Finance Act 2012

15 U.K. In Chapter 4 of Part 4 of FA 2004 (registered pension schemes: tax reliefs and exemptions) after section 196A insert—

“196B Employer asset-backed contributions: denial of relief (1)

(1) An employer (“E”) is not to be given relief in respect of a contribution (“E's contribution”) paid by E under a registered pension scheme if conditions A, B and C are met.

(2) Condition A is that—

(a) under an arrangement (“the asset-backed arrangement”)—

(i) a person (“the borrower”) receives money or another asset (“the advance”) from another person (“the lender”),

(ii) the borrower, or a person connected with the borrower, makes a disposal of an asset (“the security”) to or for the benefit of the lender or a person connected with the lender, and

(iii) the lender, or a person connected with the lender, is entitled to payments in respect of the security,

(b) the borrower is E or a person connected with E, and

(c) the advance is (wholly or partly) paid or provided by the lender out of E's contribution (directly or indirectly),

and the case is not one in relation to which either condition A in section 196D or condition A in section 196F is met.

(3) For the purposes of subsection (2)(a)(iii) it does not matter if an entitlement of the lender, or a person connected with the lender, is subject to any condition.

(4) Condition B is that the asset-backed arrangement is not an acceptable structured finance arrangement (see section 196C).

(5) Condition C is that it is reasonable to suppose that the amount of one or more of the payments mentioned in subsection (2)(a)(iii) has been, or is to be, determined (wholly or partly) on the basis that, in essence, the whole or a part of the advance represents a loan which is (wholly or partly) to be repaid by way of one or more of those payments.

(6) For the purposes of subsection (5) it does not matter—

(a) that the repayment of the loan might be subject to any condition, or

(b) that the accounts of any person do not record a financial liability in respect of the whole or a part of the advance or that the whole or a part of the advance is not otherwise treated as representing a loan for the purposes of the accounts of any person,

but, subject to that, all relevant circumstances are to be taken into account in order to get to the essence of the matter.

(7) For the purposes of this section—

(a) the borrower and the lender are not connected with one another if that would otherwise be the case,

(b) if the borrower is not E, references to a person connected with the borrower include a person connected with E who would not otherwise be connected with the borrower, and

(c) “loan” includes any advance of money.

196C Employer asset-backed contributions: “acceptable structured finance arrangement” (1)

(1) For the purposes of section 196B the asset-backed arrangement is an “acceptable structured finance arrangement” if conditions M to Q are met.

(2) Condition M is that—

(a) in accordance with generally accepted accounting practice, the borrower's accounts for the period in which the advance is received record a financial liability (“the recorded financial liability”) in respect of the advance, and

(b) the asset-backed arrangement is a type 1 finance arrangement for the purposes of Chapter 5B of Part 13 of ITA 2007 or Chapter 2 of Part 16 of CTA 2010 (finance arrangements).

(3) Condition N is that—

(a) the lender is a responsible authority,

(b) the advance is money which is paid by the lender directly to the borrower wholly and directly out of E's contribution, and

(c) the advance and the recorded financial liability (as originally recorded) are both of an amount equal to the amount of E's contribution.

(4) Condition O is that, as at the time the advance is paid, the position of the lender is as follows—

(a) it is the lender (and not any person connected with the lender) who is entitled to the payments mentioned in section 196B(2)(a)(iii),

(b) those payments are to arise at times which have been fixed and fall at intervals of no more than one year (but allowing for payments otherwise due to arise on a non-working day to arise on the next working day),

(c) the lender is to receive each payment no later than 3 months after the day on which the payment arises (but allowing for payments otherwise due to be received on a non-working day to be received on the next working day),

(d) on receipt by the lender, each payment is directly to become part of the sums held for the purposes of the registered pension scheme,

(e) the payments are all to be of the same amount,

(f) the total amount of the payments is not to be less than the amount of E's contribution, and

(g) all the payments are to be received by the lender within a period (“the payment period”) ending no later than the end of the period of 25 years beginning with the day on which E's contribution is paid.

(5) For the purposes of subsection (4)(b) the first payment is to arise no later than one year after the day on which the advance is paid.

