company's long-term business.
.
(3) Omit subsections (3) to (4).
Modification of section 83B (changes in recognised accounts: attribution of amounts carried forward under section 432F of Taxes Act 1988)
22 Omit section 83B (changes in recognised accounts: attribution of amounts carried forward under section 432F of Taxes Act 1988).
Modification of section 85A (excess adjusted life assurance trade profits)
23 In section 85A (excess adjusted life assurance trade profits) in subsection (8)(a) for “Step 8” substitute “ Step 7 ”.
Modification of section 86 (spreading of relief for acquisition expenses)
24 Omit section 86 (spreading of relief for acquisition expenses).
Modification of section 89 (policy holders' share of profits)
25 In section 89 (policy holders' share of profits) omit subsection (6).
Part 4 Modification of Part 2 of TIOPA 2010 (double taxation relief)
26 TIOPA 2010 shall have effect with the following modifications.
Modification of section 102 (interpreting sections 99 to 101 for life assurance or gross roll-up business)
27 Omit section 102.
Modification of section 103 (interpreting sections 99 to 101 for other insurance business)
28 In section 103(1) omit the words from “if” to the end.
1 In its application to an overseas life insurance company this Act shall have effect with the following modifications.
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3 (1) In subsection (2) of section 11, the following paragraphs shall be treated as inserted after paragraph (a)—
“(aa) where section 11B applies for an accounting period, any trading or other income arising in that period from assets which by virtue of that section are attributed to the branch or agency at the time the income arises (but so that this paragraph shall not include distributions received from companies resident in the United Kingdom); and
(ab) where section 11C applies for an accounting period, any trading or other income falling within section 11C(2) in that period (but so that this paragraph shall not include distributions received from companies resident in the United Kingdom); and”.
(2) The following shall be treated as inserted after paragraph (b) of that subsection “and
(c) chargeable gains accruing to the company on the disposal of assets of the company’s long-term insurance fund situated outside the United Kingdom and used or held for the purposes of the branch or agency immediately before the disposal; and
(d) where section 11B applies for an accounting period, chargeable gains accruing to the company in that period on the disposal of assets which by virtue of that section are attributed to the branch or agency immediately before the disposal; and
(e) where section 11C applies for an accounting period, chargeable gains accruing to the company in that period by virtue of section 11C(3).”
(3) The following subsection shall be treated as inserted after that subsection—
“(2A) For the purposes of subsection (2)(c) above—
(a) section 275 of the 1992 Act (location of assets) shall apply as it applies for the purposes of that Act;
(b) “ long-term insurance fund” has the meaning given by section 431(2).”
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4 (1) The following sections shall be treated as inserted after section 11—
“Overseas life insurance companies: interpretation of sections 11B and 11C.
11A (1) For the purposes of this section and sections 11B and 11C—
(a) an asset is at any time a section 11(2)(b) asset if, were it to be disposed of at that time, any chargeable gains accruing to the company on the disposal would form part of its chargeable profits for corporation tax purposes by virtue of section 11(2)(b);
(b) an asset is at any time a section 11(2)(c) asset if, were it to be disposed of at that time, any chargeable gains accruing to the company on the disposal would form part of its chargeable profits for corporation tax purposes by virtue of section 11(2)(c);
(c) relevant contracts and policies are contracts and policies the effecting of which constitutes the carrying on of life assurance business;
and in this section and those sections any expression to which a meaning is given by section 431(2) has that meaning.
(2) For the purposes only of subsection (1)(a) and (b) above any enactment which—
(a) limits any chargeable gain on the disposal of an asset;
(b) treats any gain on the disposal of an asset as not being a chargeable gain; or
(c) treats any disposal of an asset as not giving rise to a chargeable gain,
shall be disregarded.
(3) For the purposes of sections 11B and 11C—
(a) the notional value at any time is the value at that time of the assets which the branch or agency would reasonably be expected to hold at that time in consequence of any relevant contracts, and any relevant policies, which at that time are carried out at the branch or agency;
(b) the section 11B value at any time is the value at that time of such of the section 11(2)(b) and section 11(2)(c) assets as are assets held at that time in consequence of any relevant contracts, and any relevant policies, which at that time are carried out at the branch or agency;
(c) the section 11C value at any time is the value at that time of—
(i) such of the section 11(2)(b) and section 11(2)(c) assets as are assets held at that time in consequence of any relevant contracts, and any relevant policies, which at that time are carried out at the branch or agency; and
(ii) the assets which by virtue of section 11B are attributed to the branch or agency at that time;
(d) a relevant fund is a fund of assets of the company (wherever those assets may be situated) any part of which is held in consequence of any relevant contracts, and any relevant policies, which at any time in the accounting period concerned are carried out at the branch or agency.
(4) In applying subsection (3)(a) above as regards a particular time, it shall be assumed that—
(a) at that time the branch or agency is a company resident in the United Kingdom, undertaking the activities it then actually undertakes;
(b) the terms of any dealings between the branch or agency and another part of the company are not (or not necessarily) their actual terms but are such as would be the terms if the branch or agency and the other part of the company were independent persons dealing at arm’s length.
Overseas life insurance companies: attribution of assets.
11B (1) This section applies for an accounting period where the mean of the notional value at the beginning and end of the accounting period exceeds the mean of the section 11B value at those times.
(2) Where this section applies for an accounting period, assets shall be attributed to the branch or agency in that period in accordance with the following provisions of this section.
(3) There shall be attributed to the branch or agency in the accounting period such of the qualifying assets of the company as (having regard to the excess mentioned in subsection (1) above) it is just and reasonable to attribute to the branch or agency.
(4) For the purposes of subsection (3) above—
(a) where an asset is a qualifying asset for the whole of the accounting period it may, subject to paragraphs (c) and (d) below, be attributed to the branch or the agency for the whole or any part or parts of that period;
(b) where an asset is a qualifying asset for any portion of the accounting period it may, subject to paragraphs (c) and (d) below, be attributed to the branch or agency for the whole or any part or parts of that portion;
(c) an asset shall not be attributed to the branch or agency for any period of time during which it is a section 11(2)(b) or section 11(2)(c) asset;
(d) an asset shall not be attributed to the branch or agency at any particular time unless it is held in consequence of any relevant contracts, and any relevant policies, which at that time are carried out at the branch or agency.
(5) An asset of the company is a qualifying asset at any time if it is an asset of one or more of the following descriptions, that is to say—
(a) an asset which, in relation to any relevant contracts and any relevant policies which at that time are carried out at the branch or agency, is a linked asset within the meaning given by section 431(2);
(b) an asset which at that time is maintained in the United Kingdom as a result of a requirement imposed under section 43 of the Financial Services and Markets Act 2000 other than an asset not treated as so maintained under that requirement;
(c) an asset which at that time is treated for the purposes of any such requirement as is mentioned in paragraph (b) above as maintained in the United Kingdom under that requirement;
(d) an asset which at that time is held in respect of the business carried on by the branch or agency as a result of a condition of a direction under section 148 of the Financial Services and Markets Act 2000;
(e) an asset which at that time is held in a fund which the company is required to maintain under the prudential legislation of a territory outside the United Kingdom in respect of the business carried on by the branch or agency;
(f) an asset which is identified in tax returns submitted to a taxing authority of a territory outside the United Kingdom as an asset which at that time is wholly referable to the business carried on by the branch or agency.
Overseas life insurance companies: additional income and gains.
11C (1) This section applies for an accounting period where the mean of the notional value at the beginning and end of the accounting period exceeds the mean of the section 11C value at those times.
(2) Where this section applies for an accounting period, the income which falls within this subsection in that period shall be the specified amount of each item of relevant income arising in that period from any assets of the relevant fund.
(3) Where this section applies for an accounting period, the chargeable gains accruing to the company in that period by virtue of this subsection shall be the specified amount of each relevant gain accruing to the company in that period on the disposal of any assets of the relevant fund.
(4) For the purposes of this section—
(a) relevant income is income other than income which falls within section 11(2)(a) or (aa);
(b) a relevant gain is a gain (other than a chargeable gain which falls within section 11(2)(b), (c) or (d)) which would be a chargeable gain if the company were resident in the United Kingdom.
