SCHEDULES

Valid from 10/07/2003

SCHEDULE A1 U.K. Determination of profits attributable to permanent establishment: supplementary provisions

Part 1 U.K. Introduction

Introduction U.K.

1 (1) The provisions of this Schedule have effect for supplementing section 11AA as regards the determination of the profits attributable to a permanent establishment in the United Kingdom of a company that is not resident in the United Kingdom (“the non-resident company”).

(2) In this Schedule “the separate enterprise principle” means the principle in section 11AA(2) (read with subsection (3) of that section).

Part 2 U.K. General provisions

Transactions treated as taking place at arm’s length U.K.

2 In accordance with the separate enterprise principle, transactions between the permanent establishment and any other part of the non-resident company are treated as taking place on such terms as would have been agreed between parties dealing at arm’s length.

Application of general provision as to allowable deductions U.K.

3 (1) Section 11AA(4) (general provision as to allowable deductions) applies whether or not the expenses are incurred by, or reimbursed by, the permanent establishment.

(2) The amount of expenses to be taken into account under section 11AA(4) is the actual cost to the non-resident company.

Prohibition of deductions for payments in respect of intangible assets U.K.

4 (1) No deduction is allowed in respect of royalties paid, or other similar payments made, by the permanent establishment to any other part of the non-resident company in respect of the use of intangible assets held by the company.

(2) This does not prevent a deduction in respect of any contribution by the permanent establishment to the costs of creation of an intangible asset.

(3) In this paragraph “intangible asset” has the meaning it has for accounting purposes, and includes any intellectual property (as defined in paragraph 2(2) of Schedule 29 to the Finance Act 2002).

Prohibition of deductions for interest or other financing costs U.K.

5 (1) No deduction is allowed in respect of payments of interest or other financing costs by the permanent establishment to any other part of the non-resident company, except as provided by sub-paragraph (2).

(2) The restriction in sub-paragraph (1) above does not apply to interest or other costs of financing that are payable in respect of borrowing by the permanent establishment in the ordinary course of a financial business carried on by it.

(3) In sub-paragraph (2) “financial business” means any of the following—

(a) banking, deposit-taking, money-lending or debt-factoring, or a business similar to any of those;

(b) dealing in commodity or financial futures.

Provision of goods or services for permanent establishment U.K.

6 (1) This paragraph applies where the non-resident company provides the permanent establishment with goods or services.

(2) If the goods or services are of a kind that the company supplies, in the ordinary course of its business, to third parties dealing with it at arm’s length, the matter is dealt with as a transaction to which the separate enterprise principle applies.

(3) If not, the matter is dealt with as an expense incurred by the non-resident company for the purposes of the permanent establishment.

Part 3 U.K. Provisions applicable to non-resident banks

Application of this Part U.K.

7 (1) The provisions of this Part of this Schedule have effect where the non-resident company is a bank.

• “Bank” for this purpose has the meaning given by section 840A.

(2) Nothing in this Part of this Schedule shall be read as preventing the application of principles similar to those provided for in this Part in applying the separate enterprise principle to a non-resident company that is not a bank.

Non-resident banks: transfer of financial assets U.K.

8 (1) In accordance with the separate enterprise principle, transfers of loans and other financial assets between the permanent establishment and any other part of the company are recognised only if they would have taken place between independent enterprises.

(2) Such a transfer is not recognised where it cannot reasonably be considered that it is carried out for valid commercial reasons. For this purpose the obtaining of a tax advantage is not a valid commercial reason.

Loans by non-resident banks: attribution of financial assets and profits arising U.K.

9 (1) In accordance with the separate enterprise principle, loans and other financial assets, and profits arising from them, are attributed to a permanent establishment to the extent that they can reasonably be regarded as having been generated by the activities of the permanent establishment.

(2) The following provisions have effect as regards the factors to be taken into account.

(3) Particular account shall be taken of the extent to which the permanent establishment is responsible for—

(a) obtaining the offer of new business;

(b) establishing the potential borrower’s credit rating and the risk involved in providing credit;

(c) negotiating the terms of the loan with the borrower;

(d) deciding whether, and if so on what conditions, to make or extend the loan.

(4) Account may also be taken of the extent to which the permanent establishment is responsible for—

(a) concluding the loan agreement and disbursing the proceeds of the loan;

(b) administering the loan (including handling and monitoring the service of it) and holding and controlling any securities pledged.

(5) References in this paragraph to a financial asset include any financial risk in relation to a loan, or potential loan, that is capable of giving rise to fees or other receipts and for which the holding of capital is required (or would be required if the transaction were between parties at arm’s length).

Borrowing by non-resident banks: permanent establishment acting as agent or intermediary U.K.

10 (1) This paragraph applies where a permanent establishment—

(a) borrows funds for the purposes of another part of the non-resident company, and

(b) in relation to that borrowing acts only as an agent or intermediary.

(2) In such a case, in accordance with the separate enterprise principle—

(a) the profits attributable to the permanent establishment, and

(b) the capital attributable to the permanent establishment under section 11AA(3),

shall be that appropriate in the case of an agent acting at arm’s length, taking into account the risks and costs borne by the establishment.

Valid from 22/07/2004

SCHEDULE A2 U.K. Corporation tax: the non-corporate distribution rate: supplementary provisions

Part 1 U.K. General provisions

Introduction U.K.

1 The provisions of this Schedule supplement section 13AB (corporation tax: the non-corporate distribution rate).

Meaning of “non-corporate distribution” U.K.

2 (1) A “non-corporate distribution” means a distribution made by a company to a recipient who is not a company.

• “Recipient” here means the person beneficially entitled to the distribution.

(2) A distribution made to a partnership is treated as made to the partners notwithstanding that the partnership is regarded as a legal person, or as a body corporate, under the law of the country or territory under which it is formed.

Calculation of company’s “underlying rate of corporation tax” U.K.

3 (1) A company’s underlying rate of corporation tax for an accounting period is determined as follows:

Step One

Take the company’s basic profits for the accounting period (“BP”).

Step Two

Find the amount of corporation tax chargeable on those profits apart from section 13AB (“CT”).

Step Three

The company’s underlying rate of corporation tax is the percentage determined as follows—

(2) In determining CT—

(a) apply the rate of corporation tax fixed for companies generally, and

(b) if the company is entitled to and claims relief under section 13 (small companies' relief) or section 13AA (corporation tax starting rate), apply the provisions of those sections.

But take no account of any other relief that is given by reducing the amount or rate of tax payable (as opposed to the amount of the profits chargeable to tax).

Matching: distributions not exceeding basic profits U.K.

4 Where in an accounting period the total amount of the distributions made (or treated as made) by a company does not exceed the amount of its basic profits, the amount of the company’s basic profits matched with non-corporate distributions is equal to the total amount of the non-corporate distributions made (or treated as made) by the company in that period.

Matching: distributions exceeding basic profits U.K.

5 Where in an accounting period the total amount of the distributions made (or treated as made) by a company exceeds its basic profits, the amount of the company’s basic profits for that period matched with non-corporate distributions is—

where—

NCD is the total amount of the non-corporate distributions made (or treated as made) by the company in that period;

D is the total amount of all the distributions made (or treated as made) by the company in that period; and

BP is the amount of the company’s basic profits for that period.

Part 2 U.K. Allocation of excess NCDs to other companies

Allocation of excess NCDs to other companies U.K.

6 (1) This Part of this Schedule provides for the allocation to other companies of any amount by which the total amount of the non-corporate distributions made (or treated as made) by a company (the “distributing company”) in an accounting period (the “distribution period”) exceeds the amount of the company’s basic profits for that period that are matched under paragraph 5.

(2) That amount is referred to in this Schedule as “excess NCDs”.

(3) A company to which an amount of excess NCDs is allocated (a “recipient company”) is treated as if it had made a non-corporate distribution of that amount in the period to which it is allocated.

Allocation of excess NCDs to other group companies U.K.

7 (1) If at the end of the distribution period the distributing company is a member of a group, excess NCDs must be allocated, so far as possible, to the other group companies.

The allocation must be made in accordance with the following rules.

(2) Excess NCDs may not be allocated to a recipient company unless it has available profits for the accounting period to which they are to be allocated.

(3) The amount of a recipient company’s available profits for an accounting period is given by:

where—

BP is the amount of that company’s basic profits for that accounting period, and

NCD is the total amount of non-corporate distributions made (or treated as made) by that company in that period.

(4) The maximum amount of excess NCDs that may be allocated to an accounting period of a recipient company is:

where—

NCD is the total amount of the non-corporate distributions made (or treated as made) by the distributing company in the distribution period;

D is the total amount of all the distributions made (or treated as made) by that company in that period; and

AP is the amount of the recipient company’s available profits for that period.

(5) In determining the amount of a company’s available profits at any time account shall only be taken of excess NCDs allocated to it by virtue of an allocation made before that time that remains (or so far as it remains) effective.

Allocation of excess NCDs: period or periods to which amount to be allocated U.K.

8 (1) Excess NCDs falling to be allocated to another company under paragraph 7 (allocation to other group companies) may be allocated to any accounting period identified by this paragraph as a corresponding accounting period.

If there is more than one such period, excess NCDs must be allocated to the first to the full extent possible before any allocation is made to the second, and so on.

(2) The accounting period of a recipient company that includes the last day of the distribution period is its first corresponding accounting period.

Unless that accounting period is shorter than the distribution period, it is the recipient company’s only corresponding accounting period.

(3) If the first corresponding accounting period is shorter than the distribution period, any subsequent accounting period of the recipient company beginning before the end of the period specified in sub-paragraph (4) is a corresponding accounting period.

(4) The period referred to in sub-paragraph (3) is a period—

(a) of the same length as the distribution period, and

(b) beginning on the same day as the recipient company’s first corresponding accounting period.

Allocation of excess NCDs: degrouping U.K.

9 (1) This paragraph applies where a company (“company A”) ceases to be a member of the same group as another company (“company B”) but the companies remain under the control of the same person or persons.

This is referred to below as “degrouping”.

(2) If at the end of any accounting period of company A ending on or after the degrouping but no more than two years after the degrouping—

(a) company A has excess NCDs that (apart from this paragraph) cannot be allocated to other companies,

(b) the business activities of company A and any other companies in the same group as that company are negligible, and

(c) the business activities of company B and any other companies in the same group as that company are not negligible,

the provisions of sub-paragraphs (3) to (5) below apply.

The end of the accounting period when the above conditions are met is referred to in those provisions as “the relevant time”.

(3) Company B and any other companies in the same group as that company at the relevant time (the “B group”) shall be treated for the purposes of allocating the excess NCDs as if they were members of the same group as company A.

(4) Any excess NCDs remaining after any allocation made by virtue of sub-paragraph (3) must be allocated—

(a) to company B or, if different, the company in the B group that at the relevant time has the greatest number of members who are not companies, and

(b) to the accounting period of that company that includes the relevant time.

This allocation is not subject to the restrictions in paragraph 7 on the amount that may be allocated to another company.

(5) If there is more than one company answering the description in sub-paragraph (4)(a), the excess NCDs shall be apportioned between them according to the amount of their basic profits for the accounting period to which the amount falls to be allocated.

(6) In this paragraph “control” shall be construed in accordance with section 416(2) to (6).

Allocation of excess NCDs: procedure U.K.

10 (1) The basic rule is that the allocation of excess NCDs to another company must be made by the distributing company with the agreement of the recipient company.

(2) If excess NCDs are not so allocated within nine months after—

(a) in a case within paragraph 7, the end of the distribution period, or

(b) in a case within paragraph 9, the relevant time within the meaning of that paragraph,

they may be allocated at any time thereafter by an officer of the Board.