(6) For the purposes of subsection (4)(e) the following are to be ignored—

(a) negligible differences in the amounts of payments;

(b) differences in the amounts of payments which would be caused by a term of the asset-backed arrangement that requires the amounts of all outstanding payments to be increased periodically by a percentage which cannot be higher than the highest of the following—

(i) the percentage increase in the consumer prices index for the reference period, being a period determined, in relation to each periodic increase, under the term of the asset-backed arrangement in question;

(ii) the percentage increase in the retail prices index for the reference period;

(iii) the percentage for the reference period which corresponds to 5% per annum.

(7) For the purposes of subsection (4), in determining the lender's position, regard must be had (in particular) to any arrangements connected (directly or indirectly) to the asset-backed arrangement.

(8) Condition P is that, as at the time the advance is paid, in accordance with generally accepted accounting practice the recorded financial liability is to be reduced to nil by the end of the payment period by (and only by) the payments mentioned in section 196B(2)(a)(iii).

(9) Condition Q is that, as at the time the advance is paid, no commitment to which subsection (10) applies has been given.

(10) This subsection applies to a commitment (whether or not legally enforceable and whether or not subject to any conditions) if—

(a) it is given (directly or indirectly) to a relevant person,

(b) it is a commitment to secure that a person receives money or another asset, and

(c) it is linked (directly or indirectly) to the receipt by the lender of a payment mentioned in section 196B(2)(a)(iii).

(11) In subsection (10)(a) “relevant person” means—

(a) E;

(b) a person connected with E;

(c) a person acting (directly or indirectly) at the direction or request, or with the agreement, of E or a person connected with E;

(d) a person chosen (directly or indirectly) by E or a person connected with E;

(e) a person within a class of person chosen (directly or indirectly) by E or a person connected with E;

(f) a partnership;

but does not include a responsible authority.

(12) In this section “responsible authority” means—

(a) the persons who from time to time are the trustees of the registered pension scheme, or

(b) the persons who from time to time are the persons controlling the management of the registered pension scheme,

in their capacity as such.

196D Employer asset-backed contributions: denial of relief (2)

(1) An employer (“E”) is not to be given relief in respect of a contribution (“E's contribution”) paid by E under a registered pension scheme if conditions A and B are met.

(2) Condition A is that—

(a) under an arrangement (“the asset-backed arrangement”) a person (“the transferor”) makes a disposal of an asset (“the security”) to a partnership,

(b) the transferor is E or a person connected with E,

(c) the transferor, or a person connected with the transferor, is a member of the partnership immediately after the disposal (whether or not a member immediately before it),

(d) under the asset-backed arrangement the partnership receives money or another asset (“the advance”) from a person (“the lender”) other than the transferor,

(e) the advance is (wholly or partly) paid or provided by the lender out of E's contribution (directly or indirectly),

(f) there is a relevant change in relation to the partnership (see section 196H), and

(g) under the asset-backed arrangement the share in the partnership's profits of the person involved in the relevant change (see section 196H) is determined by reference (wholly or partly) to payments in respect of the security.

(3) If the transferor is not E, for the purposes of this section references to a person connected with the transferor include a person connected with E who would not otherwise be connected with the transferor.

(4) For the purposes of subsection (2)(g) it does not matter if any determination of the share in the partnership's profits of the person involved in the relevant change as mentioned is subject to any condition.

(5) Condition B is that the asset-backed arrangement is not an acceptable structured finance arrangement (see section 196E).

196E Employer asset-backed contributions: “acceptable structured finance arrangement” (2)

(1) For the purposes of section 196D the asset-backed arrangement is an “acceptable structured finance arrangement” if conditions M to Q are met.

(2) Condition M is that—

(a) in accordance with generally accepted accounting practice, the partnership's accounts for the period in which the advance is received record a financial liability (“the recorded financial liability”) in respect of the advance, and

(b) the asset-backed arrangement is a type 2 finance arrangement for the purposes of Chapter 5B of Part 13 of ITA 2007 or Chapter 2 of Part 16 of CTA 2010 (finance arrangements).

(3) Condition N is that—

(a) the lender is a responsible authority,

(b) the advance is money which is paid by the lender directly to the partnership wholly and directly out of E's contribution, and

(c) the advance and the recorded financial liability (as originally recorded) are both of an amount equal to the amount of E's contribution.