(5) For the purposes of this section the specified amount of an item of relevant income arising in the accounting period from any assets of the relevant fund shall be determined by the formula—
SI
=
Iy
(
NV
-
CV
)
RF
(6) For the purposes of this section the specified amount of a relevant gain accruing to the company in the accounting period on the disposal of any assets of the relevant fund shall be determined by the formula—
SG
=
Gy
(
NV
-
CV
)
RF
(7) In subsections (5) and (6) above—
SI is the specified amount of an item of relevant income arising in the accounting period from any assets of the relevant fund;
I is an item of relevant income arising in that period from any assets of the relevant fund;
NV is the mean of the notional value at the beginning and end of that period;
CV is the mean of the section 11C value at the beginning and end of that period;
RF (subject to subsection (8) below) is the mean of the value of the relevant fund at the beginning and end of that period;
SG is the specified amount of a relevant gain accruing to the company in that period on the disposal of any assets of the relevant fund;
G is a relevant gain accruing to the company in that period on the disposal of any assets of the relevant fund.
(8) Where the assets of the relevant fund at the beginning or end of the accounting period include—
(a) section 11(2)(b) or section 11(2)(c) assets; or
(b) assets which by virtue of section 11B are attributed to the branch or agency,
the value at that time of the relevant fund for the purposes of the definition of RF in subsection (7) above shall be reduced by the value at that time of those assets.
(9) Where in the accounting period the company has more than one relevant fund—
(a) in the definition of RF in subsection (7) above, the reference to the value of the relevant fund shall be treated as a reference to the value of the relevant funds; and
(b) any other reference in this section to the relevant fund shall be treated as a reference to the relevant funds.”
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4A (1) In section 12(7A), the reference to an insurance business transfer scheme shall be treated as including a reference to a qualifying overseas transfer.
(2) In this paragraph “a qualifying overseas transfer” means so much of any transfer of the whole or any part of the business of an overseas life insurance company carried on through a branch or agency in the United Kingdom as takes place in accordance with any authorisation granted outside the United Kingdom for the purposes of Article 11 of the third life insurance Directive.
(3) In sub-paragraph (2) above, “the third life insurance directive” means the Council Directive of 10th November 1992 on the co-ordination of laws, regulations and administrative provisions relating to direct life assurance and amending Directives 79/267/EEC and 90/619/EEC (No.92/96/EEC) .
5 After subsection (3) of section 76 there shall be treated as inserted the following subsection—
(3A) In its application to an overseas life insurance company subsection (3) shall have effect as if—
(a) in a case where the company is not an EEA firm of the kind mentioned in paragraph 5(d) of Schedule 3 to the Financial Services and Markets Act 2000, the reference to the Form 40 (revenue account) were a reference to the Form 40 relating only to the long-term business carried on by it at a permanent establishment in the UK, and
(b) in a case where it is an EEA firm of the kind mentioned in paragraph 5(d) of Schedule 3 to the Financial Services and Markets Act 2000, the reference to “expenses brought into account in line 12, 22 or 25 of Form 40 in the periodical return of the company for a period of account” were a reference to so much of the expenses included in Item II.8 or 9(a) of the Profit and Loss account included in accounts drawn up in accordance with the Council Directive of 19th December 1991 on the annual accounts and consolidated accounts of insurance undertakings (No.91/674/EEC) as are attributable to permanent establishment in the United Kingdom through which the company carries on life assurance business.
.
5ZA After subsection (11) there shall be treated as inserted the following subsections—
(11A) In subsection (11) the reference in paragraph (a) of the definition of “the relevant income” to income and gains shall be treated as a reference to so much of the income and gains mentioned in that paragraph as falls to be attributed, for the purposes of section 11AA(2) , to the permanent establishment in the United Kingdom through which the company carries on life assurance business.
(11B) In that subsection the reference in paragraph (b) of that definition to distributions shall be treated as a reference to so much of the distributions mentioned in that paragraph as falls to be attributed, for the purposes of section 11AA(2), to the permanent establishment in the United Kingdom through which the company carries on life assurance business.
.
5A (1) Where an overseas life insurance company receives a qualifying distribution made by a company resident in the United Kingdom and the distribution (or part of the distribution)—
(a) would fall within paragraph (a), (aa) or (ab) of section 11(2) but for the exclusion contained in that paragraph, and
(b) is referable to life assurance business, but not to overseas life assurance business,
then the recipient shall be treated for the purposes of the Corporation Tax Acts as entitled to such a tax credit in respect of the distribution (or part of the distribution) as it would be entitled to under section 231 if it were resident in the United Kingdom.
(2) Where part only of a qualifying distribution would fall within paragraph (ab) of section 11(2) but for the exclusion contained in that paragraph, the tax credit to which the recipient shall be treated as entitled by virtue of sub-paragraph (1) above is the proportionate part of the tax credit to which the recipient would be so treated as entitled in respect of the whole of the distribution.
(3) Nothing in this paragraph shall be taken to confer on an overseas life insurance company any entitlement to make a claim under section 231(3).
5B (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) In this paragraph “UK distribution income” means income of an overseas life insurance company which consists of a distribution (or part of a distribution) in respect of which the company is entitled to a tax credit (and which accordingly represents income equal to the aggregate of the amount or value of the distribution (or part) and the amount of that credit).
5C (1) This paragraph applies to income from the investments of an overseas life insurance company attributable to the basic life assurance and general annuity business of the branch or agency in the United Kingdom through which the company carries on life assurance business.
(2) Where, in computing the income to which this paragraph applies, any profits and gains arising from a FOTRA security, or from any loan relationship represented by it, are excluded by virtue of the tax exemption condition of that security, the amount which by virtue of section 76 is to be deductible by way of management expenses shall be reduced in accordance with sub-paragraph (3) below.
(3) That amount shall be reduced so that it bears to the amount which would be deductible apart from this sub-paragraph the same proportion as the amount of the income to which this paragraph applies (after applying the provisions of section 154(2) to (7) of the Finance Act 1996) bears to what would be the amount of that income if the tax exemption condition were disregarded.
(4) Subsection (8) of section 154 of the Finance Act 1996 (meaning of “FOTRA security” and “tax exemption condition”) shall apply for the purposes of this paragraph as it applies for the purposes of that section.
6 (1) In subsection (2) of section 431, the following definition shall be treated as substituted for the definition of “investment reserve”—
“ “investment reserve”, in relation to an overseas life insurance company, means the excess of the value of the relevant assets over the relevant liabilities, and for the purposes of this definition—
relevant assets are such assets of the company’s long-term insurance fund as are—
section 11(2)(b) assets;
section 11(2)(c) assets; or
assets which by virtue of section 11B are attributed to the branch or agency in the United Kingdom through which the company carries on life assurance business; and
relevant liabilities are such liabilities of the long-term business as are attributable to the branch or agency;
and in a case where section 11C applies, the value of the relevant assets shall be increased by the amount by which the notional value exceeds the section 11C value; and any expression used in this definition to which a meaning is given by section 11A has that meaning;.”
(2) In that subsection, the following definition shall be treated as substituted for the definition of “liabilities”—
“ “liabilities”, where the company concerned is an overseas life insurance company, does not include excluded liabilities and (subject to that) means—
liabilities as estimated for the purposes of the company’s periodical return, or
in the case of liabilities not estimated for the purposes of such a periodical return, liabilities as estimated for the purposes of any return equivalent to a periodical return and required to be made by the company under the law of the territory in which the company is resident, or
in the case of liabilities not estimated for the purposes of such a periodical return or equivalent return, liabilities as found from the company’s records;
and excluded liabilities are any liabilities that have fallen due or been reinsured and any not arising under or in connection with policies or contracts effected as part of the company’s insurance business;”.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4A) In that subsection the following definition shall be inserted at the appropriate place—
“UK distribution income” has the meaning given by paragraph 5B(4) of Schedule 19AC;
(5) In that subsection, the following definition shall be treated as substituted for the definition of “value” —
“ “value”, in relation to assets and where the company concerned is an overseas life insurance company, means—
their value as taken into account for the purposes of the company’s periodical return, or
where their value is not taken into account for the purposes of such a periodical return, their value as taken into account for the purposes of any return equivalent to a periodical return and required to be made by the company under the law of the territory in which the company is resident, or
where their value is not taken into account for the purposes of such a periodical return or equivalent return, their value as found from the company’s records;
and the reference in paragraph (c) above to the value of assets as found from the company’s records is a reference to the market value as so found or, where applicable, the current value (within the meaning of the Directive of the Council of the European Communities dated 19th December 1991 No. 91/674/EEC (directive on the annual accounts and consolidated accounts of insurance undertakings)) as so found;”.