(3) An allocation under sub-paragraph (1) or (2) may be varied—

(a) by agreement between the relevant companies, or

(b) if further excess NCDs are required to be allocated and no variation is agreed within one year after its becoming apparent that a variation is required, by an officer of the Board.

Any such variation may in turn be varied as mentioned in paragraph (a) or (b).

(4) No allocation or variation of an allocation of excess NCDs may be made after the end of the period of one year after whichever of the following last occurs—

(a) the final determination of the tax affairs of the distributing company in relation to the distribution period,

(b) in a case within paragraph 7, the final determination of the tax affairs of all recipient or potential recipient companies in relation to accounting periods that are or could be corresponding accounting periods, or

(c) in a case within paragraph 9, the final determination of the tax affairs of all recipient or potential recipient companies in relation to accounting periods to which an allocation may be made under that paragraph.

(5) If circumstances arise as a result of which the tax affairs of any such company for any such period are reopened, an allocation or variation of an allocation may (and shall if necessary) be made at any time before the end of the period of one year after the tax affairs of the company are again finally determined.

(6) For the purposes of sub-paragraphs (4) and (5) the tax affairs of a company for a period are finally determined when the amounts are conclusively determined within the meaning of paragraph 88 of Schedule 18 to the Finance Act 1998 (c. 36) (company tax returns: conclusiveness of amounts stated in return).

(7) References in this paragraph to variation of an allocation include reducing the amount allocated to nil.

Allocation of excess NCDs: amounts proving to be excessive U.K.

11 (1) This paragraph applies where an amount of excess NCDs allocated to another company in accordance with this Part of this Schedule later proves to be excessive.

(2) The excess shall revert to the distributing company.

(3) If allocations to two or more companies are involved, the amounts shall revert in the opposite order to that in which the allocations were made.

(4) In the case of allocations made at the same time, the amounts reverting to the distributing company shall be in proportion to the original allocations.

Allocation of excess NCDs to companies not resident in the United Kingdom U.K.

12 (1) The provisions of this Part of this Schedule as to the allocation of excess NCDs to other companies apply, with any necessary modifications, to companies that are not resident in the United Kingdom as they apply to companies that are so resident.

(2) In particular, references to the company’s basic profits and accounting periods shall be read in relation to a company that is not resident in the United Kingdom as references to what would have been the case if the company had been resident in the United Kingdom at all material times.

Part 3 U.K. Other supplementary provisions

Carry forward of excess NCDs U.K.

13 (1) Any excess NCDs not allocated to another company under Part 2 shall be carried forward by the distributing company.

(2) That company shall be treated as if it had made a non-corporate distribution of the amount carried forward (in addition to any distributions actually made by it) in its next accounting period.

(3) Where an allocation is made under paragraph 9(4) references in this paragraph to the distributing company shall be read as references to the company to which that allocation is made (which is treated by virtue of paragraph 6(3) as having made a distribution in the accounting period to which the allocation is made).

Definition of a group U.K.

14 (1) For the purposes of section 13AB and this Schedule a company and all its 51% subsidiaries form a group, and if any of those subsidiaries have 51% subsidiaries the group includes them and their 51% subsidiaries, and so on.

(2) The question whether a company is a 51% subsidiary shall be determined in accordance with section 838, subject to the following provisions.

(3) A company (“company A”) shall be treated for the purposes of this Schedule as if it were a 51% subsidiary of another company (“company B”) if company B has rights to, or in fact receives, more than 50% of the distributions made by company A.

(4) For the purposes of this paragraph a company shall be treated as not being the owner—

(a) of any share capital that it owns directly if a profit on the sale of the shares would be treated as a trading receipt of its trade, or

(b) of any share capital that it owns indirectly and that is owned directly by a body corporate for which a profit on the sale of the shares would be treated as a trading receipt of its trade.

Accounting period treated as ending if company ceases to be a member of a group U.K.

15 (1) Section 13AB and this Schedule apply in relation to an accounting period of a company in which it ceases to be a member of the group as if there were two accounting periods, one ending immediately before the company ceases to be a member of the group and the other consisting of the remainder of the period.

(2) For this purpose a company ceases to be in a group if it and another company cease to be in the same group, whether as a result it is no longer in a group, becomes a member of another group or continues to be in the same group as one or more other companies.

Treatment of distributions made otherwise than in an accounting period U.K.

16 For the purposes of section 13AB and this Schedule, a non-corporate distribution made by a company otherwise than in an accounting period of the company shall be treated as made in the next accounting period of the company.

Holding companies treated as carrying on a business U.K.

17 (1) For the purposes of section 13AB and this Schedule a holding company that is not otherwise carrying on a business shall be deemed to be carrying on a business and to be within the charge to corporation tax.

(2) For this purpose “a holding company” means a company that has one or more 51% subsidiaries from which it receives or has received one or more distributions.

Interpretation U.K.

18 In section 13AB and this Schedule—

• “basic profits” means the amount of a company’s profits for an accounting period on which corporation tax finally falls to be borne;

• “corresponding accounting period”, in relation to a recipient company, has the meaning given by paragraph 8;

• “distributing company” has the meaning given by paragraph 6(1);

• “distribution” does not include an amount treated as a dividend under paragraph 2(2) of Schedule 23A (manufactured dividends and interest);

• “distribution period” has the meaning given by paragraph 6(1); and

• “excess NCDs” has the meaning given by paragraph 6(2);

• “group” has the meaning given by paragraph 14 (and references to a group company and membership of a group have a corresponding meaning);

• “non-corporate distribution” has the meaning given by paragraph 2;

• “recipient company” has the meaning given by paragraph 6(3);

• “underlying rate of corporation tax” has the meaning given by paragraph 3.

Section 31.

SCHEDULE 1 U.K. RESTRICTIONS ON SCHEDULE A DEDUCTIONS

Expenditure before 1964-65: deductions from rents U.K.

1 (1) M1 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.

Marginal Citations

M1 Source—1970 Sch.2

Expenditure before 1964-65: deductions from other receipts U.K.

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 M2 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.

Marginal Citations

M2 1952 c.10.

Expenditure on sea walls before 1964-65 U.K.

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.

F1 F1 SCHEDULE 2 U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F1 Sch. 2 repealed (with effect in accordance with Sch. 14 Pt. IV Note 9 of the repealing Act) by Finance Act 1988 (c. 39) ss. 75, 148, Sch.14 Part IV

Section 44(2).

SCHEDULE 3 U.K. MACHINERY FOR ASSESSMENT, CHARGE AND PAYMENT OF INCOME TAX UNDER SCHEDULE C AND, IN CERTAIN CASES, SCHEDULE D

PART I U.K. 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 M3 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 basic rate in force at the time of payment, without any other deduction than is allowed by the Income Tax Acts.

Modifications etc. (not altering text)

C1 See s.656 ante—purchased life annuities.

Marginal Citations

M3 Source—1970 Sch.5 1; 1971 Sch.6 80

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) M4 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 M5 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.

Modifications etc. (not altering text)

C2 See s.821ante—under-deductions of tax from payments made before passing of annual Act.

Marginal Citations

M4 Source—1970 Sch.5 2-5

M5 1870 c. 71.

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 U.K. 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.

Modifications etc. (not altering text)

C3 See s.821ante—under-deductions of tax from payments made before passing of annual Act.

PART III U.K. OTHER PUBLIC REVENUE DIVIDENDS, FOREIGN DIVIDENDS AND PROCEEDS OF COUPONS

Modifications etc. (not altering text)

C4 Sch. 3 Pt. III applied (with modifications) (1.10.1993) by S.I. 1993/2004, reg. 12(2)(b)

Sch. 3 Pt. III applied (with modifications) (1.10.1993) by S.I. 1993/2004, reg. 13(2)(b)

6 (1) M6 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.

F2 (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F2 Sch. 3 para. 6(2) repealed and superseded (16.7.1992 in relation to transactions effected on or after 1.10.1992) by Finance (No. 2) Act 1992 (c. 48), ss. 63, 82, Sch. 11 paras. 2(2)(3), 6, Sch. 18 Pt. VII

Marginal Citations

M6 Source—1970 Sch.5 6(a)(b)

[F3 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 [F4 applicable 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.

[F5 (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.

[F6 (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.]]

Textual Amendments

F3 Sch. 3 paras. 6A-6F inserted (16.7.1992 in relation to transactions effected on or after 1.10.1992) by Finance (No. 2) Act 1992 (c. 48), s. 63, Sch. 11 paras. 2(2), 6

F4 Words in Sch. 3 para. 6A(1) substituted (27.7.1993 with effect in relation to transactions effected on or after 6 April 1993) by 1993 c. 34, s. 79, Sch. 6 paras. 17(1), 25(5)

F5 Sch. 3 para. 6A(2A) inserted (27.7.1993 with effect in relation to transactions effected on or after 6 April 1993) by 1993 c. 34, s. 79, Sch. 6 paras. 17(2), 25(5)

F6 Sch. 3 para. 6A(4) inserted (27.7.1993 with effect in relation to transactions effected on or after 6 April 1993) by 1993 c. 34, s. 79, Sch. 6 paras. 17(3), 25(5)

F7 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.

Textual Amendments

F7 Sch. 3 paras. 6A-6F inserted (16.7.1992 in relation to transactions effected on or after 1.10.1992) by Finance (No. 2) Act 1992 (c. 48), s. 63, Sch. 11 paras. 2(2), 6

F8 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.

Textual Amendments

F8 Sch. 3 paras. 6A-6F inserted (16.7.1992 in relation to transactions effected on or after 1.10.1992) by Finance (No. 2) Act 1992 (c. 48), s. 63, Sch. 11 paras. 2(2), 6

F9 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.

Textual Amendments

F9 Sch. 3 paras. 6A-6F inserted (16.7.1992 in relation to transactions effected on or after 1.10.1992) by Finance (No. 2) Act 1992 (c. 48), s. 63, Sch. 11 paras. 2(2), 6

F10 6E (1) None of the provisions of section 29 of the Management Act (assessing procedure) except subsections (5) and (6) shall apply in relation to assessments under paragraph 6D above.

(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) In the application of section 36(2) of the Management Act in relation to an assessment under paragraph 6D above, for the word “year” there shall be substituted the word “quarter”.

Textual Amendments

F10 Sch. 3 paras. 6A-6F inserted (16.7.1992 in relation to transactions effected on or after 1.10.1992) by Finance (No. 2) Act 1992 (c. 48), s. 63, Sch. 11 paras. 2(2), 6

F11 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.

Textual Amendments

F11 Sch. 3 paras. 6A-6F inserted (16.7.1992 in relation to transactions effected on or after 1.10.1992) by Finance (No. 2) Act 1992 (c. 48), s. 63, Sch. 11 paras. 2(2), 6

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.K.

F12 7

Textual Amendments

F12 Sch. 3 para. 7 repealed and superseded (16.7.1992 in relation to transactions effected on or after 1.10.1992) by Finance (No. 2) Act 1992 (c. 48), ss. 63, 82, Sch. 11 paras. 2(2)(3), 6, Sch. 18 Pt. VII

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.K.

F13 8

Textual Amendments

F13 Sch. 3 para. 8 repealed and superseded (16.7.1992 in relation to transactions effected on or after 1.10.1992) by Finance (No. 2) Act 1992 (c. 48), ss. 63, 82, Sch. 11 paras. 2(2)(3), 6, Sch. 18 Pt. VII

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.K.

F14 9

Textual Amendments

F14 Sch. 3 para. 9 repealed and superseded (16.7.1992 in relation to transactions effected on or after 1.10.1992) by Finance (No. 2) Act 1992 (c. 48), ss. 63, 82, Sch. 11 paras. 2(2)(3), 6, Sch. 18 Pt. VII

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.K.