(4) Condition O is that, as at the time the advance is paid, the position of the lender is as follows—

(a) it is the lender (and not any person connected with the lender) who is or is to be the person involved in the relevant change in relation to the partnership,

(b) the lender's share in the partnership's profits is to be determined wholly by reference to the payments mentioned in section 196D(2)(g),

(c) determinations of the lender's share in the partnership's profits are to be made at times which have been fixed and fall at intervals of no more than one year (but allowing for determinations otherwise due to be made on a non-working day to be made on the next working day),

(d) no later than 3 months after the day on which a determination of the lender's share in the partnership's profits is made, the lender is to make a drawing from the partnership on account of its determined share (but allowing for drawings otherwise due to be made on a non-working day to be made on the next working day),

(e) on its making, each drawing is directly to become part of the sums held for the purposes of the registered pension scheme,

(f) the drawings are all to be of the same amount,

(g) the total amount of the drawings is not to be less than the amount of E's contribution, and

(h) all of the lender's share in the partnership's profits is to be drawn by the lender from the partnership within a period (“the drawing period”) ending no later than the end of the period of 25 years beginning with the day on which E's contribution is paid.

(5) For the purposes of subsection (4)(c) the first determination is to be made no later than one year after the day on which the advance is paid.

(6) For the purposes of subsection (4)(f) the following are to be ignored—

(a) negligible differences in the amounts of drawings;

(b) differences in the amounts of drawings which would be caused by a term of the asset-backed arrangement that requires the amounts of all outstanding drawings to be increased periodically by a percentage which cannot be higher than the highest of the following—

(i) the percentage increase in the consumer prices index for the reference period, being a period determined, in relation to each periodic increase, under the term of the asset-backed arrangement in question;

(ii) the percentage increase in the retail prices index for the reference period;

(iii) the percentage for the reference period which corresponds to 5% per annum.

(7) In determining the lender's position for the purposes of subsection (4), regard must be had (in particular) to any arrangements connected (directly or indirectly) to the asset-backed arrangement.

(8) Condition P is that, as at the time the advance is paid, in accordance with generally accepted accounting practice the recorded financial liability is to be reduced to nil by the end of the drawing period by (and only by) the payments mentioned in section 196D(2)(g).

(9) Condition Q is that, as at the time the advance is paid, no commitment to which subsection (10) applies has been given.

(10) This subsection applies to a commitment (whether or not legally enforceable and whether or not subject to any conditions) if—

(a) it is given (directly or indirectly) to a relevant person,

(b) it is a commitment to secure that a person receives money or another asset, and

(c) it is linked (directly or indirectly) to any determination of the lender's share in the partnership's profits or any drawing from the partnership on account of that share.

(11) In subsection (10)(a) “relevant person” means—

(a) E;

(b) a person connected with E;

(c) a person acting (directly or indirectly) at the direction or request, or with the agreement, of E or a person connected with E;

(d) a person chosen (directly or indirectly) by E or a person connected with E;

(e) a person within a class of person chosen (directly or indirectly) by E or a person connected with E;

(f) a partnership;

but does not include a responsible authority.

(12) In this section—

(a) “responsible authority” means—

(i) the persons who from time to time are the trustees of the registered pension scheme, or

(ii) the persons who from time to time are the persons controlling the management of the registered pension scheme,

in their capacity as such, and

(b) references to the making of drawings from the partnership include references to the receiving of distributions from the partnership.

196F Employer asset-backed contributions: denial of relief (3)

(1) An employer (“E”) is not to be given relief in respect of a contribution (“E's contribution”) paid by E under a registered pension scheme if conditions A and B are met.

(2) Condition A is that—

(a) a partnership holds an asset (“the security”) at any time before an arrangement (“the asset-backed arrangement”) is made,

(b) under the asset-backed arrangement the partnership receives money or another asset (“the advance”) from another person (“the lender”),

(c) the advance is (wholly or partly) paid or provided by the lender out of E's contribution (directly or indirectly),

(d) there is a relevant change in relation to the partnership (see section 196H), and

(e) under the asset-backed arrangement the share in the partnership's profits of the person involved in the relevant change (see section 196H) is determined by reference (wholly or partly) to payments in respect of the security.

(3) For the purposes of subsection (2)(e) it does not matter if any determination of the share in the partnership's profits of the person involved in the relevant change as mentioned is subject to any condition.