(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6A In section 431D(1), the words “carried on through a branch or agency in the United Kingdom by an overseas life insurance company” shall be treated as inserted after the words “means life assurance business”.
7 (1) Section 432A has effect as if the references in subsections (3), (6) and (8) to assets were to such of the assets concerned as are—
(a) section 11(2)(b) assets,
(b) section 11(2)(c) assets, or
(c) assets which by virtue of section 11B are attributed to the branch or agency in the United Kingdom through which the company carries on life assurance business;
and as if the references in subsections (6) and (8) to liabilities were to such of the liabilities concerned as are attributable to the branch or agency.
Expressions used in this sub-paragraph to which a meaning is given by section 11A have that meaning.
(2) For the purposes of section 432A as it applies in relation to an overseas life insurance company, income which falls within section 11(2)(aa) or (ab), and chargeable gains or allowable losses which fall within section 11(2)(d) or (e)—
(a) shall not be referable to long-term business other than life assurance business; and
(b) shall be apportioned under subsections (5) and (6) of that section separately from other income, gains and losses.
(3) For the purposes of the application of section 432A(6) in relation to such income, gains or losses as are mentioned in sub-paragraph (2) above—
(a) “liabilities” does not includes liabilities of the long-term business other than life assurance business;
(b) the net value of assets directly referable to any category of business does not include assets directly referable to long-term business other than life assurance business; and
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8 (1) In subsection (1) of section 432B, the words “or treated as brought into account by virtue of paragraph 1C of Schedule 8A to the Finance Act 1989” shall be treated as inserted after the words ’brought into account, within the meaning of that section,’ .
(2) The following words shall be treated as inserted at the end of subsection (2) of that section “ ; but this subsection shall not apply for a period of account in relation to which any provision of paragraph 1C of Schedule 8A to the Finance Act 1989 applies. ”
(3) Subsection (3) of section 432B shall have effect as if after the words “with which an account is concerned” there were inserted the words “or in respect of which items are treated as brought into account by virtue of paragraph 1C of Schedule 8A to the Finance Act 1989”; and that subsection and sections 432C to 432E shall have effect as if the reference to relevant business were to relevant business of the branch or agency in the United Kingdom through which the company carries on life assurance business.
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9 (1) In section 434, the following subsections shall be treated as inserted after subsection (1B)—
“(1C) The exclusion from section 11(2)(a), (aa) or (ab) of distributions received from companies resident in the United Kingdom shall not apply in relation to—
(a) the charge to corporation tax on the life assurance profits of an overseas life insurance company computed in accordance with the provisions of this Act applicable to Case I of Schedule D; or
(b) any computation of such profits in accordance with those provisions.
(1D) Paragraph 2 of Schedule F shall not have effect for the purposes of subsection (1C)(a) or (b) above, but this subsection shall not apply in relation to distributions in respect of which an overseas life insurance company is entitled to a tax credit under section 441A.
(1E) The reference in subsection (1C) above to the life assurance profits of an overseas life insurance company is a reference to the profits of the company—
(a) in respect of its life assurance business; or
(b) in respect of any category of life assurance business which it carries on.”
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9B The following section shall be treated as inserted after section 434A—
Treatment of annuities.
434AA An overseas life insurance company shall not be entitled to treat as paid out of profits or gains brought into charge to income tax any part of the annuities paid by the company which is referable to its life assurance business.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10AA In section 440(2)(a), the reference to an insurance business transfer scheme shall be treated as including a reference to a qualifying overseas transfer (within the meaning of paragraph 4A above).
10B (1) Where the company mentioned in section 440(1) is an overseas life insurance company, section 440 has effect with the following modifications.
(2) Subsection (4) shall be treated as if—
(a) in paragraphs (a), (b), (d), (e) and (f) the words “UK assets” were substituted for the words “assets”; and
(b) at the end there were inserted—
”(g) section 11C assets;
(h) non-UK assets.”.
(2A) The following subsection shall be treated as inserted after subsection (4)—
(4AA) Section 13 of the Capital Allowances Act (use for qualifying activity of plant or machinery provided for other purposes) shall apply in relation to any case in which an asset or part of an asset held by an overseas life insurance company—
(a) ceases to be within the category set out in paragraph (h) of subsection (4) above; and
(b) at the same time comes within another of the categories set out in that subsection..
(3) The following subsection shall be treated as inserted at the end of the section—
”(7) For the purposes of this section—
(a) UK assets are—
(i) section 11(2)(b) assets;
(ii) section 11(2)(c) assets; or
(iii) assets which by virtue of section 11B are attributed to the branch or agency in the United Kingdom through which the company carries on life assurance business;
(b) section 11C assets are assets—
(i) (in a case where section 11C (other than subsection (9)) applies) of the relevant fund, other than UK assets; or
(ii) (in a case where that section including that subsection applies) of the relevant funds, other than UK assets;
(c) non-UK assets are assets which are not UK assets or section 11C assets;
and any expression used in this subsection to which a meaning is given by section 11A has that meaning.”.
(4) Where one of the companies mentioned in section 440(2) is an overseas life insurance company, section 440(2)(b) shall have effect as if for the words “is within another of those categories” there were substituted “is not within the corresponding category”.
(5) Where the transferor company mentioned in section 440(2) is an overseas life insurance company, section 440 shall have effect, as regards the time immediately before the acquisition, with the modifications in sub-paragraphs (2) and (3) above.
(6) Where the acquiring company mentioned in section 440(2) is an overseas life insurance company, section 440 shall have effect, as regards the time immediately after the acquisition, with the modifications in sub-paragraphs (2) and (3) above.
10C (1) In section 440B the following subsection shall be treated as substituted for subsection (3)—
”(3) Section 440(1) and (2) have effect as if the only categories specified in subsection (4) of that section were—
(a) UK assets of the long-term insurance fund,
(b) other UK assets,
(c) section 11C assets, and
(d) non-UK assets,
(those expressions having the meanings given by section 440(7)).”.
(2) The following subsection shall be treated as substituted for subsection (4) of that section—
”(4) Section 440A applies as if for paragraphs (a) to (e) of subsection (2) there were substituted—
”(a) so many of the UK securities as are identified in the company’s records as securities by reference to the value of which there are to be determined benefits provided for under policies or contracts the effecting of all (or all but an insignificant proportion) of which constitutes the carrying on of long-term business, shall be treated for the purposes of corporation tax as a separate holding linked solely to that business,
(b) any remaining UK securities shall be treated for those purposes as a separate holding which is not of the description mentioned in the preceding paragraph,
(c) the section 11C securities shall be treated for those purposes as a separate holding which is not of any of the descriptions mentioned in the preceding paragraphs, and
(d) the non-UK securities shall be treated for those purposes as a separate holding which is not of any of the descriptions mentioned in the preceding paragraphs.”.
11 (1) In section 440A(2), in paragraph (a) the words “UK securities” shall be treated as substituted for the word “securities” in the first place where it occurs.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) In paragraphs (d) and (e) of that subsection, the words “UK securities”shall be treated as substituted for the word “securities”
(4) The following paragraphs shall be treated as inserted at the end of that subsection—
“(f) the section 11C securities shall be treated for those purposes as a separate holding which is not of any of the descriptions mentioned in the preceding paragraphs; and
(g) the non-UK securities shall be treated for those purposes as a separate holding which is not of any of the descriptions mentioned in the preceding paragraphs.”