F15 10

Textual Amendments

F15 Sch. 3 para. 10 repealed (16.7.1992 in relation to transactions effected on or after 1.10.1992) by Finance (No. 2) Act 1992 (c. 48), ss. 63, 82, Sch. 11 paras. 2(3), 6, Sch. 18 Pt. VII

11 M7 Nothing in [F16 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.

Textual Amendments

F16 Words in Sch. 3 para. 11 substituted (16.7.1992 in relation to transactions effected on or after 1.10.1992) by Finance (No. 2) Act 1992 (c. 48), s. 63, Sch. 11 paras. 2(4), 6

Marginal Citations

M7 Source—1970 Sch.5 11-13.

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) F17 . . . ,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 [F18 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.

Textual Amendments

F17 Words in Sch. 3 para. 13(1) repealed (16.7.1992 in relation to transactions effected on or after 1.10.1992) by Finance (No. 2) Act 1992 (c. 48), ss. 63, 82, Sch. 11 paras. 2(5)(a), 6, Sch. 18 Pt. VII

F18 Words in Sch. 3 para. 13(1) substituted (16.7.1992 in relation to transactions effected on or after 1.10.1992) by Finance (No. 2) Act 1992 (c. 48), s. 63, Sch. 11 paras. 2(5)(b), 6

14 M8 In this Part of this Schedule—

• “dividends” includes foreign dividends, and

• “foreign dividends” has the meaning given by section 123.

Marginal Citations

M8 Source—1970 Sch.5 6(c), 14

PART IV U.K. INTEREST PAYABLE OUT OF THE PUBLIC REVENUE OF THE REPUBLIC OF IRELAND ETC.

Modifications etc. (not altering text)

C5 Sch. 3 Pt. IV applied (with modifications) (1.10.1993) by S.I. 1993/2004, reg. 12(2)(b)

Sch. 3 Pt. IV applied (with modifications) (1.10.1993) by S.I. 1993/2004, reg. 13(2)(b)

15 (1) M9 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.

F19 (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.

Textual Amendments

F19 Sch. 3 para. 15(2) repealed (16.7.1992 in relation to transactions effected on or after 1.10.1992) by Finance (No. 2) Act 1992 (c. 48), ss. 63, 82, Sch. 11 paras. 2(3), 6, Sch. 18 Pt. VII

Marginal Citations

M9 Source—1970 Sch.12 Pt.III 6; 1987 Sch.15 2(23)

Section 57.

SCHEDULE 4 U.K. DEEP DISCOUNT SECURITIES

Modifications etc. (not altering text)

C6 Sch. 4 modified (27.7.1993) by 1993 c. 34, s. 64(2)

Interpretation U.K.

1 (1) For the purposes of this Schedule—

(a) M10 “adjusted issue price”, in relation to any security in a particular income period, is the aggregate of the issue price of the security and the income elements for all previous income periods;

(b) M11 “the amount payable on redemption” does not include any amount payable by way of interest;

(c) “a deep discount”, in relation to any redeemable security, means a discount which—

(i) represents more than 15 per cent. of the amount payable on redemption of that security; or

(ii) is 15 per cent. or less, but exceeds half Y per cent. of the amount so payable (where Y is the number of complete years between the date of issue of the security and the redemption date);

(d) subject to sub-paragraph (2) below, “a deep discount security” means any redeemable security which has been issued by a company, after 13th March 1984, at a deep discount, other than—

(i) a share in the company;

(ii) a security in respect of which the amount payable on redemption is determined by reference to the movement of the retail prices index or any similar general index of prices which is published by, or by an agent of, the government of any territory outside the United Kingdom; or

(iii) a security the whole or part of which, by virtue of section 209(2)(c), is a “distribution”;

[F20 (dd) “a deep discount security” also means any redeemable security which has been issued by a public body (at whatever time) at a deep discount, other than—

(i) a security such as is mentioned in paragraph (d)(ii) above;

(ii) a security falling within sub-paragraph (5), (6) or (7) below;]

(e) “a discount” means any amount by which the issue price of a redeemable security is less than the amount payable on redemption of that security;

(f) M12 “income period” means—

(i) in the case of a security carrying a right to interest, any period to which a payment of interest which falls to be made in respect of the security is attributable; and

(ii) in any other case, any year ending immediately before the anniversary of the issue of the security or any period of less than a year which begins on the issue or on such an anniversary and ends on the redemption date;

(g) M13 “the redemption date” in relation to any redeemable security, means the earliest date on which, under the terms on which the security is issued, the holder of the security will be entitled to require it to be redeemed by the company [F21 or the public body] which issued it;

(h) M14 “yield to maturity”, in relation to any security, means a rate (expressed as a percentage) such that if a sum equal to the issue price of the security were to be invested at that rate on the assumption that—

(i) the rate would be applied on a compounding basis at the end of each income period; and

(ii) the amount of any interest attributable to an income period would be deducted after applying the rate,

the value of that sum at the redemption date would be equal to the amount payable on redemption of the security; and

(j) M15 “chargeable security” has the meaning given by paragraph 2(5) below.

[F22 (1A) Notwithstanding anything in sub-paragraph (1) above, for the purposes of this Schedule a security is not a deep discount security if—

(a) it was issued by a company on or after 1st August 1990, and

(b) under the terms of issue it can be converted into share capital in a company (whether or not the company is the one which issued the security).]

[(1B) Notwithstanding anything in sub-paragraph (1) above, for the purposes of this Schedule a security is not a deep discount security if—

(a) it was issued on or after 1st August 1990, and

(b) under the terms of issue, there is more than one date on which the holder will be entitled to require it to be redeemed by the company or the public body which issued it.]

(2) M16 Where securities which were issued on or before 13th March 1984 have been exchanged at any time after that date for new securities which would be deep discount securities but for this sub-paragraph, the new securities shall not be treated as deep discount securities if—

(a) the old securities would not have been deep discount securities if they had been issued after 13th March 1984;

(b) the date which is the redemption date in relation to the new securities is not later than the date which was the redemption date in relation to the old securities; and

(c) the amount payable on redemption of the new securities does not exceed the amount which would have been payable on redemption of the old securities.

[F23 This sub-paragraph applies only in the case of securities issued by a company.]

(3) For the purposes of this Schedule, a security comprised in any letter of allotment or similar instrument shall be treated as issued unless the right to the security conferred by the letter or instrument remains provisional until accepted, and there has been no acceptance.

[F24 (4) For the purposes of this Schedule a public body is any of the following which is not a company—

(a) a government, whether of the United Kingdom or elsewhere;

(b) a public or local authority, whether in the United Kingdom or elsewhere.

(5) A security falls within this sub-paragraph if it is a gilt-edged security and—

(a) it was issued before 14th March 1989, or

(b) it was issued on or after that date but was issued under the same prospectus as any gilt-edged security issued before that date.

(6) A security falls within this sub-paragraph if it is a gilt-edged security and—

(a) it was issued under a prospectus under which no securities were issued before 14th March 1989,

(b) it was issued otherwise than on the occasion of the original issue under the prospectus, and

(c) all the securities issued on the occasion of the original issue under the prospectus are gilt-edged securities which are not deep discount securities.

(7) A security falls within this sub-paragraph if it is not a gilt-edged security and was issued (at whatever time) under the same prospectus as any other security which was issued before the security in question and which is not a deep discount security.

(8) For the purposes of this Schedule “gilt-edged security” has the same meaning as it has for the purposes of the [F25 1992] Act.]

Textual Amendments

F20 1989 s.93and Sch.10 para.2(2).And see s.126(3)—Treasury securities issued at a discount.

F21 1989 s.93and Sch.10 para.2(3).

F22 1990 s.56and Sch.10 paras.26(2), 29(4)on and after 9June 1989.

F23 1989 s.93and Sch.10 para.2(4).

F24 1989 s.93and Sch.10 para.2(5).

F25 Word in Sch. 4 para. 1(8) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 10 para. 14(57)(a) (with ss. 60, 101(1), 171, 201(3))

Modifications etc. (not altering text)

C7 See—1989 Sch.11 para.1(8)—application of definition to deep gain securities.1990 Sch.10 para.11(3)—application of definition to convertible securities.

C8 1990 s.59on and after 1August 1990.

Marginal Citations

M10 Source—1984 Sch.9 1(7); 1985 Sch.11 1(6), 4

M11 Source—1984 s.36(2), (5); 1985 Sch.11 1(6)

M12 Source—1984 Sch.9 1(7); 1985 Sch.11 1(6), 4

M13 Source—1984 s.36(2), (5); 1985 Sch.11 1(6)

M14 Source—1984 Sch.9 1(7); 1985 Sch.11 1(6), 4

M15 Source—1985 Sch.11 1(5)

M16 Source—1984 s.36(3), (4); 1985 Sch.11 1(6)

Charge to tax after acquisition of certain securities U.K.

2 (1) M17 This sub-paragraph applies to deep discount securities issued by a company on or after 19th March 1985 where one or both of the following applies—

(a) immediately before the issue the assets held by the company included relevant securities with a value equal to at least 75 per cent. of the value of all the assets held by it;

(b) the terms of issue of the deep discount securities are determined by the company by reference to (though not necessarily in such a way that they reflect) the terms of issue of relevant securities which are held by the company when the deep discount securities are issued or which it intends to acquire later.

(2) This sub-paragraph applies to deep discount securities issued by a company where—

(a) sub-paragraph (1) above would apply if the references to relevant securities included references to United Kingdom corporate bonds; and

(b) the company acquired those bonds on or after their issue (by another company) in circumstances where sub-paragraph (1) above would have applied if they had been deep discount securities.

(3) This sub-paragraph applied to deep discount securities of a particular kind issued by a company and in the case of which—

(a) neither of the preceding sub-paragraphs applies; and

(b) at any time in the first income period of the securities of that kind the assets held by the company include relevant securities with a value equal to at least 75 per cent. of the value of all the assets held by it.

(4) This sub-paragraph applies to deep discount securities issued by a company where either—

(a) they are issued on a conversion to which section [F26 132 of the 1992] Act applies of old securities; or

(b) they are issued by a company in exchange for old securities in circumstances in which section [F26 135(3) of the 1992] Act applies or are treated as so issued by virtue of section [F26 136(1)] of that Act;

and in this sub-paragraph “old securities” means deep discount securities to which sub-paragraph (1), (2) or (3) above or this sub-paragraph applies, except that securities to which sub-paragraph (3) above applies are not old securities unless sub-paragraph (3)(b) has been fulfilled in their case by the time the conversion or exchange concerned takes place.

(5) In the following provisions of this Schedule “chargeable security” means a deep discount security to which any of the preceding sub-paragraphs applies.

(6) In this paragraph—

• “relevant securities” means securities within the meaning of section 710, but excluding United Kingdom corporate bonds;

• “terms of issue” includes terms relating to amounts payable on redemption or by way of interest, or to times of payment of such amounts; and

• “value” in relation to assets means the price they might reasonably be expected to fetch on a sale in the open market.

(7) For the purposes of this paragraph—

(a) a company holds assets if it has a beneficial interest in them and acquires them if it acquires such an interest in them; and

(b) securities are of the same kind if they are treated as being of the same kind by the practice of a stock exchange, or would be so treated if dealt with on a stock exchange.

(8) In this paragraph “United Kingdom corporate bonds” means securities—

(a) issued by a company resident in the United Kingdom at the time of issue;

(b) the debt on which represents and has at all times represented a normal commercial loan, as defined in paragraph 1(5) of Schedule 18; and

(c) which are expressed in sterling and in respect of which no provision is made for conversion into, or redemption in, a currency other than sterling.

(9) For the purposes of sub-paragraph (8)(c) above—

(a) a security shall not be regarded as expressed in sterling if the amount of sterling falls to be determined by reference to the value at any time of any other currency or asset; and

(b) a provision for redemption in a currency other than sterling but at the rate of exchange prevailing at redemption shall be disregarded.