(4) Condition B is that the asset-backed arrangement is not an acceptable structured finance arrangement (see section 196G).

196G Employer asset-backed contributions: “acceptable structured finance arrangement” (3)

(1) For the purposes of section 196F the asset-backed arrangement is an “acceptable structured finance arrangement” if conditions M to Q are met.

(2) Condition M is that—

(a) in accordance with generally accepted accounting practice, the partnership's accounts for the period in which the advance is received record a financial liability (“the recorded financial liability”) in respect of the advance, and

(b) the asset-backed arrangement is a type 3 finance arrangement for the purposes of Chapter 5B of Part 13 of ITA 2007 or Chapter 2 of Part 16 of CTA 2010 (finance arrangements).

(3) Condition N is that—

(a) the lender is a responsible authority,

(b) the advance is money which is paid by the lender directly to the partnership wholly and directly out of E's contribution, and

(c) the advance and the recorded financial liability (as originally recorded) are both of an amount equal to the amount of E's contribution.

(4) Condition O is that, as at the time the advance is paid, the position of the lender is as follows—

(a) it is the lender (and not any person connected with the lender) who is or is to be the person involved in the relevant change in relation to the partnership,

(b) the lender's share in the partnership's profits is to be determined wholly by reference to the payments mentioned in section 196F(2)(e),

(c) determinations of the lender's share in the partnership's profits are to be made at times which have been fixed and fall at intervals of no more than one year (but allowing for determinations otherwise due to be made on a non-working day to be made on the next working day),

(d) no later than 3 months after the day on which a determination of the lender's share in the partnership's profits is made, the lender is to make a drawing from the partnership on account of its determined share (but allowing for drawings otherwise due to be made on a non-working day to be made on the next working day),

(e) on its making, each drawing is directly to become part of the sums held for the purposes of the registered pension scheme,

(f) the drawings are all to be of the same amount,

(g) the total amount of the drawings is not to be less than the amount of E's contribution, and

(h) all of the lender's share in the partnership's profits is to be drawn by the lender from the partnership within a period (“the drawing period”) ending no later than the end of the period of 25 years beginning with the day on which E's contribution is paid.

(5) For the purposes of subsection (4)(c) the first determination is to be made no later than one year after the day on which the advance is paid.

(6) For the purposes of subsection (4)(f) the following are to be ignored—

(a) negligible differences in the amounts of drawings;

(b) differences in the amounts of drawings which would be caused by a term of the asset-backed arrangement that requires the amounts of all outstanding drawings to be increased periodically by a percentage which cannot be higher than the highest of the following—

(i) the percentage increase in the consumer prices index for the reference period, being a period determined, in relation to each periodic increase, under the term of the asset-backed arrangement in question;

(ii) the percentage increase in the retail prices index for the reference period;

(iii) the percentage for the reference period which corresponds to 5% per annum.

(7) In determining the lender's position for the purposes of subsection (4), regard must be had (in particular) to any arrangements connected (directly or indirectly) to the asset-backed arrangement.

(8) Condition P is that, as at the time the advance is paid, in accordance with generally accepted accounting practice the recorded financial liability is to be reduced to nil by the end of the drawing period by (and only by) the payments mentioned in section 196F(2)(e).

(9) Condition Q is that, as at the time the advance is paid, no commitment to which subsection (10) applies has been given.

(10) This subsection applies to a commitment (whether or not legally enforceable and whether or not subject to any conditions) if—

(a) it is given (directly or indirectly) to a relevant person,

(b) it is a commitment to secure that a person receives money or another asset, and

(c) it is linked (directly or indirectly) to any determination of the lender's share in the partnership's profits or any drawing from the partnership on account of that share.

(11) In subsection (10)(a) “relevant person” means—

(a) E;

(b) a person connected with E;

(c) a person acting (directly or indirectly) at the direction or request, or with the agreement, of E or a person connected with E;

(d) a person chosen (directly or indirectly) by E or a person connected with E;

(e) a person within a class of person chosen (directly or indirectly) by E or a person connected with E;

(f) a partnership;

but does not include a responsible authority.

(12) In this section—

(a) “responsible authority” means—

(i) the persons who from time to time are the trustees of the registered pension scheme, or

(ii) the persons who from time to time are the persons controlling the management of the registered pension scheme,

in their capacity as such, and

(b) references to the making of drawings from the partnership include references to the receiving of distributions from the partnership.