(5) The following subsection shall be treated as inserted after subsection (6) of that section—
“(6A) For the purposes of this section—
(a) UK securities are such securities as are—
(i) section 11(2)(b) assets;
(ii) section 11(2)(c) assets; or
(iii) assets which by virtue of section 11B are attributed to the branch or agency in the United Kingdom through which the company carries on life assurance business;
(b) section 11C securities are securities—
(i) (in a case where section 11C (other than subsection (9)) applies) which are assets of the relevant fund, other than UK securities; or
(ii) (in a case where that section including that subsection applies) which are assets of the relevant funds, other than UK securities;
(c) non-UK securities are securities which are not UK securities or section 11C securities;
and any expression used in this subsection to which a meaning is given by section 11A has that meaning.”
(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11A (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11B In section 442A the following subsection shall be treated as inserted after subsection (6)—
”(7) In the case of an overseas life insurance company, the investment return treated as accruing under this section in any accounting period in relation to a policy or contract shall be treated as chargeable profits within section 11(2) of the Taxes Act 1988 where the policy or contract is one which in that accounting period gives rise, or but for the reinsurance arrangement would give rise, to such profits.”.
11C In sections 444A(1) and 460(10A), the references to an insurance business transfer scheme shall be treated as including references to a qualifying overseas transfer (within the meaning of paragraph 4A above).
12 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) The following subsection shall be treated as inserted after subsection (2) of section 794—
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) In relation to any item of income falling within section 11(2)(ab), or any chargeable gain falling within section 11(2)(e), the reference in subsection (2)(bb) above to tax paid shall be construed as a reference to that part of the tax paid which bears to the whole of the tax paid the same proportion as that item of income, or that chargeable gain, bears to the relevant income, or relevant gain, by reference to which that item of income, or that chargeable gain, is, by virtue of section 11C, calculated; and, in relation to any such item of income or any such chargeable gain, the reference in section 790(4) to tax paid shall be construed accordingly.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14 (1) In subsection (1) of section 811, the words “subsections (1A) and (2)”shall be treated as substituted for the words “subsection (2)”.
(2) The following subsection shall be treated as inserted after that subsection—
“(1A) In relation to any item of income falling within section 11(2)(ab), the reference in subsection (1) above to any sum which has been paid in respect of tax on that income shall be construed as a reference to the part of that sum which bears to the whole of that sum the same proportion as that item of income bears to the relevant income by reference to which that item of income is, by virtue of section 11C, calculated.”
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14A (1) In Schedule 19AA, paragraph 5(5)(c) (and the reference to it in paragraph 2(3) of that Schedule) shall be treated as omitted.
(2) The following paragraph shall be treated as inserted at the end of that Schedule—
6 In its application to an overseas life insurance company this Schedule shall have effect as if—
(a) the references in paragraphs 2 and 3 to assets of the long-term insurance fund were to such of the assets as are—
(i) section 11(2)(b) assets;
(ii) section 11(2)(c) assets; or
(iii) assets which by virtue of section 11B are attributed to the branch or agency in the United Kingdom through which the company carries on life assurance business;. . .
(b) the references in paragraphs 2 and 4 to the liabilities of the company’s long-term business were to such of those liabilities as are attributable to the branch or agency; and
(c) the references in paragraph 4 to any liabilities of the company’s long-term insurance fund which represent a money debt were to any such of those liabilities as are attributable to the branch or agency;
and any expression used in this paragraph to which a meaning is given by section 11A has that meaning..
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SCHEDULE 19A UNDERWRITERS: ASSESSMENT AND COLLECTION OF TAX
Section 450.
Preliminary
1 (1) In this Schedule—
“agent”, in relation to a syndicate and a year of assessment, means—
(a) the person who was acting as underwriting agent for that syndicate at the end of the corresponding underwriting year; or
(b) such other person as may be determined in accordance with regulations made by the Board by statutory instrument;
“closing year”, in relation to a year of assessment, means the year of assessment next but one following that year;
“inspector” includes any officer of the Board;
“managing agent”, in relation to a syndicate and a year of assessment, means—
(a) the person registered as a managing agent at Lloyd’s who was acting as such for the syndicate at the end of the corresponding underwriting year, or
(b) such other person as may be determined in accordance with regulations made by the Board;
“members’ agent”, in relation to a member of a syndicate and a year of assessment, means—
(a) the person registered as a members’ agent at Lloyd’s who was acting as such for that member at the end of the corresponding underwriting year, or
(b) if there was more than one such person acting as a members’ agent for that member at that time—
(i) the person who was so acting at that time and was appointed by the member to be responsible for complying with the requirements of this Schedule and of any regulations made under section 451(1) or (1A) in connection with tax charged in accordance with section 450 on the profits of all the syndicates of which he was a member, or
(ii) if no such person was so appointed, the person who was so acting at that time for the member in his capacity as a member of that syndicate, or
(c) such other person as may be determined in accordance with regulations made by the Board;
“member’s profit or loss”, in relation to a member of a syndicate, means the aggregate amount of the profits or losses, as shown in the accounts of each syndicate of which he is a member and in relation to which he has the same members’ agent, arising to the member from each such syndicate (taken together) and “member’s profits” and “member’s losses” shall be construed accordingly;
“profits” includes gains;
“syndicate” means a syndicate of underwriting members of Lloyd’s formed for an underwriting year;
“syndicate profit or loss”, in relation to a syndicate, means the aggregate amount of the profits or losses arising to all the members of the syndicate (taken together), and “syndicate profits” and “syndicate losses” shall be construed accordingly.
(2) References in this Schedule to profits or losses arising to a member of a syndicate are references to profits or losses which—
(a) arise to him in his capacity as such a member, whether from his underwriting business or from assets forming part of a premiums trust fund; and
(b) are chargeable or, as the case may be, allowable under Case I of Schedule D.
(3) Regulations under this paragraph may make provision with respect to the year of assessment next but one preceding the year of assessment in which they are made.
Returns by managing agent
2 (1) An inspector may, at any time after the end of the closing year for a year of assessment, by notice in writing to the managing agent require him to deliver to the inspector, on or before the final day determined under sub-paragraph (2) below, a return of the syndicate profit or loss for the year of assessment—
(a) containing such information as may be required in pursuance of the notice; and
(b) accompanied by such accounts, statements and reports as may be so required.
(2) The final day for the delivery of any return required by a notice under sub-paragraph (1) above is whichever is the later of—
(a) the 1st September next following the end of the closing year for the year of assessment; and
(b) the end of the period of three months beginning on the day following that on which the notice was served.
(3) If the managing agent, having been required by a notice under sub-paragraph (1) above to deliver a return, fails to deliver the return on or before the final date for its delivery, he shall be liable to a penalty equal to the prescribed amount multiplied by the number of days on which the failure continues; and in this sub-paragraph “the prescribed amount” means £60 for each fifty members of the syndicate (counting any number of members less than fifty, and any number left over, as fifty).
(4) If the managing agent fraudulently or negligently delivers an incorrect return under sub-paragraph (1) above, he shall be liable to a penalty not exceeding the prescribed amount multiplied by the number of members of the syndicate; and in this sub-paragraph “the prescribed amount” means £3,000.
(5) In relation to a return required by a notice under sub-paragraph (1) above—
(a) any reference in sub-paragraph (2) or (3) above to the delivery of the return is a reference to its delivery together with the accompanying documents referred to in sub-paragraph (1) above; and
(b) the reference in sub-paragraph (4) above to the return being incorrect includes a reference to any of those documents being incorrect.
Repayment claims by managing agent
2A (1) In relation to an underwriting year a managing agent may, by notice in writing at any time during the period of six years beginning with 1st March in the closing year for that year, make a claim to the inspector for the repayment of tax suffered by way of deduction on the syndicate investment income allocated to that year in accordance with the rules or practice of Lloyd’s.
(2) The managing agent shall provide such information in support of the claim as the inspector may reasonably require.