Textual Amendments

F26 Words in Sch. 4 para. 2(4) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 10 para. 14(57)(b) (with ss. 60, 101(1), 171, 201(3))

Marginal Citations

M17 Source—1985 s.46 Sch.11 1

3 (1) M18 Where a person acquires a chargeable security, the chargeable amount shall be treated as income chargeable to tax under Case III or IV (as the case may be) of Schedule D on each of the following occasions—

(a) the end of each income period to fall within the period of ownership;

(b) the end of any income period which ends but does not begin in the period of ownership.

(2) In sub-paragraph (1) above “the chargeable amount” means—

(a) where paragraph (a) applies, an amount equal to the income element for the income period;

(b) where paragraph (b) applies, an amount equal to the income element for the part of the income period falling within the period of ownership.

(3) The income chargeable shall (notwithstanding anything in sections 64 to 67) be taken into account in computing tax charged for the year of assessment in which the occasion concerned occurs.

Marginal Citations

M18 Source—1985 Sch.11 2(1)-(3)

Charge to tax on disposal of securities U.K.

4 (1) M19 On the disposal by any person of any deep discount security—

(a) an amount which represents the accrued income attributable to the period between his acquisition and disposal of the security (the “period of ownership”), less any amount or amounts treated as income by virtue of paragraph 3 above, shall be treated as income chargeable to tax under Case III or, as may be, Case IV of Schedule D; and

(b) the tax shall (notwithstanding anything in sections 64 to 67 but subject to sub-paragraph (5) below) be computed on the income so arising from any disposal made in the year of assessment.

(2) M20 The amount which represents the accrued income attributable to any period of ownership is the aggregate of the income elements for each income period or part of an income period in the period of ownership.

(3) In relation to any security, the income element for any income period shall be determined by applying the formula—

where—

• A is the adjusted issue price;

• B is the yield to maturity; and

• C is the amount of interest (if any) attributable to the income period.

(4) The income element for any period (the “short period”) falling within an income period shall be determined by applying the formula—

where—

• I is the income element for the income period in which the short period falls;

• P is the number of days in the short period; and

• Y is the number of days in that income period.

(5) Where—

(a) by virtue of sub-paragraph (1) above income tax is chargeable under Case IV of Schedule D, and

(b) the person making the disposal satisfies the Board, on a claim in that behalf, that he is not domiciled in the United Kingdom, or that, being a British subject or a citizen of the Republic of Ireland, he is not ordinarily resident in the United Kingdom,

the tax shall be computed on the amounts, if any, received in the United Kingdom in the year of assessment in question in respect of the sum mentioned in sub-paragraph (1)(a) above (any such amounts being treated as income arising when they are received in the United Kingdom).

(6) For the purposes of sub-paragraph (5) above—

(a) there shall be treated as received in the United Kingdom all amounts paid, used or enjoyed in, or in any manner or form transmitted or brought to, the United Kingdom; and

(b) subsections (6) to (9) of section 65 shall apply as they apply for the purposes of subsection (5) of that section.

(7) Sections 348 to 350 and 123 shall not apply to so much of the proceeds of redemption of a deep discount security as represents income chargeable to tax under Case III or, as may be, Case IV of Schedule D.

[F27 F28 (8) In the case of a deep discount security issued by a public body, this paragraph applies where a disposal is made on or after 14th March 1989 (whatever the date of acquisition).]

Textual Amendments

F27 1989 s.93and Sch.10 para.3

F28 See—1988 s.452(8)—special reserve funds.1988 s.687(3)(h)—payments under discretionary trusts.

Marginal Citations

M19 Source—1984 Sch.9 1(1)(a), (b); 1985 Sch.11 2(4)

M20 Source—1984 Sch.9 1(2)-(6), (9)

Deduction of income element from total profits of company and allowance as charge on income U.K.

5 (1) M21 In computing the corporation tax chargeable for any accounting period of a company which has issued any deep discount security, the income element in respect of that security for any income period ending in or with that accounting period shall be allowed as a deduction against the total profits of the company for the accounting period as reduced by any relief other than group relief.

(2) The income element for any income period ending in or with an accounting period of a company which has issued a deep discount security shall be treated for the purposes of the Corporation Tax Acts, other than those of section 338(1), as a charge on income paid by the company in the accounting period.

(3) No income element in respect of any deep discount security shall be so allowed or treated unless—

(a) the cost of paying so much of the amount payable on redemption as represents the discount is ultimately borne by the company;

(b) the income element would not otherwise be deductible in computing the issuing company’s profits or any description of those profits for purposes of corporation tax; and

(c) at least one of the conditions mentioned in sub-paragraph (4) below is satisfied.

(4) The conditions are—

(a) that the company exists wholly or mainly for the purpose of carrying on a trade;

(b) that the deep discount security was issued wholly and exclusively to raise money for purposes of a trade carried on by the company;

(c) that the company is an investment company.

(5) Where, on redemption of any deep discount security, any part of the amount payable on redemption is, by virtue of section 209(2)(d) and (e), a distribution of the company, sub-paragraphs (1) and (2) above shall not apply to any income element in respect of that security.

(6) Relief shall not be given under any provision of the Tax Acts in respect of any income element if (at any time) a scheme has been effected or arrangements have been made such that the sole or main benefit that might be expected to accrue to the company from the issue of the security in question is the obtaining of a reduction in tax liability by means of that relief.

(7) In sub-paragraph (6) above “relief” means relief by way of deduction in computing profits or gains or deduction or set-off against income or total profits; and where the relief is claimed by virtue of section 403(7) any question under this paragraph as to what benefit might be expected to accrue from the transaction in question shall be determined by reference to the claimant company and the surrendering company taken together.

Marginal Citations

M21 Source—1984 Sch.9 3(1)-(5), (9), (10)

6 (1) M22 Section 494 shall apply in relation to income elements in respect of deep discount securities and paragraph 5 above as it applies in relation to interest and section 338.

(2) In the application of section 494 to any deep discount security, subsection (2)(b) shall have effect as if the references to the rate at which interest was payable were references to the aggregate of the rate of interest payable and the amount of any income element in respect of the security for the period in question.

Marginal Citations

M22 Source—1984 Sch.9 4

Disposals U.K.

7 (1) M23 Subject to sub-paragraphs (2) and (3) below, there is a disposal of a deep discount security for the purposes of this Schedule if there would be such a disposal for the purposes of the [F29 1992] Act.

(2) Notwithstanding anything in section [F29 62(1)(b)] of that Act (no deemed disposal on death), where the assets of which a deceased person was competent to dispose include any deep discount security that security shall, for the purposes of this Schedule, be deemed to have been disposed of by the deceased immediately before his death.

(3) M24 In any case where—

(a) there is a conversion of securities to which section [F29 132] of the [F29 1992] Act applies and those securities include deep discount securities; or

(b) securities including deep discount securities are exchanged (or by virtue of section [F29 136(1)] of that Act are treated as exchanged) for other securities in circumstances in which section [F29 135(3)] of that Act applies,

then the securities converted or exchanged shall (subject to sub-paragraph (4) below and notwithstanding section [F29 127] of that Act) be treated for the purposes of the charge to tax under paragraph 4 above as having been disposed of immediately before the time of the conversion, or, as the case may be, the exchange, by the person who was the beneficial owner of the securities at that time.

(4) M25 Where a person would (but for this sub-paragraph) be treated by sub-paragraph (3) above as having, for the purposes of paragraph 4 above, disposed of deep discount securities, other than chargeable securities, which are converted into, or exchanged for, other deep discount securities—

(a) he shall not be so treated—

(i) if the date which is the redemption date in relation to the new securities is not later than the date which was the redemption date in relation to the converted or exchanged securities; and

(ii) no consideration is given for the conversion or exchange other than the new securities; but

(b) the amount of the accrued income attributable to his period of ownership of the converted or exchanged securities (including any amount added by virtue of the previous operation of this paragraph) shall be added to the amount of the accrued income attributable to his period of ownership of the new securities.

Textual Amendments

F29 Words in Sch. 4 para. 7 substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 10 para. 14(57)(c) (with ss. 60, 101(1), 171, 201(3))

Modifications etc. (not altering text)

C9 Sch. 4 para. 7(2) excluded (27.7.1993 with effect for the year 1992-93 and subsequent years of assessment) by 1993 c. 34, ss. 176(3)(b), 184(3)

Marginal Citations

M23 Source—1984 Sch.9 2

M24 Source—1984 Sch.9 8(1), (2)(a)

M25 Source—1984 Sch.9 8(3); 1985 Sch.11 2(5)

8 (1) M26 Where any deep discount security is disposed of and acquired under a contract, the time at which the disposal and acquisition is made is the time at which the contract is made (and not, if different, the time at which the security is transferred).

(2) If the contract is conditional (and in particular if it is conditional on the exercise of an option) the time at which the disposal and acquisition is made is the time when the condition is satisfied.

Marginal Citations

M26 Source—1984 Sch.9 10

Securities issued and owned by associated companies or group companies U.K.

9 (1) M27 Where a deep discount security issued by a company is at any time beneficially owned by another company which is—

(a) an associated company (within the meaning of section 416) of the issuing company; or

(b) a member of a group of companies of which the issuing company is also a member;

paragraph 5(1) and (2) above shall apply to any linked income element with the addition, after the words “the accounting period” of the words “in which the security is redeemed”.

(2) In this paragraph “linked income element” means the income element in respect of the security in question for any income period in which the security is at any time beneficially owned by the other company.

(3) For the purposes of this paragraph, two companies shall be deemed to be members of a group of companies if one is a 51 per cent. subsidiary of the other or both are 51 per cent. subsidiaries of a third company.

Marginal Citations

M27 Source—1984 Sch.9 5-7; 1985 Sch.11 2(7)

Close companies U.K.

10 (1) Where a deep discount security issued by a close company is at any time beneficially owned by—

(a) a participator in the company;

(b) an associate of such a participator; or

(c) a company of which such a participator has control,

paragraph 5(1) and (2) above shall apply to any linked income element with the addition, after the words “the accounting period”, of the words “in which the security is redeemed”.

(2) In sub-paragraph (1) above “linked income element” means the income element in respect of the security in question for any income period in which the security is at any time beneficially owned by a person mentioned in that sub-paragraph.

(3) Any amount which a close company is allowed, by virtue of paragraph 5(1)above, to deduct from its total profits for any accounting period shall be treated for the purposes of section 423as if it were interest paid by the company in that periodF30 .

(4) In this paragraph—

• “associate” has the meaning given in section 417(3) and (4);

• “control” shall be construed in accordance with section 416(2) to (6); and

• “participator” means a person who is, in relation to a company, a participator for the purposes of Part XI (by virtue of section 417) other than a person who is a participator for those purposes by virtue only of his holding a deep discount security issued by the company.

(5) In determining whether a person who carries on a business of banking is a participator in a company for the purposes of this paragraph, there shall be disregarded any securities of the company acquired by him in the ordinary course of his business.

Textual Amendments

F30 Repealed by 1989 s.187and Sch.17 Part Vin relation to accounting periods beginning after 31March 1989.

Early redemption U.K.

11 (1) Where any deep discount security [F31 issued by a company] is redeemed before the redemption date by the company which issued it, paragraphs 4, 5, 7(1) and (2) and 8 to 10 above shall have effect subject to the provisions of this paragraph.

(2) The accrued income attributable to the period between the acquisition of the security by the person who, immediately before its redemption, was the beneficial owner of the security and its redemption shall be the amount paid to him on redemption of the security less the issue price of the security or, in a case where he did not acquire it on its issue, less the aggregate of—

(a) the issue price; and

(b) the accrued income attributable to the period beginning with the issue, and ending with his acquisition, of the security;

and, if in either case paragraph 3 above applies, less also an amount equal to the chargeable amount (within the meaning of that paragraph).