196H Employer asset-backed contributions: “relevant change in relation to the partnership” and “person involved in the relevant change”

(1) For the purposes of sections 196D and 196F there is a relevant change in relation to the partnership if condition X or Y is met.

(2) Condition X is that, in connection with the asset-backed arrangement, the lender or a person connected with the lender becomes a member of the partnership at any time.

(3) Condition Y is that—

(a) in connection with the asset-backed arrangement, there is at any time a change in a member's share in the partnership's profits, and

(b) the member is the lender or a person connected with the lender or a person who in connection with the asset-backed arrangement becomes at any time connected with the lender.

(4) For the purposes of subsections (2) and (3) an event occurs in connection with the asset-backed arrangement if it occurs directly or indirectly in consequence of it or otherwise in connection with it.

(5) For the purposes of sections 196D to 196G references to the person involved in the relevant change in relation to the partnership are—

(a) if it is condition X that is met, to the lender or the person connected with the lender (as the case may be), and

(b) if it is condition Y that is met, to the member of the partnership in whose share in the partnership's profits there is a change.

196I Employer asset-backed contributions: change in lender's original position under acceptable structured finance arrangement etc

(1) This section applies if—

(a) an employer (“E”) pays a contribution (“E's contribution”) under a registered pension scheme,

(b) conditions A and C in section 196B are met or condition A in section 196D or 196F is met,

(c) the asset-backed arrangement is an acceptable structured finance arrangement for the purposes of section 196B, 196D or 196F (as the case may be) and, accordingly, condition B in that section is not met, and

(d) at any time (“the relevant time”) after the advance is paid—

(i) the lender's position changes from the lender's original position in any respect (whether as a result of a term of the asset-backed arrangement or another arrangement or otherwise),

(ii) an event occurs or does not occur and the occurrence or non-occurrence of the event does not accord with the lender's original position in any respect,

(iii) in accordance with generally accepted accounting practice, the recorded financial liability is reduced to nil other than by a payment mentioned in section 196B(2)(a)(iii), 196D(2)(g) or section 196F(2)(e) (as the case may be),

(iv) a commitment to which section 196C(10), 196E(10) or 196G(10) (as the case may be) applies is given, or

(v) an event falling within section 196J occurs.

(2) This section also applies if—

(a) the requirements of subsection (1)(a) to (c) are met, and

(b) at any time (“the relevant time”) after the advance is paid, in accordance with generally accepted accounting practice, the recorded financial liability is reduced in part other than by a payment mentioned in section 196B(2)(a)(iii), 196D(2)(g) or section 196F(2)(e) (as the case may be).

(3) Subject to subsection (4), the relevant amount is treated as follows as relevant—

(a) for corporation tax purposes, the relevant amount is treated as if it were a profit which E has in respect of E's loan relationships chargeable to corporation tax under section 299 of CTA 2009 for E's accounting period in which the relevant time falls, or

(b) for income tax purposes, the relevant amount is treated as if it were an amount of income of E chargeable to income tax under Chapter 8 of Part 5 of ITTOIA 2005 for the tax year in which the relevant time falls.

(4) The amount treated as profit or income by subsection (3)(a) or (b), together with any amounts so treated on any previous applications of this section in relation to the asset-backed arrangement, is not to exceed the total amount of relief given in respect of E's contribution.

(5) If this section applies by virtue of subsection (1), from the relevant time Chapter 5B of Part 13 of ITA 2007 or Chapter 2 of Part 16 of CTA 2010 (as relevant) is no longer to apply in relation to the asset-backed arrangement.

(6) But no person is, by virtue of subsection (5), to be placed in a position which is more advantageous than the position in which the person would have been had this section never applied; and, in order to give effect to this principle, such assessments to tax or adjustments to any assessment to tax as are just and reasonable are to be made.

(7) Subsection (1)(d)(i) and (ii) does not cover—

(a) cases in which the lender's change in position, or the occurrence or non-occurrence of the event, is the direct result of a mere administrative error, so long as the consequences of the error are remedied promptly, or

(b) mere changes in the persons who are the trustees of the registered pension scheme or in the persons who control the management of the registered pension scheme.