(3) Where an amount is repaid to the managing agent under this paragraph, he shall apportion the amount repaid between the members of the syndicate in proportion to their interests in that part of the syndicate investment income which has suffered tax by way of deduction and, where there is a syndicate profit available for distribution to the members, shall pay the amount so apportioned to the members’ agent in relation to each member within 90 days of receipt.
(4) The provisions of section 824 shall not apply to any repayment of tax made under this paragraph.
Returns by members’ agent
2B (1) An inspector may, at any time after the end of the closing year for that year of assessment, by notice in writing to the members’ agent require him to deliver to the inspector, on or before the final day determined under sub-paragraph (3) below, a return of the member’s profit for the year of assessment in respect of those syndicates in relation to which he is the members’ agent of the member—
(a) containing such information as may be required in pursuance of the notice, and
(b) accompanied by such statements and reports as may be so required, and
(c) containing a statement of the amount of tax which would be payable on that profit if income tax were payable on the whole of it at the basic rate in force for the year of assessment.
(2) For the purposes of the return by the members’ agent of the member’s profit—
(a) there shall be added to that profit an amount representing the depreciation in value for the year of assessment of assets forming part of a premiums trust fund, and
(b) there may be deducted from that profit—
(i) an amount representing the appreciation in value for the year of assessment of assets forming part of a premiums trust fund.
(ii) an amount in respect of disbursements and expenses wholly and exclusively laid out for the purposes of the member’s underwriting business, and of any premium paid by the member on an insurance against losses in his underwriting business, where that amount is claimed in the member’s return for the year of assessment as being deductible from that profit.
(3) The final day for the delivery of any return required by a notice under sub-paragraph (1) above is whichever is the later of—
(a) 1st October in the year of assessment following the closing year for the year of assessment; and
(b) the end of the period of three months beginning on the day following that on which the notice was served.
(4) If the members’ agent, having been required by a notice under sub-paragraph (1) above to deliver a return, fails to deliver the return on or before the final day for its delivery, he shall be liable to a penalty equal to the prescribed amount multiplied by the number of days on which the failure continues; and in this sub-paragraph “the prescribed amount” means £60 for each fifty members for whom he acts and in respect of whom there is such a failure (counting any number of such members less than fifty, and any number left over, as fifty).
(5) If the members’ agent fraudulently or negligently delivers an incorrect return under sub-paragraph (1) above, he shall be liable to a penalty not exceeding the prescribed amount multiplied by the number of members for whom he acts and in respect of whose returns there is such fraud or negligence; and in this sub-paragraph “the prescribed amount” means £3,000.
(6) In relation to a return required by a notice under sub-paragraph (1) above—
(a) any reference in sub-paragraph (1) or (3) above to the delivery of the return is a reference to its delivery together with the accompanying documents referred to in sub-paragraph (1) above; and
(b) the reference in sub-paragraph (5) above to the return being incorrect includes a reference to any of those documents being incorrect.
Payments on account of tax
3 (1) In the case of a member’s profit for a year of assessment, the members’ agent shall, on or before the 1st January next following the end of the closing year for that year, pay to the collector, on account of the member’s liability to tax, the amount stated in his return for that year under paragraph 2B(1)(c) above.
(2) Where an amount is paid to the collector under sub-paragraph (1) above for a year of assessment, the following provisions shall apply as between a member and that members’ agent—
(a) where the amount so paid exceeds the amount deducted by the members’ agent in accounting to the member for that member’s profit, the amount of the excess shall be paid by the member to the members’ agent; and
(b) where the amount so paid is less than the amount deducted by the members’ agent in accounting to the member for that member’s profit, the amount of the excess shall be paid by the members’ agent to the member.
(3) Where an amount is paid to the collector under sub-paragraph (1) above for a year of assessment, the following provisions shall apply as respects the member’s liability to tax for that year—
(a) where the amount in which the member is charged to tax exceeds the amount so paid, the amount of the excess shall be the amount of tax due and payable; and
(b) where that amount exceeds the amount in which the member is so charged, the amount of the excess shall be treated as tax overpaid.
(4) Any amount which is payable under sub-paragraph (1) above shall carry interest at the rate applicable under section 178 of the Finance Act 1989 from the date when it becomes payable until payment, whether or not that date is a non-business day within the meaning of the Bills of Exchange Act 1882, and section 90 of the Taxes Management Act 1970 shall apply for the purposes of this paragraph as it applies for the purposes of any provision of Part IX of that Act.
Assessments on members’ agent
3A (1) If the members’ agent delivers a return in accordance with paragraph 2B above but does not pay to the collector the amount of tax stated in the return in accordance with paragraph 3 above, the inspector may make an assessment on the members’ agent in that amount whether or not it has been paid when the assessment is made.
(2) If for a year of assessment the inspector is dissatisfied with a return under paragraph 2B above, or there is no such return, he may make an assessment on the members’ agent to the best of his judgment.
(3) Any income tax due under an assessment made by virtue of sub-paragraph (1) or (2) above shall be treated for the purposes of interest on unpaid tax as having been payable at the time when it would have been payable if a correct return had been made.
Determinations by inspector
4 (1) If the inspector is satisfied that a return under paragraph 2(1) above affords correct and complete information concerning the syndicate profit or loss for a year of assessment, he shall determine that profit or loss accordingly.
(2) If for a year of assessment the inspector is dissatisfied with a return under paragraph 2(1) above, or there is no such return, the inspector shall determine the syndicate profit or loss for that year to the best of his judgment.
(3) If the inspector discovers that a determination under sub-paragraph (1) or (2) above—
(a) understates the syndicate profits for the year of assessment; or
(b) overstates the syndicate losses for that year,
he may, by a determination under this sub-paragraph, vary the first-mentioned determination accordingly.
(4) Notice of a determination under this paragraph shall be served on the [managing ] agent and shall state the time within which any appeal against the determination may be made under paragraph 5 below.
(5) After notice of a determination under this paragraph has been served on the [managing ] agent, the determination shall not be altered except in accordance with the express provisions of the Taxes Acts.
Appeals
5 (1) The [managing ] agent may appeal against a determination under paragraph 4 above by a notice of appeal in writing given to the inspector within thirty days after the date of the notice of determination.
(2) An appeal under this paragraph shall be to the General Commissioners, except that the [managing ] agent may elect (in accordance with section 46(1) of the Taxes Management Act 1970) to bring the appeal before the Special Commissioners instead of the General Commissioners; and subsections (5) to (5E) of section 31 of that Act shall apply for the purposes of an election under this sub-paragraph as they apply for the purposes of an election under subsection (4) of that section.
Modification of determinations pending appeal
6 (1) Where the [managing ] agent appeals against a determination under paragraph 4 above, then, for the purpose of establishing, in the event of a member of the syndicate appealing against an assessment made on him, the amount of tax the payment of which should, pending the determination of that appeal, be postponed under section 55 of the Taxes Management Act 1970, that section shall apply to the first-mentioned appeal with the modifications specified in sub-paragraph (2) below.
(2) The modifications are as follows—
(a) any reference to the notice of assessment shall be construed as a reference to the notice of determination;
(b) any reference to the appellant believing that he is overcharged to tax by the assessment shall be construed as a reference to him believing that the determination overstates the syndicate profits, or understates the syndicate losses, for the year of assessment, and any reference to the appellant having grounds for so believing, or there being reasonable grounds for so believing, shall be construed accordingly;
(c) any reference to a determination of the amount of tax the payment of which should be postponed pending the determination of the appeal shall be construed as a reference to a direction that the determination shall, pending the determination of the appeal, have effect for the purpose stated in sub-paragraph (1) above as if the syndicate profits there stated were reduced, or the syndicate losses there stated were increased, by such amount as may be specified in the direction, and any reference to an amount of tax so determined, or to the amount of tax which should be so postponed, shall be construed accordingly; and
(d) subsections (2) and (9) and, in subsection (6), paragraphs (a) and (b) and the word “and” immediately preceding paragraph (a) shall be omitted.