(3) The deduction allowed under paragraph 5(1) above in relation to the accounting period in which the deep discount security is redeemed shall be the amount paid by the company on redemption less the aggregate of—

(a) the issue price of the security; and

(b) the accrued income attributable to the period beginning with the issue of the security and ending with the last income period to end in or with the accounting period of the company which precedes that in which the security is redeemed.

(4) Where paragraph 9 or 10 above has applied to the deep discount security at any time, the amount mentioned in sub-paragraph (3)(b) above shall not include any linked income element (within the meaning of that paragraph).

(5) Where the aggregate mentioned in sub-paragraph (3) above exceeds the amount paid by the company on redemption of the security, the amount of the excess or, if it is less, the amount mentioned in paragraph (b) of that sub-paragraph shall be treated as income of the company—

(a) arising in the accounting period in which the security is redeemed; and

(b) chargeable to tax under Case VI of Schedule D.

(6) Where a resolution is passed, an order made or any other act takes place for the winding up of a company which has issued a deep discount security before the security is redeemed, this paragraph shall have effect in relation to any payment made in respect of the security in the course of the winding up as if the payment were made on redemption. [.]

Textual Amendments

F31 1989 s.93and Sch.10 para.4.

11A Where any deep discount security issued by a public body is redeemed before the redemption date by the body which issued it, paragraph 4 above shall have effect subject to paragraph 11(2) above (ignoring the words following paragraph (b))

Modifications etc. (not altering text)

C10 1989 s. 93and Sch. 10 para. 5.

[F32 Issue price] U.K.

Textual Amendments

F32 Sch. 4 para. 11B and heading preceding it inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 54, Sch. 4 paras.3, 5

F33 11B (1) This paragraph applies where—

(a) securities (old securities) of a particular kind are issued by way of the original issue of securities of that kind,

(b) on a later occasion securities (new securities) of the same kind are issued,

(c) a sum (the extra return) is payable in respect of each new security, by the person issuing it, to reflect the fact that interest is accruing on the old securities,

(d) the issue price of each new security includes an element (whether or not separately identified) representing payment for the extra return, and

(e) the extra return is equal to the amount of interest payable for the relevant period on each old security.

(2) In such a case, the issue price of each new security shall be deemed for the purposes of paragraphs 1(1)(a), (e) and (h) and 11(2) and (3) above to be its actual issue price less an amount equal to the extra return payable in respect of the security.

(3) For the purposes of this paragraph securities are of the same kind if they are treated as being of the same kind by the practice of a recognised stock exchange or would be so treated if dealt with on such a stock exchange.

(4) For the purposes of this paragraph the relevant period is the period beginning with the day following the relevant day and ending with the day on which the new securities are issued.

(5) For the purposes of this paragraph the relevant day is—

(a) the last day of the last (or only) income period to end in respect of the old securities before the day on which the new securities are issued, or

(b) the day on which the old securities were issued, in a case where no income period ended in respect of them before the day on which the new securities are issued.

Textual Amendments

F33 Sch. 4 para. 11B and heading preceding it inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 54, Sch. 12 paras. 3, 5

Identification of securities disposed of U.K.

12 M28 The rules contained in section [F34 108 of the 1992 Act] (identification, for the purposes of capital gains tax, of securities disposed of) shall apply for the purposes of this Schedule as they apply for the purposes of capital gains tax.

Textual Amendments

F34 Words in Sch. 4 para. 12 substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 10 para. 14(57)(d) (with ss. 60, 101(1), 171, 201(3))

Marginal Citations

M28 Source—1984 Sch.9 11(1)

Information U.K.

13 (1) M29 Every company which issues deep discount securities shall cause to be shown on the certificate of each such security the income element for each income period between the date of issue of the security and the redemption date.

(2) Every company which issues a chargeable security to which paragraph 2(1), (2) or (4) above applies shall cause to be shown on the certificate of each such security the fact that tax is chargeable under paragraph 3 above.

[F35 (3) Every public body which issues deep discount securities on or after 1st August 1989 shall cause to be shown on the certificate of each such security the income element for each income period between the date of issue of the security and the redemption date.]

Textual Amendments

F35 1989 s.93and Sch.10 para.6.

Marginal Citations

M29 Source—1984 Sch.9 1(8); 1985 Sch.11 3

Charities U.K.

14 M30 A charity shall be exempt from income tax in respect of an amount which (apart from this paragraph) is chargeable to income tax by virtue of this Schedule if the amount is applicable and applied for charitable purposes.

In this paragraph “charity” has the same meaning as in section 506.

Marginal Citations

M30 Source—1984 Sch.9 12; 1987 Sch.15 16(3)

[F36 Retirement benefit schemes] U.K.

Textual Amendments

F36 1989 s.93and Sch.10 para.7.

15 (1) In a case where—

(a) paragraph 4 above would apply (apart from this paragraph) to a disposal of a security, and

(b) immediately before the disposal was made the security was held for the purposes of an exempt approved scheme (within the meaning of Chapter I of Part XIV),

that paragraph shall not apply to the disposal.

(2) Sub-paragraph (1) above shall not apply unless the disposal is made on or after 14th March 1989.

Stock lending U.K.

16 (1) In a case where—

(a) a security is the subject of a transfer which falls within section 129(3), and

(b) the transfer constitutes a disposal to which (apart from this paragraph) paragraph 4 above would apply,

that paragraph shall not apply to the disposal.

(2) Sub-paragraph (1) above shall not apply unless the disposal is made on or after 14th March 1989.

Trustees U.K.

17 (1) Where on the disposal by trustees of a deep discount security an amount is treated as income chargeable to tax by virtue of paragraph 4(1) above, the rate at which it is chargeable shall be [F37 the rate applicable to trusts] for the year of assessment in which the disposal is made.

(2) Where the trustees are trustees of a scheme to which section 469 applies, sub-paragraph (1) above shall not apply if or to the extent that the amount is treated as income in the accounts of the scheme.

(3) Sub-paragraph (1) above shall not apply unless the disposal is made on or after 14th March 1989.

Textual Amendments

F37 Words in Sch. 4 para. 17(1) substituted (27.7.1993 with effect for the year 1993-1994 and subsequent years of assessment) by 1993 c. 34, s. 79, Sch. 6 paras.18, 25(1)

Underwriters U.K.

18 (1) An underwriting member of Lloyd’s shall be treated for the purposes of this Schedule as absolutely entitled as against the trustees to the securities forming part of his premiums trust fund, F38 . . .

(2) Sub-paragraph (1) above applies where a disposal is made on or after 14th March 1989 (whatever the date of acquisition).

(3) Where a security forms part of a premiums trust fund at the end of 31st December of any relevant year, for the purposes of this Schedule the trustees of the fund shall be deemed to dispose of the security at that time; and for this purpose relevant years are 1989 and subsequent years.

(4) Where a security forms part of a premiums trust fund at the beginning of 1st January of any relevant year, for the purposes of this Schedule the trustees of the fund shall be deemed to acquire the security at that time; and for this purpose relevant years are 1990 and subsequent years.

(5) Sub-paragraph (6) below applies where the following state of affairs exists at the beginning of 1st January of any year or the end of 31st December of any year—

(a) securities have been transferred by the trustees of a premiums trust fund in pursuance of an arrangement mentioned in section 129(1) or (2),

(b) the transfer was made to enable another person to fulfil a contract or to make a transfer,

(c) securities have not been transferred in return, and

(d) section 129(3) to the transfer made by the trustees.

(6) The securities transferred by the trustees shall be treated for the purposes of sub-paragraphs (3) and (4) above as if they formed part of the premiums trust fund at the beginning of 1st January concerned or the end of 31st December concerned (as the case may be).

(7) Paragraph 7 above shall have effect subject to sub-paragraph (3)above.

(8) Paragraph 7(2) above shall not apply where—

(a) the deceased was an underwriting member of Lloyd’s who died on or after 14th March 1989, and

(b) immediately before his death the security concerned formed part of a premiums trust fund, F39 . . .

(9) In a case where an amount treated as income chargeable to tax by virtue of paragraph 4(1) above constitutes profits or gains mentioned in section 450(1)—

(a) section 450(1)(b) shall apply; and

(b) paragraph 4(1)(b) above shall not apply.

(10) For the purpose of computing income tax for the year 1987-88 sub-paragraph (9) above shall have effect as if—

(a) the reference to section 450(1) were to paragraph 2 of Schedule 16 to the Finance Act 1973, and

(b) the reference to section 450(1)(b) were to paragraph 2(b) of that Schedule.

(11) In this paragraph “business” and “premiums trust fund” have the meanings given by section 457.

Textual Amendments

F38 Words in Sch. 4 para. 18(1) omitted (27.7.1993 with effect for the year 1992-93 and subsequent years of assessment) by virtue of 1993 c. 34, ss. 183(5), 184(3)

F39 Words in Sch. 4 para. 18(8) omitted (27.7.1993 with effect for the year 1992-93 and subsequent years of assessment) by virtue of 1993 c. 34, ss. 183(6), 184(3)

Modifications etc. (not altering text)

C11 See 1979(C) s.132A(5)(6)—deep discount securities.

Gilts: special rules U.K.

19 (1) In a case where—

(a) securities have been issued by a public body under a prospectus under which no securities were issued before 14th March 1989,

(b) some of the securities issued under the prospectus are gilt-edged securities which are would-be deep discount securities,

(c) some of the securities issued under the prospectus are gilt-edged securities which are not would-be deep discount securities, and

(d) there is a time when the aggregate nominal value of the securities falling within paragraph (b) above (at that time) exceeds the aggregate nominal value of the securities falling within paragraph (c) above (at that time),

sub-paragraph (2) below shall apply in relation to any gilt-edged security which has been or is issued under the prospectus at any time (whether before, at or after the time mentioned in paragraph (d) above).

(2) As regards any event occurring in relation to the security after the time mentioned in sub-paragraph (1)(d) above, paragraphs 4, 7, 8, 11A, 12 and 14 to 18 above shall have effect as if—

(a) the security were a deep discount security,

(b) it had been issued as such (whatever the time it was issued), and

(c) it had been acquired as such (whatever the time it was acquired).

(3) For the purposes of sub-paragraph (1) above a would-be deep discount security is a security which would be a deep discount security apart from paragraph 1(6) above.

(4) For the purposes of sub-paragraph (2) above events, in relation to a security, include anything constituting a disposal for the purposes of the [F40 1992] Act, the death of a person competent to dispose of the security, a disposal mentioned in paragraph 18(3) above, and an acquisition mentioned in paragraph 18(4) above.

Textual Amendments

F40 Word in Sch. 4 para. 19(4) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 10 para. 14(57)(a) (with ss. 60, 101(1), 171, 201(3))

Non-gilts: special rules U.K.

20 (1) In a case where—

(a) all the securities issued by a public body on the occasion of the original issue under a particular prospectus (whatever the time of the issue) are neither gilt-edged securities nor deep discount securities,

(b) some of the securities issued under the prospectus are not gilt-edged securities but are new would-be deep discount securities, and

(c) there is a time when the aggregate nominal value of the securities falling within paragraph (b) above (at that time) exceeds the aggregate nominal value of the securities which (looking at the state of affairs at that time) have been issued under the prospectus and are neither gilt-edged securities nor new would-be deep discount securities,

sub-paragraph (2) below shall apply in relation to any security which is not a gilt-edged security but which has been or is issued under the prospectus at any time (whether before, at or after the time mentioned in paragraph (c) above).

(2) As regards any event occurring in relation to the security after the time mentioned in sub-paragraph (1)(c) above, paragraphs 4, 7, 8, 11A, 12 and 14 to 18 above shall have effect as if—

(a) the security were a deep discount security,

(b) it had been issued as such (whatever the time it was issued), and

(c) it had been acquired as such (whatever the time it was acquired).