(8) For the purposes of subsection (1)(d)(ii) it does not matter if the occurrence or non-occurrence of the event is authorised by a term of the asset-backed arrangement or results from the occurrence or non-occurrence of another event which is so authorised.

(9) If this section applies by virtue of subsection (1)(d)(v), in subsection (3) references to the relevant time are to be read as references to the time immediately before the relevant time.

(10) In this section—

• “the advance” and “the asset-backed arrangement” have the same meaning as in section 196B, 196D or 196F (as the case may be),

• “the lender's original position” means the lender's position as at the time the advance is paid set out in the paragraphs of section 196C(4), 196E(4) or 196G(4) (as the case may be),

• “the recorded financial liability” has the same meaning as in section 196C, 196E or 196G (as the case may be), and

• “the relevant amount” means—

  (a)

  if this section applies by virtue of subsection (1), the outstanding amount of the recorded financial liability immediately before the relevant time determined in accordance with generally accepted accounting practice, or

  (b)

  if this section applies by virtue of subsection (2), the amount of the reduction of the recorded financial liability.

196J Employer asset-backed contributions: further events which cause section 196I to apply

(1) The events falling within this section are those listed in subsection (2).

(2) The events are—

(a) if E is a company within the charge to corporation tax when E's contribution is paid, E ceases to be within that charge;

(b) if E is a limited liability partnership in relation to which section 863(1) of ITTOIA 2005 or section 1273(1) of CTA 2009 applies when E's contribution is paid, that provision ceases to apply in relation to E;

(c) if E is a firm for the purposes of ITTOIA 2005 (see section 847) or CTA 2009 (see section 1257) (other than a limited liability partnership) when E's contribution is paid, the partnership ceases to carry on the trade, profession or business in question;

(d) in any case—

(i) if E is a company, E enters administration or the winding up of E starts;

(ii) if E is a partnership, the partnership is dissolved;

(iii) if E is an individual, E dies.

(3) Sections 10(3) and 12(7) of CTA 2009 apply for the purposes of subsection (2)(d)(i).

196K Employer asset-backed contributions: “advances” under acceptable structured finance arrangements

(1) This section applies if—

(a) an employer pays a contribution under a registered pension scheme,

(b) condition A in section 196B, 196D or 196F is met,

(c) the asset-backed arrangement is an acceptable structured finance arrangement for the purposes of section 196B, 196D or 196F (as the case may be) and, accordingly, condition B in that section is not met, and

(d) the advance gives rise to a loan within the meaning of Chapter 3 (see section 162).

(2) Section 180(4) does not prevent the advance from being a scheme administration employer payment (if it would otherwise do so).

(3) In this section “the advance” and “the asset-backed arrangement” have the same meaning as in section 196B, 196D or 196F (as the case may be).

196L Employer asset-backed contributions: supplementary

(1) This section applies for the purposes of sections 196B to 196K.

(2) References to relief being given in respect of a contribution paid by an employer under a registered pension scheme are references to relief being given by way of—

(a) the contribution being deducted in computing the amount of the employer's profits for the purposes of Part 2 of ITTOIA 2005 or Part 3 of CTA 2009 (trading income),

(b) the contribution being treated as an expense of management of the employer for the purposes of Chapter 2 of Part 16 of CTA 2009 (expenses of management: companies with investment business), or

(c) the contribution being brought into account at Step 1 in section 76(7) of ICTA (expenses of insurance companies) in respect of the employer.

(3) Whether a person is connected with another person is determined in accordance with section 1122 of CTA 2010.

(4) Sections 774, 775 and 776(2) and (4) of CTA 2010 apply as they apply for the purposes of Chapter 2 of Part 16 of that Act.

(5) A reference to a disposal of an asset includes—

(a) anything constituting a disposal of an asset for the purposes of TCGA 1992, and

(b) so far as not covered by paragraph (a), the taking of any step by virtue of which a person receives an asset.

(6) Section 776(2) of CTA 2010 applies for the purposes of subsection (5)(b).

(7) “Non-working day” means—

(a) a Saturday or Sunday,

(b) a Christmas Eve, Christmas Day or Good Friday, or

(c) a day which is a bank holiday under the Banking and Financial Dealings Act 1971 in any part of the United Kingdom,

and “working day” is to be read accordingly.”