Apportionments of syndicate profit or loss
7 (1) Where a determination of a syndicate profit or loss for a year of assessment is made, varied or modified (whether under the foregoing provisions of this Schedule or on appeal), the inspector may, by notice in writing to the [managing ] agent, require him to make to the inspector, within the specified period, a return apportioning, between the members of the syndicate, the syndicate profit or loss as stated in the determination as so made, varied or modified.
(2) If the [managing ] agent, having been required by a notice under sub-paragraph (1) above to deliver a return within the specified period, fails to deliver the return within that period, he shall be liable to a penalty equal to the prescribed amount multiplied by the number of days on which the failure continues; and in this sub-paragraph “the prescribed amount” means £5 for each fifty members of the syndicate (counting any number of members left over as fifty).
(3) In this paragraph “the specified period” means such period, not being less than thirty days and beginning with the day following the date of the notice under sub-paragraph (1) above, as may be specified in that notice.
Individual members: effect of determinations
8 (1) A determination of a syndicate profit or loss for a year of assessment (whether as originally made or as varied or modified) shall, for the purpose of determining the liability to tax of each member of the syndicate, be conclusive against that member that the syndicate profit or loss for that year is as there stated.
(2) Where a determination of a syndicate profit or loss for a year of assessment is varied or modified at any time after the issue of a notice of assessment assessing any member of the syndicate to tax—
(a) section 31 of the Taxes Management Act 1970 (right of appeal) and section 55 of that Act (postponement of tax) shall have effect, in relation to that member, as if any reference to the date of the notice of assessment, or the date of the issue of the notice of assessment, were a reference to the date of the variation or modification; and
(b) in the case of a variation, an assessment which gives effect to the determination as varied shall not be out of time if it is made within one year of the date of the variation.
(3) Sub-paragraph (2)(b) above shall not apply in the case of a variation under paragraph 4(3) above which is made later than six years after the end of the closing year.
Assessment of individual members: time limits
9 For the purposes of sections 36, of the Taxes Management Act 1970 (extension of time in cases of [fraudulent or negligent conduct ], anything done or omitted to be done by the [managing ] agent shall be deemed to have been done or omitted to be done by each member of the syndicate.
Supplemental: penalties
10 (1) If it appears to an inspector or the Board that the agent is liable to a penalty under paragraph 2(3)or 7(2)above, the amount appearing to be due may be assessed by the inspector or the Board as if it were tax for the year of assessment in which the failure to make the return occurred; and, subject to the provisions of this paragraph, the provisions of the Taxes Management Act 1970relating to the assessment and collection of tax shall apply accordingly.
(2) An amount assessed by way of penalty under paragraph 2(3)or 7(2)above shall be due at the end of the period of thirty days beginning with the date of the issue of the notice of assessment.
(3) On an appeal against an assessment of an amount by way of penalty under sub-paragraphs (3)of paragraph 2or sub-paragraph (2)of paragraph 7above, subsections (6)to (8)of section 50of that Act shall not apply but the Commissioners—
(a) may confirm the amount of the assessment or, if it appears to them that the amount assessed is greater or smaller than the penalty provided for under that sub-paragraph, may reduce it or increase it to such an amount as is appropriate having regard to the provisions of that sub-paragraph; and
(b) if it appears to them that no penalty has been incurred, may set the assessment aside.
(4) Where an amount has been assessed by way of penalty under sub-paragraph (3)of paragraph 2or sub-paragraph (2)of paragraph 7above and either no appeal has been brought against that assessment or the amount assessed has been confirmed or varied on appeal—
(a) a certificate of an inspector or other officer of the Board that an amount is due by way of penalty under that sub-paragraph; and
(b) a certificate of a collector that payment of that amount has not been made to him or, to the best of his knowledge and belief, to any other collector, or to a person acting on his behalf or on behalf of another collector,
shall be sufficient evidence that the amount mentioned in the certificates is unpaid and is due to the Crown; and any document purporting to be such a certificate as is mentioned in this sub-paragraph shall be deemed to be such a certificate unless the contrary is proved.
(5) Section 100of the Taxes Management Act 1970 (procedure for recovery of penalties)shall not apply to a penalty under paragraph 2(3)or 7(2)above.
Supplemental: interest
11 (1) Interest charged under paragraph 3(4)above shall be treated for the purposes of the enactments mentioned in section 69of the Taxes Management Act 1970 (interest on tax)as if it were tax charged and due and payable under an assessment.
(2) References to section 86of that Act in sections 70(2)and 92of that Act (evidence, and remission of interest in certain cases)shall include a reference to paragraph 3(4)above. ]
Section 496A
Part 1 Introductory
About this Schedule
1 (1) This Schedule entitles a company carrying on a ring fence trade, on making a claim in respect of an accounting period ending on or after 1st January 2004 but before 1st January 2006, to a supplement (initially of 6%, but variable by Treasury order) in respect of—
(a) qualifying capital expenditure incurred before the trade is set up and commenced,
(b) losses incurred in the trade, determined by reference to allowances under Part 6 of the Capital Allowances Act (expenditure on research and development) in respect of qualifying capital expenditure, and
(c) some or all of the supplement allowed in respect of earlier periods.
(2) To qualify, the capital expenditure in question must be incurred on or after 1st January 2004 but before 1st January 2006 in respect of oil and gas exploration and appraisal (as well as satisfying other conditions).
(3) Part 2 makes provision about the application and interpretation of this Schedule.
(4) Part 3 makes provision about supplement in relation to expenditure incurred by the company—
(a) with a view to carrying on a ring fence trade, but
(b) in an accounting period before the company sets up and commences that trade.
(5) Part 4 makes provision about supplement in relation to losses incurred in carrying on the ring fence trade.
(6) There is a limit on the number of accounting periods (6) in respect of which a company may claim supplement.
(7) In determining the amount of supplement allowable, reductions fall to be made in respect of—
(a) disposal receipts by virtue of section 555 of the Capital Allowances Act (disposal of oil licence with exploitation value),
(b) ring fence losses that could be set off under section 393A or 393B against ring fence profits of earlier periods,
(c) ring fence losses incurred in earlier periods that fall to be set off under section 393 against profits of succeeding periods,
(d) unrelieved group ring fence profits.
Part 2 Application and interpretation
Qualifying companies
2 This Schedule applies in relation to any company which—
(a) carries on a ring fence trade, or
(b) is engaged in oil and gas exploration and appraisal (see section 837B of this Act and section 1003 of ITA 2007) with a view to carrying on a ring fence trade,
and in this Schedule any such company is referred to as a “qualifying company”.
Accounting periods
3 (1) In this Schedule, in the case of any qualifying company,—
“the commencement period” means the accounting period in which the company sets up and commences its ring fence trade;
“post-commencement period” means any accounting period ending on or after 1st January 2004 but before 1st January 2006—
which is the commencement period, or
which ends after the commencement period;
“pre-commencement period” means any accounting period ending—
on or after 1st January 2004 but before 1st January 2006, and
before the commencement period.
(2) For the purposes of this Schedule a company not within the charge to corporation tax which incurs qualifying E&A expenditure is to be treated as having such accounting periods as it would have if—
(a) it carried on a trade consisting of the activities in respect of which the expenditure is incurred, and
(b) it had started to carry on that trade when it started to carry on the research and development on which the expenditure is incurred.
(3) In the case of an accounting period (a “straddling period”) of any qualifying company beginning before 1st January 2006 and ending on or after that date—
(a) so much of the straddling period as falls before 1st January 2006, and
(b) so much of the straddling period as falls on or after that date,
are treated as separate accounting periods for the purposes of this Schedule.
(4) Special provision is made elsewhere in this Schedule in relation to straddling periods (see paragraphs 16, 18A and 22).
The relevant percentage
4 (1) For the purposes of this Schedule, the relevant percentage for any accounting period ending on or after 1st January 2004 is 6%.
(2) The Treasury may by order vary the percentage for the time being specified in sub-paragraph (1) for such accounting periods as may be specified in the order.
Limit on number of accounting periods for which supplement may be claimed
5 (1) A company may claim supplement under this Schedule in respect of no more than 6 accounting periods.