(3) For the purposes of sub-paragraph (1) above a new would-be deep discount security is a security which—

(a) would be a deep discount security apart from paragraph 1(7) above, and

(b) was issued on or after 14th March 1989.

(4) For the purposes of sub-paragraph (2) above events, in relation to a security, include anything constituting a disposal for the purposes of the [F41 1992] Act, the death of a person competent to dispose of the security, a disposal mentioned in paragraph 18(3) above, and an acquisition mentioned in paragraph 18(4) above.

Textual Amendments

F41 Word in Sch. 4 para. 20(4) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 10 para. 14(57)(a) (with ss. 60, 101(1), 171, 201(3))

[F42 Convertible securities: special rules] U.K.

Textual Amendments

F42 1990 s.56and Sch.10 paras.26(3), 29(4)on and after 9June 1989.

21 In a case where—

(a) a security is a qualifying convertible security, for the purposes of Schedule 10 to the Finance Act 1990, at the time of its issue, and

(b) apart from this paragraph it would be a deep discount security at that time,

the security shall be treated, at the time of its issue and at all subsequent times, as not being a deep discount security.

Valid from 06/04/2003

Section 85B

SCHEDULE 4AA U.K. Share incentive plans: corporation tax deductions

Introductory U.K.

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 investment companies etc.).

Deduction for providing free or matching shares U.K.

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 U.K.

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 U.K.

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 U.K.

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 U.K.

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 U.K.

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 incurred in 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 U.K.

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 U.K.

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 U.K.

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 U.K.

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 U.K.

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 investment companies etc. U.K.

13 (1) The provisions of this Schedule apply in relation to—

(a) investment companies, and

(b) companies to which section 75 (expenses of management: investment companies) applies by virtue of section 76 (expenses of management: 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 to treat amounts as disbursed as expenses of management.

(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.

Valid from 11/05/2001

SCHEDULE 4A U.K. CREATIVE ARTISTS: RELIEF FOR FLUCTUATING PROFITS

Introduction U.K.

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 U.K.

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 U.K.

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 U.K.

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 U.K.

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 U.K.

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—

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 U.K.

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 U.K.

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 U.K.

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 U.K.

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 U.K.

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 U.K.

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” U.K.

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” U.K.

14 In this Schedule a “tax year” means a year of assessment.

Section 97.

SCHEDULE 5 U.K. TREATMENT OF FARM ANIMALS ETC. FOR PURPOSES OF CASE I OF SCHEDULE D

Farming: the general rule U.K.

1 (1) M31 Subject to the provisions of this Schedule, in computing profits or gains under Case I of Schedule D, animals kept by a farmer for the purposes of his 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”.

Marginal Citations

M31 Source—1970 Sch.6; 1973 s.35; 1984 s.48(6)-(9)

Farming: election for the herd basis U.K.

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 he 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 not later than two years after the end of—

(a) the first chargeable period for which he is chargeable under Case I of Schedule D to tax in respect of the profits or gains of his farming, or is given relief under section 380 F43 . . . 393(2) [F44 or 393A(1)]in respect of his farming, being profits or gains or relief the amount of which is computed by reference to the facts of a period during the whole or some part of which he kept a production herd of the class in question; or

(b) the first period for which an account is made up for his farming.

(4) An election for the herd basis made by any farmer shall be irrevocable and, subject to paragraph 6 below, shall have effect—

(a) in a case within sub-paragraph (3)(a) above, for the first chargeable period referred to in that sub-paragraph and all subsequent chargeable periods; and

(b) in a case within sub-paragraph (3)(b) above, for the first chargeable period for which the profits or gains or losses of his farming are computed by reference to the facts of the first period for which an account is made up for his farming.

Textual Amendments

F43 Word in Sch. 5 para. 2(3)(a) repealed by Finance Act 1991 (c. 31, SIF 63:1), s. 123, Sch. 19 Pt. V, Note 4

F44 Words in Sch. 5 para. 2(3)(a) inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 73(3)-(5), Sch. 15 para.25

3 (1) Where an election for the herd basis has effect, the consequences for the purposes of computing profits or gains 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 him 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 or gains 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 his 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 him 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 U.K.

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 him after the end of that period, be treated as if he 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 profits or gains 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 his 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 him 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, subject to sub-paragraph (3) below, only be valid if made not later than two years after the end of the first chargeable period for which the tax chargeable on the farmer in respect of the profits or gains of his farming finally falls to be computed by reference to the facts of a period in which the compensation is relevant.

(3) If that first chargeable period is the second year of assessment within the meaning of section 62 and notice is given under subsection (2) of that section, then for the purposes of income tax (but not corporation tax), the election shall be valid if made not later than the giving of that notice.

(4) An election for the herd basis made by virtue of sub-paragraph (1) above shall, notwithstanding paragraph 2(4) above, have effect only for the chargeable period mentioned in sub-paragraph (2) above and subsequent chargeable periods except that for the purposes of income tax (but not corporation tax) the election shall have effect for earlier chargeable periods for the purposes of any claim under section 380 which is made by the farmer for relief in respect of his farming, if the relief falls to be computed wholly or partly by reference to the facts of a period 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 gains or losses of that or an earlier period.

Exclusion of working animals, and interpretation of preceding provisions U.K.

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 him wholly or mainly for the sake of the products which they produce for him to sell, being products obtainable from the living animal.

• In this sub-paragraph “products obtainable from the living animal” means—

  (a)

  the young of the animal, or

  (b)

  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 him to sell for the sake of which (either wholly or mainly) the herds are kept by him 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 or gains chargeable to tax under Schedule D includes a reference to profits or gains which would be so chargeable if there were any such profits or gains for the chargeable period in question.

Application of preceding provisions to trades other than farming, creatures other than animals, and animals and creatures kept singly U.K.

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 [F45 —

(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.

Textual Amendments

F45 Words in Sch. 5 para. 9(4) substituted (retrospectively) by Finance Act 2000 (c. 17), s. 76(2)(3)

Supplemental and saving U.K.

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 chargeable 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.

Valid from 19/03/1997

SCHEDULE 5AA U.K. Guaranteed returns on transactions in futures and options

Charge to tax etc. U.K.

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) any profits or gains arising to a company which is a qualifying company from a transaction which, as regards that company, is or is deemed to be a qualifying contract; or

(c) any profits or gains arising to an authorised unit trust (within the meaning of section 468).

(3) In sub-paragraph (2) above—

• “qualifying company” means a qualifying company for the purposes of Chapter II of Part IV of the M32 Finance Act 1994 (interest rate, currency and debt contracts); and

• “qualifying contract” means a qualifying contract for those purposes.

(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 and 396 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, corporation tax or capital gains tax except by virtue of this Schedule and, in the case of losses, section 392 or 396.

(7) Nothing in sub-paragraph (6) above shall prevent any amount from being brought into account in accordance with section 83 of the M33 Finance Act 1989 (receipts to be brought into account in any Case I computation made in respect of life insurance).

Modifications etc. (not altering text)

C12 Sch. 5AA para. 1(6)(7) modified (19.3.1997) by Finance Act 1997 (c. 16), s. 80(7)

Marginal Citations

M32 1994 c. 9.

M33 1989 c. 26.

Transactions to which Schedule applies U.K.

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.

Production of guaranteed return U.K.

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 U.K.

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.

(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—

  (a)

  currency, shares, stock, securities or an interest rate; or

  (b)

  rights under a commodity or financial futures contract;

• “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.

Valid from 31/07/1998

Futures running to delivery and options exercised U.K.

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 or 396 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.

(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 U.K.

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 U.K.

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.

(4) In this paragraph “scheme or arrangements” includes schemes, arrangements and understandings of any kind, whether or not legally enforceable.

Special rule for trusts U.K.

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 U.K.

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 U.K.

9 Section 432A (apportionment of insurance companies’ income) shall have effect in the case of income and losses chargeable or relievable by virtue of this Schedule as if (where that would not otherwise be the case)—

(a) any such income were for the purposes of that section a gain accruing on the disposal of an asset; and

(b) any such loss were for the purposes of that section a loss accruing on the disposal of an asset.

Valid from 01/05/1995

SCHEDULE 5A U.K. Stock lending: interest on cash collateral

Introductory U.K.

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 U.K.

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 U.K.

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 U.K.

4 In this Schedule—

• “relief” means relief by way of—

  (i)

  deduction in computing profits or gains, or

  (ii)

  deduction or set off against income or total profits; and

• “securities” includes stocks and shares.

Section 157.

SCHEDULE 6 U.K. TAXATION OF DIRECTORS AND OTHERS IN RESPECT OF CARS

Modifications etc. (not altering text)

C13 Sch. 6 applied (N.I.) (in relation to the tax year beginning 6.4.1991) by Social Security (Northern Ireland) Act 1975 (c. 15, SIF 113:1), s. 4A(4)(5)(6)(as inserted by S.I. 1991/2294, arts. 1(4), 3(5)

C14 Sch. 6 applied (E.W.S) by Social Security Act 1975 (c. 14, SIF 113::1), s. 4A(4)-(6)

Sch. 6 applied (E.W.S.) (1.7.1992) by Social Security Contributions and Benefits Act 1992 (c. 4), ss. 10(4), 177(4) (with s. 108(5))

[F46 Part I U.K. Tables of Flat Rate Cash Equivalents

Textual Amendments

F46 Sch. 6 Pt. I substituted (27.7.1993 with effect for the year 1993-94) by 1993 c. 34, s. 70(1)(2)

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 U.K. SUPPLEMENTARY PROVISIONS

Application of Tables A and B U.K.

1 (1) M34 In the case of cars with an original market value of £19,250 or less, Table A applies to those having an internal combustion engine with one or more reciprocating pistons, and Table B applies to other cars.

(2) A car’s cylinder capacity is the cylinder capacity of its engine calculated as for the purposes of the M35 Vehicles (Excise) Act 1971 or the M36 Vehicles (Excise) Act (Northern Ireland) 1972.

Marginal Citations

M34 Source—1976 Sch.7 Part II 1; 1985/1598

M35 1971 c. 10.

M36 1972 c. 10 (N.I.).

Reduction for periods when car not available for use U.K.

2 (1) M37 If, for any part of the relevant year, the car was unavailable, the cash equivalent is to be reduced by an amount which bears to the full amount of the equivalent (ascertained under Part I of this Schedule) the same proportion as the number of days in the year on which the car was unavailable bears to 365.

(2) The car is to be treated as being unavailable on any day if—

(a) it was not made available to the employee until after that day, or it had ceased before that day to be available to him; or

(b) it was incapable of being used at all throughout a period of not less than 30 consecutive days of which that day was one.

Marginal Citations

M37 Source—1976 Sch.7 Part II 2

Car used preponderantly for business purposes U.K.

3 (1) M38 The cash equivalent derived from Table A, B or C is to be reduced (or, where paragraph 2 above applies, further reduced) by half if it is shown to the inspector’s satisfaction that the employee was required by the nature of his employment to make and made use of the car preponderantly for business travel, which means that such travel must have amounted to at least 18,000 miles in the relevant year.

(2) In relation to a car which for part of the year was unavailable in the sense of paragraph 2 above, the figure of 18,000 is proportionately reduced.

Marginal Citations

M38 Source—1976 Sch.7 Part II 3; 1980 s.48(2)

Reduction for employee paying for use of car U.K.

4 M39 If in the relevant year the employee was 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, the cash equivalent—

(a) is to be reduced (or, if already reduced under the foregoing paragraphs, further reduced) by the amount so paid by the employee in or in respect of the year; or

(b) if that amount exceeds the equivalent shown in the applicable Table in Part I of this Schedule, is nil.

Marginal Citations

M39 Source—1976 Sch.7 Part II 4

Cars with insubstantial business use and additional cars U.K.