(2) The accounting periods in respect of which claims are made need not be consecutive.
Qualifying E&A expenditure
6 (1) For the purposes of this Schedule “qualifying E&A expenditure”is any expenditure as respects which the following conditions are satisfied.
(2) Condition 1 is that the expenditure is incurred on or after 1st January 2004 but before 1st January 2006.
(3) Condition 2 is that, for the purposes of Part 6 of the Capital Allowances Act, the expenditure is qualifying expenditure incurred on research and development consisting of oil and gas exploration and appraisal (see section 437(2)(b) of that Act).
(4) Condition 3 is that an allowance under section 441 of that Act is claimed in respect of the expenditure.
(5) Condition 4 is that the expenditure is incurred in the course of oil extraction activities.
(6) Condition 5 is that—
(a) those oil extraction activities are comprised in a ring fence trade, or
(b) after incurring the expenditure, the person incurring it sets up and commences a ring fence trade connected with the research and development or starts to be within the charge to corporation tax in respect of such a ring fence trade.
Unrelieved group ring fence profits for accounting periods
7 (1) There is an amount of unrelieved group ring fence profits for an accounting period of a qualifying company (“company Q”) in any case where—
(a) the company and any other company (“company X”) are members of the same group of companies, within the meaning given by section 413(3)(a), and
(b) company X has an amount of taxable ring fence profits (see paragraph 8) for a corresponding accounting period.
(2) An accounting period of company X corresponds to an accounting period of company Q if—
(a) it coincides with, or falls wholly within, the accounting period of company Q, or
(b) it falls partly within the accounting period of company Q.
(3) Where an accounting period of company X—
(a) coincides with an accounting period of company Q, or
(b) falls wholly within an accounting period of company Q,
there is, for the accounting period of company Q, an amount of unrelieved group ring fence profits equal to the whole of company X’s taxable ring fence profits for its accounting period.
(4) Where an accounting period of company X falls partly within an accounting period of company Q—
(a) there is an amount of unrelieved group ring fence profits for the accounting period of company Q, and
(b) that amount is an amount equal to the part of company X’s taxable ring fence profits for its accounting period that is attributable, on an apportionment in accordance with section 834(4), to the part of that period which falls within the accounting period of company Q.
(5) This paragraph applies for the purposes of this Schedule.
Taxable ring fence profits of an accounting period
8 For the purposes of this Schedule, a company has taxable ring fence profits for an accounting period if it has an amount of ring fence profits which is chargeable to corporation tax for that accounting period after any group relief claimed under Chapter 4 of Part 10.
Part 3 Pre-commencement supplement
Supplement in respect of a pre-commencement accounting period
9 (1) Where—
(a) a qualifying company claims an allowance under section 441 of the Capital Allowances Act (research and development allowances) for the commencement period, and
(b) the claim is for an allowance in respect of qualifying E&A expenditure incurred before that period,
the company may also claim supplement under this Part of this Schedule (“pre-commencement supplement”) in respect of one or more pre-commencement periods.
(2) Any pre-commencement supplement allowed on a claim in respect of a pre-commencement period shall be treated as an allowance under Part 6 of the Capital Allowances Act for the commencement period in respect of qualifying E&A expenditure incurred by the company.
(3) The amount of the supplement for any pre-commencement period in respect of which a claim under this paragraph is made is the relevant percentage for that period of the reference amount for that period.
(4) If the pre-commencement period is a period of less than twelve months, the amount of the supplement for the period (apart from this sub-paragraph) shall be reduced proportionally.
(5) Paragraphs 10 to 13 have effect for the purpose of determining the reference amount for a pre-commencement period.
The mixed pool of qualifying E&A expenditure and supplement previously allowed
10 (1) For the purpose of determining the amount of any pre-commencement supplement, a qualifying company shall be taken to have had, at all times in the pre-commencement periods of the company, a continuing mixed pool of qualifying E&A expenditure and pre-commencement supplement.
(2) The pool shall be taken to have consisted of—
(a) the company’s qualifying E&A expenditure, allocated to the pool for each pre-commencement period in accordance with sub-paragraph (3), and
(b) the company’s pre-commencement supplement, allocated to the pool for each pre-commencement period in accordance with sub-paragraph (4).
(3) To allocate qualifying E&A expenditure to the pool for any pre-commencement period, take the following steps—
(a) Step 1: count as eligible expenditure for that period so much of the qualifying E&A expenditure mentioned in paragraph 9(1)(b) as was incurred in that period,
(b) Step 2: find the total of all the eligible expenditure for that period (amount E),
(c) Step 3: if paragraph 11 applies, reduce amount E in accordance with that paragraph,
(d) Step 4: if paragraph 12 applies, reduce (or, as the case may be, further reduce) amount E in accordance with that paragraph,
and so much of amount E as remains after making those reductions shall be taken to have been added to the pool in that period.
(4) If any pre-commencement supplement is allowed on a claim in respect of a pre-commencement period, the amount of that supplement shall be taken to have been added to the pool in that period.
Treatment of disposal value on disposal of oil licence with exploitation value
11 (1) This paragraph applies in any case where—
(a) the qualifying company disposes of an interest in an oil licence in a pre-commencement period,
(b) part of the value of the interest (the “deductible amount”) is attributable to qualifying E&A expenditure incurred by the company, and
(c) section 555 of the Capital Allowances Act (disposal of oil licence with exploitation value) has effect in relation to the disposal.
(2) For the purpose of allocating qualifying E&A expenditure to the pool for each pre-commencement period—
(a) find the total of the deductible amounts in the case of all such disposals made by the company (amount D), and
(b) taking later periods before earlier periods, reduce (but not below nil) amount E for any pre-commencement period by setting against it so much of amount D as does not fall to be set against amount E for a later pre-commencement period.
(3) In this paragraph “oil licence” has the same meaning as in section 555 of the Capital Allowances Act (see section 552 (1) of that Act).
Reduction in respect of unrelieved group ring fence profits
12 (1) This paragraph applies if there is an amount of unrelieved group ring fence profits for a pre-commencement period.
(2) For the purpose of allocating qualifying E&A expenditure to the pool for that period—
(a) find so much (if any) of amount E for that period as remains after any reduction falling to be made under paragraph 11, and
(b) reduce that amount (but not below nil) by setting against it a sum equal to the aggregate of the amounts of unrelieved group ring fence profits for the period.
The reference amount for a pre-commencement period
13 For the purposes of this Part of this Schedule, the reference amount for a pre-commencement period is the amount in the pool at the end of the period—
(a) after the addition to the pool of any qualifying E&A expenditure allocated to the pool for that period in accordance with paragraph 10(3), but
(b) before determining, and adding to the pool, the amount of any pre-commencement supplement claimed in respect of the period.
Claims for pre-commencement supplement
14 (1) Any claim for pre-commencement supplement in respect of a pre-commencement period must be made at the same time as, and as if it were part of, the claim under section 441 of the Capital Allowances Act mentioned in paragraph 9(1)(a).
(2) Subsection (3) of that section (claim for reduced amount) applies in relation to any such claim.
Part 4 Post-commencement supplement
Supplement in respect of a post-commencement period
15 (1) A qualifying company which incurs a qualifying E&A loss (see paragraph 17) in a post-commencement period may claim supplement under this Part of this Schedule (“post-commencement supplement”) in respect of—
(a) that period, or
(b) any subsequent accounting period in which it carries on its ring fence trade.
(2) Any post-commencement supplement allowed on a claim in respect of a post-commencement period shall be treated for the purposes of the Corporation Tax Acts (other than this Part of this Schedule or sections 321 to 329 of CTA 2010) as if it were a loss—
(a) incurred in carrying on the ring fence trade in that period,
(b) which falls in whole to be set off under section 393 against trading income from the ring fence trade in succeeding accounting periods.
(3) Paragraph 74 of Schedule 18 to the Finance Act 1998 (company tax returns etc: time limit for claims for group relief) shall apply in relation to a claim for post-commencement supplement as it applies in relation to a claim for group relief.
Amount of post-commencement supplement for a post-commencement period
16 (1) The amount of the post-commencement supplement for any post-commencement period in respect of which a claim under paragraph 15 is made is the relevant percentage for that period of the reference amount for that period.
(2) If the post-commencement period is a period of less than twelve months, the amount of the supplement for the period (apart from this sub-paragraph) shall be reduced proportionally.
(2A) But, if the post-commencement period is the deemed accounting period under paragraph 3(3) ending before 1st January 2006, sub-paragraph (2) has no effect in relation to the amount of the supplement for that period.
(3) Paragraphs 19 to 24 have effect for the purpose of determining the reference amount for a post-commencement period.
Ring fence losses and qualifying E&A losses
17 (1) Where—
(a) in any post-commencement period (“the period of the loss”) a qualifying company carrying on a ring fence trade incurs a loss in the trade, and
(b) some or all of the loss falls to be set off under section 393 against trading income from the trade in succeeding accounting periods,
so much of the loss as falls to be so set off is a “ring fence loss” of the company.
(2) In determining for the purposes of this Part of this Schedule how much of a loss incurred in a ring fence trade falls to be set off as mentioned in sub-paragraph (1)(b), it shall be assumed—
(a) that every claim is made that could be made by the company under section 393A to set losses incurred in the ring fence trade against ring fence profits of earlier post-commencement periods, and
(b) that (where appropriate) section 393B applies in relation to every such claim.
(3) So much of a ring fence loss as is attributable to qualifying E&A allowances for the period of the loss is a “qualifying E&A loss”.
(4) A ring fence loss is attributable to qualifying E&A allowances to the extent that the amount of the ring fence loss does not exceed the amount of the qualifying E&A allowances for the period of the loss.
(5) But a claim for post-commencement supplement may include an election for a ring fence loss to be treated—
(a) as attributable to qualifying E&A allowances for the period of the loss to such lesser extent as may be specified in the election, or
(b) as not attributable to such allowances.
(6) “Qualifying E&A allowances”, in the case of an accounting period, means allowances for that period under Part 6 of the Capital Allowances Act in respect of qualifying E&A expenditure incurred by the company (including any pre-commencement supplement treated under paragraph 9(2) as such an allowance).
(7) This paragraph has effect for the purposes of this Part of this Schedule.
Ring fence losses and non-qualifying losses
18 (1) So much of a ring fence loss as is not a qualifying E&A loss is a non-qualifying loss.
(2) Where—
(a) a loss was incurred by a qualifying company in its ring fence trade in an accounting period ending on or before 31st December 2003, and
(b) some or all of that loss falls to be set off under section 393 against profits of that trade in accounting periods ending on or after that date,
so much of the loss as falls to be so set off is a ring fence loss and that loss is a non-qualifying loss.
(3) This paragraph has effect for the purposes of this Part of this Schedule.
Special rule for straddling periods
18A (1) This paragraph applies in any case where the period of the loss in which a ring fence loss is incurred is the deemed accounting period under paragraph 3(3) ending before 1st January 2006.
(2) The following assumption shall be made for the purpose of calculating the amount of the qualifying E&A loss and the amount of the non-qualifying loss.
(3) The assumption is that the loss made in the trade is taken to be the loss incurred in the accounting period beginning before 1st January 2006 and ending on or after that date (disregarding paragraph 3(3)).
(4) The amount of the non-qualifying loss (found in accordance with that assumption) is then reduced (but not below nil) by the following amount.
(5) The amount is the amount of the ring fence loss in the deemed accounting period beginning on 1st January 2006 determined under section 324 of CTA 2010.
The pool of qualifying E&A losses and the pool of non-qualifying losses
19 (1) For the purpose of determining the amount of any post-commencement supplement, a qualifying company shall be taken at all times in its post-commencement periods to have—
(a) a continuing pool of the company’s non-qualifying losses (the “non-qualifying pool”), and
(b) a continuing mixed pool of the company’s qualifying E&A losses and post-commencement supplement (the “qualifying pool”).
(2) A pool continues even if the amount in it is nil.
The non-qualifying pool
20 (1) The non-qualifying pool consists of the company’s non-qualifying losses, allocated to the pool in accordance with sub-paragraph (2).
(2) A non-qualifying loss is allocated to the pool by adding the amount of the non-qualifying loss to the pool in the period of the loss.
(3) In the case of a non-qualifying loss incurred in an accounting period ending on or before 31st December 2003, the period of the loss shall be taken for the purposes of sub-paragraph (2) to be the first accounting period of the company that ends on or after 1st January 2004.
(4) The amount in the non-qualifying pool is subject to reductions in accordance with the following provisions of this Part of this Schedule.
(5) Where a reduction in the amount in the non-qualifying pool falls to be made in any accounting period—
(a) the reduction is to be made after the addition to the pool of any non-qualifying loss allocated to the pool in that period in accordance with sub-paragraph (2), and
(b) references to the amount in the non-qualifying pool shall be construed accordingly.
The qualifying pool
21 (1) The qualifying pool consists of—
(a) the company’s qualifying E&A losses, allocated to the pool in accordance with sub-paragraph (2)(a), and
(b) the company’s post-commencement supplement, allocated to the pool in accordance with sub-paragraph (2)(b).
(2) The allocation of qualifying E&A losses and post-commencement supplement to the pool is as follows—
(a) the amount of a qualifying E&A loss is added to the pool in the period of the loss, and
(b) if any post-commencement supplement is allowed on a claim in respect of a post-commencement period, the amount of that supplement is added to the pool in that period.
(3) The amount in the qualifying pool is subject to reductions in accordance with the following provisions of this Part of this Schedule.
(4) Where a reduction in the amount in the qualifying pool falls to be made in any accounting period, the reduction is to be made—
(a) after the addition to the pool of the amount of any qualifying E&A losses allocated to the pool in that period in accordance with sub-paragraph (2)(a), but
(b) before determining, and adding to the pool, the amount of any supplement claimed in respect of the period,
and references to the amount in the pool shall be construed accordingly.
Reductions in respect of utilised ring fence losses
22 (1) If one or more ring fence losses are set off under section 393 against any profits of a post-commencement period, reductions shall be made in that period in accordance with this paragraph.
(2) The amount in the non-qualifying pool shall be reduced (but not below nil) by setting against it a sum equal to the total amount so set off.
(3) If any of that sum remains after being so set against the amount in the non-qualifying pool, the amount in the qualifying pool shall be reduced (but not below nil) by setting against it so much of that sum as so remains.
(4) If the post-commencement period is the deemed accounting period under paragraph 3(3) ending before 1st January 2006 (“the deemed accounting period”), the amount of the profits of the deemed accounting period is determined as follows.
(5) The amount of the profits of the straddling period is apportioned to the deemed accounting period in proportion to the number of days in the deemed accounting period that fall in the straddling period.
(6) The apportioned amount is taken for the purposes of this paragraph to be the amount of the profits of the deemed accounting period.
(7) In this paragraph “the straddling period”, in relation to a qualifying company, means an accounting period of the company beginning before 1st January 2006 and ending on or after that date (disregarding paragraph 3(3)).
Reductions in respect of unrelieved group ring fence profits
23 (1) If there is an amount of unrelieved group ring fence profits for a post-commencement period, reductions shall be made in that period in accordance with this paragraph.
(2) In the following provisions of this paragraph, references to the remaining amount in a pool are references to so much (if any) of the amount in the pool as remains after making any reductions that fall to be made in accordance with paragraph 22.
(3) The remaining amount in the non-qualifying pool shall be reduced (but not below nil) by setting against it a sum equal to the aggregate of the amounts of unrelieved group ring fence profits for the period.
(4) If any of that sum remains after being so set against the remaining amount in the non-qualifying pool, the remaining amount in the qualifying pool shall be reduced (but not below nil) by setting against it so much of that sum as so remains.
The reference amount for a post-commencement period
24 For the purposes of this Part of this Schedule the reference amount for a post-commencement period is so much of the amount in the qualifying pool as remains after making any reductions required by paragraph 22 or 23.