5 (1) M40 The cash equivalent derived from Table A, B or C is to be increased by half if in the relevant year—

(a) the car was not used for the employee’s business travel; or

(b) its use for such travel did not amount to more than 2,500 miles.

(2) In relation to a car which for part of the year was unavailable in the sense of paragraph 2 above, the figure of 2,500 is proportionately reduced.

(3) Without prejudice to sub-paragraph (1) above, if in any year a person is taxable under section 157 in respect of two or more cars which are made available concurrently, there shall be increased by half the cash equivalent derived from Table A, B or C in respect of each of those cars other than the one which in the period for which they are concurrently available is used to the greatest extent for the employee’s business travel.

(4) In paragraphs 2 to 4 above references to the cash equivalent which is to be reduced shall be construed as references to the cash equivalent after any increase under this paragraph.

Marginal Citations

M40 Source—1976 Sch.7 Part II 5; 1980 s.48(3); 1981 s.68(6)

Section 159AA.]

[F47 Schedule 6A U.K. Taxation of Directors and Others in Respect of Vans

Textual Amendments

F47 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F48 Part I U.K. Basic Case

Textual Amendments

F48 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F49 Cash equivalent U.K.

Textual Amendments

F49 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F50 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.

Textual Amendments

F50 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F51 Reductions for periods where van unavailable U.K.

Textual Amendments

F51 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F52 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.

Textual Amendments

F52 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F53 Reduction for payments for use of van U.K.

Textual Amendments

F53 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F54 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.

Textual Amendments

F54 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F55 Part II U.K. SHARED VANS

Textual Amendments

F55 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F56 Introduction U.K.

Textual Amendments

F56 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F57 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.

Textual Amendments

F57 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F58 Benefit to employee U.K.

Textual Amendments

F58 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F59 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).

Textual Amendments

F59 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F60 Basic value U.K.

Textual Amendments

F60 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F61 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.

Textual Amendments

F61 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F62 Limit of benefit U.K.

Textual Amendments

F62 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F63 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.

Textual Amendments

F63 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F64 Alternative calculation U.K.

Textual Amendments

F64 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F65 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 M41 Taxes Management Act 1970 (incorrect return etc.) a claim under this paragraph shall be taken to be a claim for relief.

Textual Amendments

F65 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

Marginal Citations

M41 1970 c. 9.

F66 Reduction for payments for use U.K.

Textual Amendments

F66 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F67 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.

Textual Amendments

F67 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F68 Part III U.K. GENERAL

Textual Amendments

F68 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F69 Interaction of Parts I and II U.K.

Textual Amendments

F69 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F70 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.

Textual Amendments

F70 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F71 Limit of cash equivalent U.K.

Textual Amendments

F71 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F72 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.

Textual Amendments

F72 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F73 Interpretation U.K.

Textual Amendments

F73 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

F74 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.

Textual Amendments

F74 Sch. 6A inserted (27.7.1993 with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 73, Sch. 4 paras.7, 8

Section 160.

SCHEDULE 7 U.K. TAXATION OF BENEFIT FROM LOANS OBTAINED BY REASON OF EMPLOYMENT

PART I U.K. MEANING OF “OBTAINED BY REASON OF EMPLOYMENT”

1 (1) M42 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) M43 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) M44 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) M45 Sub-paragraph (2) above does not apply to a loan made by his employer, being an individual, and shown to have been made in the normal course of his domestic, family or personal relationships.

Marginal Citations

M42 Source—1976 Sch.8 1(1)

M43 Source—1976 Sch.8 2

M44 Source—1976 Sch.8 3

M45 Source—1976 Sch.8 1(2)

2 M46 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.

Marginal Citations

M46 Source—1976 Sch.8 4

PART II U.K. CALCULATION OF CASH EQUIVALENT OF LOAN BENEFIT

General U.K.

3 (1) M47 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.

[F75 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.]

F76 (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F76 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F75 Words in Sch. 7 para. 3(1) added (for year 1991-92 and subsequent years of assessment) by Finance Act 1991 (c. 31, SIF 63:1), s. 27(6), Sch. 6 para. 3(1)

F76 Sch. 7 paras. 3(2)(3) repealed (for year 1991-92 and subsequent years of assessment) by Finance Act 1991 (c. 31, SIF 63:1), ss. 27(6), 123, Sch. 6 para. 3(2), Sch. 19 Pt. V, Note 6

Marginal Citations

M47 Source—1976 Sch.8 5, 6, 7

Normal method of calculation (averaging) U.K.

4 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.

Election for alternative method of calculation U.K.

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, for the purpose of any assessment to income tax (or the adjustment of any such assessment in consequence of an appeal); or

(b) the employee so elects, by notice given to the inspector within the time allowed by sub-paragraph (2) below.

(2) An election by the employee must be made—

(a) in a case where an assessment including the emoluments in question has been made on the basis of the normal method of calculation, within the time allowed for appealing against that assessment or such further time as the inspector may allow;

(b) where no such assessment has been made, within six years after the end of the relevant year of assessment.

(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.

Valid from 28/07/2000

Apportionment of cash equivalent in case of joint loan etc. U.K.

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 U.K. EXCEPTIONS WHERE INTEREST ELIGIBLE FOR RELIEF

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.K.

F77 6

Textual Amendments

F77 Sch. 7 para. 6 repealed (for the year 1991-92 and subsequent years of assessment) by Finance Act 1991 (c. 31, SIF 63:1), ss. 27(6), 123, Sch. 6 para. 4, Sch. 19 Pt. V, Note 6

7 Section 160(1) does not apply to a loan in any year—

(a) M48 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.

Marginal Citations

M48 Source—1976 Sch.8 9, 10, 11

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) M49 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 F78 . . . 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 F78 . . . 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.

Textual Amendments

F78 Words in Sch. 7 para. 10(1)(2) repealed (27.7.1993 with effect as mentioned in s. 57 of the amending Act) by 1993 c. 34, ss. 57, 213, Sch. 23 Pt. III(1)

Marginal Citations

M49 Source—1976 Sch.8 12-14; 1983 (No.2) s.4

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.

F79 13 This Part of this Schedule is subject to the provisions of Part IV below.

Textual Amendments

F79 Sch. 7 paras. 13-19 added (for the year 1991-92 and subsequent years of assessment) by Finance Act 1991 (c. 31, SIF 63:1), s. 27(6), Sch. 6 para.5

F80 PART IV U.K. INTEREST ELIGIBLE FOR TAX RELIEF: CONSEQUENCES OF RESTRICTION OF RELIEF TO TAX AT THE BASIC RATE ONLY

Textual Amendments

F80 Sch. 7 paras. 13-19 added (for the year 1991-92 and subsequent years of assessment) by Finance Act 1991 (c. 31, SIF 63:1), s. 27(6), Sch. 6 para.5

F81 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.

Textual Amendments

F81 Sch. 7 paras. 13-19 added (for the year 1991-92 and subsequent years of assessment) by Finance Act 1991 (c. 31, SIF 63:1), s. 27(6), Sch. 6 para.5

F82 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.

Textual Amendments

F82 Sch. 7 paras. 13-19 added (for the year 1991-92 and subsequent years of assessment) by Finance Act 1991 (c. 31, SIF 63:1), s. 27(6), Sch. 6 para.5

F83 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.

Textual Amendments

F83 Sch. 7 paras. 13-19 added (for the year 1991-92 and subsequent years of assessment) by Finance Act 1991 (c. 31, SIF 63:1), s. 27(4), Sch. 6 para.5

F84 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.

Textual Amendments

F84 Sch. 7 paras. 13-19 added (for the year 1991-92 and subsequent years of assessment) by Finance Act 1991 c. 31, SIF 63:1), s. 27(6), Sch. 6 para.5

F85 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.

Textual Amendments

F85 Sch. 7 paras. 13-19 added (for the year 1991-92 and subsequent years of assessment) by Finance Act 1991 (c. 31, SIF 63:1), s. 27(6), Sch. 6 para.5

F86 PART V U.K. INTERPRETATION

Textual Amendments

F86 Sch. 7 paras. 13-19 added (for the year 1991-92 and subsequent years of assessment) by Finance Act 1991 (c. 31, SIF 63:1), s. 27(6), Sch. 6 para.5

F87 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 [F88 not chargeable at the lower rate][F89 by 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.

Textual Amendments

F87 Sch. 7 paras. 13-19 added (for the year 1991-92 and subsequent years of assessment) by Finance Act 1991 (c. 31, SIF 63:1), s. 27(6), Sch. 6 para. 5

F88 Words in Sch. 7 para. 19(1) inserted (16.7.1992 for the year 1992-93 and subsequent years of assessment) by Finance (No. 2) Act 1992 (c. 48), s. 19(3)(7)

F89 Words in definition of “excess liability” in Sch. 7 para. 19(1) substituted (with effect for the year 1993-94 and subsequent years of assessment) by 1993 c. 34, s. 79, Sch. 6 paras.1, 25(1)

Valid from 28/07/2000

SCHEDULE 7A U.K. Beneficial loans: loans on ordinary commercial terms

Introduction U.K.

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 U.K.

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 U.K.

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 U.K.

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. U.K.

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’ U.K.

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.

Section 176(9).

SCHEDULE 8 U.K. M50 PROFIT-RELATED PAY SCHEMES: CONDITIONS FOR REGISTRATION

Marginal Citations

M50 Source—987 (No.2) Sch.1

Form U.K.

1 The terms of the scheme must be set out in writing.

Employer and employment unit U.K.

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 U.K.

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 F90 . . . a material interest in the company.

(2) For the purposes of this paragraph a person shall be treated as having a material interest [F91 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) [F92 , but subject to sub-paragraph (4) below]; F93 . . .

• "control" has the meaning given by section 840; [F94 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.

[F95 (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—

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.]

Textual Amendments

F90 Words in Sch. 8 para. 7(1) repealed (27.7.1989) by Finance Act 1989 (c. 26), Sch. 4 para. 9(2), Sch. 17 Pt. 4

F91 Words in Sch. 8 para. 7(2) substituted (with effect in accordance with Sch. 12 para. 18(4) of the amending Act) by Finance Act 1989 (c. 26), Sch. 12 para. 18(2)

F92 Words in Sch. 8 para. 7(3) inserted (27.7.1989) by Finance Act 1989 (c. 26), Sch. 4 para. 9(3)

F93 Word in Sch. 8 para. 7(3) repealed (with effect in accordance with Sch. 12 para. 18(4) of the amending Act) by Finance Act 1989 (c. 26), Sch. 12 para. 18(3), Sch. 17 Pt. 5, Note 6

F94 Words in Sch. 8 para. 7(3) inserted (with effect in accordance with Sch. 12 para. 18(4) of the amending Act) by Finance Act 1989 (c. 26), Sch. 12 para. 18(3)

F95 Sch. 8 para. 7(4)-(12) inserted (27.7.1989) by Finance Act 1989 (c. 26), Sch. 4 para. 9(4)

Modifications etc. (not altering text)

C15 Sch. 8 para. 7(9)-(12) applied (27.7.1989) by Finance Act 1989 (c. 26), Sch. 5 para. 16(6)

C16 Sch. 8 para. 7(9)-(12) applied (28.7.2000) by Finance Act 2000 (c. 17), Sch. 14 para. 35(4)

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) those who are not required under the terms of their employment to work in the employment unit for 20 hours or more a week;

(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 U.K.

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 U.K.

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,fixedF96 percentage of the profits of the employment unit in the profit period.

[F97 (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 unitF98 .

(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 relatesF98 .

(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 [F99 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 [F100 must not exceed the profits for a base year specified in the scheme.]

[F101 (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]

[F102 (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.]

Textual Amendments

F96 Repealed by 1989 ss.61and 187and Schs.4 para.10(2)(a)and 17 Part IV.

F97 1989 s.61and Sch.4 para.10(2)(b)(i).

F98 Repealed by 1989 ss.61and 187and Schs.4 para.10(1), (2)(a)and 17 Part IV.

F99 1989 s.61and Sch.4 para.10(2)(b)(ii).Previously

“the base year referred to in sub-paragraph (3) above”.

F100 1989 s.61and Sch.4 para.10(2)(b)(iii).Previously

“must be less than the amount which would produce a distributable pool of 5 per cent. of the standard pay of the employment unit”.

F101 1989 s.61and Sch.4 para.10(2)(b)(iv).Previously

“(6) The references in this paragraph to the standard pay of the employment unit are references to the amount which the scheme employer, at the time when he applies for registration of the scheme, reasonably estimates will be the annual equivalent of the pay, at the beginning of the profit period or first profit period, of the employees to whom the scheme will then relate; and for this purpose an estimate shall (in the absence of evidence to the contrary) be taken to be a reasonable one if it is based on the most recent information available to the employer as to the monthly or annual pay of the relevant employees.”.

F102 1989 s.61and Sch.4 para.11.

Valid from 03/05/1994

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 unitF103 .

(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 inF104 , or ascertainable by reference to, the scheme; but that amount [F105 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 13aboveF106 .

[F107 (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.]

Textual Amendments

F103 Repealed by 1989 ss.61and 187, Schs.4 para.10(1)and 17 Part IV.

F104 Repealed by 1989 ss.61and 187, Schs.4 paras.10(2)(a), 12and 17 Part IV.

F105 1989 s.61and Sch.4 para.10(2)(c).Previously

“must be less than the amount which would produce a distributable pool of 5 per cent. of the standard pay of the employment unit.”.

F106 Repealed by 1989 ss.61and 187, Schs.4 paras.10(2)(a), 12and 17 Part IV.

F107 1989 s.61and Sch.4 para.13.

Valid from 03/05/1994

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. U.K.

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 U.K.

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 M51 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.

[F108 (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 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;

[F109 (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;]

(g) extraordinary income;

(h) extraordinary charges;

(j) extraordinary profit or loss;

(k) tax on extraordinary profit or loss.

(7) References in this paragraph to Schedule 4 to the M52 Companies Act 1985 shall be construed, in relation to Northern Ireland, as references to Schedule 4 to the M53 Companies (Northern Ireland) Order 1986.

Textual Amendments

F108 1989 s.61and Sch.4 para.14(2).

F109 1989 s.61and Sch.4 para.14(3).Previously

“(f) profit-related pay payable under the scheme;”.

Marginal Citations

M51 1985 c. 6.

M52 1985 c. 6.

M53 S.I. 1986/1032 (N.I. 6).

Valid from 01/05/1995

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 U.K.

[F110 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.]

Textual Amendments

F110 1989 s.61and Sch.4 para.15.

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.

Valid from 03/05/1994

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.

Valid from 03/05/1994

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).

Sections 185, 186, 187.

SCHEDULE 9 U.K. APPROVED SHARE OPTION SCHEMES AND PROFIT SHARING SCHEMES

Modifications etc. (not altering text)

C17 Sch. 9 excluded (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 238(2)(c)(4), 289 (with ss. 60, 101(1), 171, 201(3))

C18 Sch. 9 modified (29.4.1996) by Finance Act 1996 (c. 8), s. 115

C19 Sch. 9 modified (29.4.1996) by Finance Act 1996 (c. 8), s. 116(3)

C20 Sch. 9 modified (28.7.2000) by Finance Act 2000 (c. 17), s. 49(1)(2)

C21 Sch. 9 continued for specified purposes (6.4.2003 with effect in accordance with s. 723(1) of the affecting Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), s. 418(3) (with Sch. 7)

PART I U.K. GENERAL

[F111 1 (1) M54 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— U.K.

• “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) M55 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) M56 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) M57 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.

Textual Amendments

F111 Sch. 9 Pts. 1, 2, 6 repealed (except for specified purposes) (6.4.2003 with effect in accordance with s. 723(1) of the repealing Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 112(1), Sch 8 Pt. 1 (with Sch. 7)

Marginal Citations

M54 Source—1978 Sch.9 1(1)(a); 1980 Sch.10 1(1)(a); 1984 Sch.10 1(1)

M55 Source—1978 Sch.9 1(5); 1980 Sch.10 1(2); 1984 Sch.10 1(2)

M56 Source—1978 Sch.9 1(2); 1980 Sch.10 1(3); 1984 Sch.10 1(3)

M57 Source—1978 Sch.9 1(2); 1980 Sch.10 1(3); 1984 Sch.10 1(4)

2 (1) M58 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) M59 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.

(3) M60 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.

Modifications etc. (not altering text)

C22 Sch. 9 para. 2(2) excluded (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 238(1)(4), 289 (with ss. 60, 101(1), 171, 201(3))

Marginal Citations

M58 Source—1978 Sch.9 1(1)(b); 1980 Sch.10 1(1), (b); 1984 Sch.10 1(1); 1987 Sch.15 13

M59 Source—1978 s.54(1); 1986 s.24(3)(a)

M60 Source—1978 Sch.9 2(3), (4); 1980 Sch.10 1(1)(aa), (ab), (1A); 1983 s.25(5); 1984 s.39(2)

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

(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,

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) M61 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.

Marginal Citations

M61 Source—1978 Sch.9 3(3)

4 U.K. M62 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.

Textual Amendments

F111 Sch. 9 Pts. 1, 2, 6 repealed (except for specified purposes) (6.4.2003 with effect in accordance with s. 723(1) of the repealing Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 112(1), Sch 8 Pt. 1 (with Sch. 7)

Modifications etc. (not altering text)

C23 Sch. 9 para. 4 modified (with effect in accordance with Sch. 16 para. 1 of the modifying Act) by Finance Act 1996 (c. 8), Sch. 16 para. 4

Marginal Citations

M62 Source—1978 Sch.9 3(2); 1980 Sch.10 3(2); 1984 Sch.10 2(2)

5 U.K. M63 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.

Textual Amendments

F111 Sch. 9 Pts. 1, 2, 6 repealed (except for specified purposes) (6.4.2003 with effect in accordance with s. 723(1) of the repealing Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 112(1), Sch 8 Pt. 1 (with Sch. 7)

Modifications etc. (not altering text)

C24 Sch. 9 para. 5 modified (1.4.2009) by The Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 (S.I. 2009/56), art. 1(2), Sch. 1 para. 158

Marginal Citations

M63 Source—1978 Sch.9 4; 1980 Sch.10 4; 1984 Sch.10 3

6 U.K. M64 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.]

Textual Amendments

F111 Sch. 9 Pts. 1, 2, 6 repealed (except for specified purposes) (6.4.2003 with effect in accordance with s. 723(1) of the repealing Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 112(1), Sch 8 Pt. 1 (with Sch. 7)

Marginal Citations

M64 Source—1978 s.53(7); 1980 Sch.10 25; 1984 Sch.10 14

PART II U.K. REQUIREMENTS GENERALLY APPLICABLE

[F112 7 U.K. The provisions of this Part apply in relation to all schemes unless otherwise stated.

Textual Amendments

F112 Sch. 9 Pts. 1, 2, 6 repealed (except for specified purposes) (6.4.2003 with effect in accordance with s. 723(1) of the repealing Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 112(1), Sch 8 Pt. 1 (with Sch. 7)

8 U.K. M65 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.

Textual Amendments

F112 Sch. 9 Pts. 1, 2, 6 repealed (except for specified purposes) (6.4.2003 with effect in accordance with s. 723(1) of the repealing Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 112(1), Sch 8 Pt. 1 (with Sch. 7)

Marginal Citations

M65 Source—1978 Sch.9 11(1), (2); 1980 Sch.10 23; 1984 Sch.10 4(1)(b), (3)

F113 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. U.K.

(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.]

Textual Amendments

F112 Sch. 9 Pts. 1, 2, 6 repealed (except for specified purposes) (6.4.2003 with effect in accordance with s. 723(1) of the repealing Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 112(1), Sch 8 Pt. 1 (with Sch. 7)

F113 Sch. 9 Pt. II para. 8A inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 38(5)(6)

9 (1) M66 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.

(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.

Marginal Citations

M66 Source—1978 Sch.9 1(1), (3); 1980 Sch.10 5(a); 1984 Sch.10

10 U.K. M67 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; F114 . . .

F114 (ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F114 Sch. 9 para. 10(c)(ii) and preceding word repealed by Finance Act 1989 (c. 26), s. 64, Sch. 17 Pt. 4

Marginal Citations

M67 Source—1978 Sch.9 5; 1980 Sch.10 15; 1984 Sch.10 7

11 M68 Scheme shares must be—

M69 (a) shares of a class quoted on a recognised stock exchange; or

(b) shares in a company which is not under the control of another company; or

M69 (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 quoted on a recognised stock exchange.

Marginal Citations

M68 Source—1978 Sch.9 6; 1980, s.46(10), Sch.10 16; 1984 Sch.10 8

M69 See s.841 ante for definition.

Valid from 21/03/2000

[F115 11A (1) In the case of a profit sharing scheme, scheme shares must not be shares— U.K.

(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).]

Textual Amendments

F115 Sch. 9 para. 11A inserted (21.3.2000) by Finance Act 2000 (c. 17), s. 52(3)(5) (with s. 52(6))

12 (1) M70 Scheme shares must be—

(a) fully paid up;

(b) not redeemable; and

(c) not subject to any restrictions other than restrictions which attach to all shares of the same class or a restriction authorised by sub-paragraph (2) below.

Sub-paragraph (b) above does not apply, in the case of a profit sharing scheme, in relation to shares in a workers’ cooperative.

(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.

Marginal Citations

M70 Source—1978 Sch.9 7; 1980 Sch.10 17; 1984 Sch.10 9; 1986 s.22, 24(2)

13 (1) M71 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. U.K.

(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.

[F116 (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.]

Textual Amendments

F116 Sch. 9 para. 13(3) added (retrospectively) by Finance Act 1988 (c. 39), s. 69(1)

Marginal Citations

M71 Source—1980 Sch.10 18; 1982 s.41; 1984 Sch.10 10; 1986 s.23(4)

14 (1) M72 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— U.K.

(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.

Marginal Citations

M72 Source—1978 Sch.9 8; 1980 s.46(11), Sch.10 19; 1984 Sch.10 11; 1986 s.23(3)

15 (1) M73 Except in the case of a profit sharing scheme, the scheme may provide that if any company (“the acquiring company”)— U.K.

(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 M74 Companies Act 1985 or Article 418 of the M75 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) M76 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.

Marginal Citations

M73 Source—1980 Sch.10, 10A; 1984 Sch.10 4A; 1987 Sch.4 1, 2; 1987 (No.2) s.59

M74 1985 c. 6.

M75 S.I. 1986/1032 (N.I. 6).

M76 Source—1987 Sch.4 3

PART III U.K. REQUIREMENTS APPLICABLE TO SAVINGS-RELATED SHARE OPTION SCHEMES

16 (1) M77 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) M78 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.

Marginal Citations

M77 Source—1980 Sch.10 5(b)

M78 Source—1980 Sch.10 24

17 M79 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.

Marginal Citations

M79 Source—1980 Sch.10 6

18 M80 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.

Marginal Citations

M80 Source—1980 Sch.10 7

19 M81 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 M82 Employment Protection (Consolidation) Act 1978; or

(b) retirement on reaching [F117 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.

Textual Amendments

F117 Words in Sch. 9 para. 19(b) substituted by Finance Act 1991 (c. 31, SIF 63:1), s. 38(2)(6)

Marginal Citations

M81 Source—1980 Sch.10 8; 1986 s.23(3)

M82 1978 c. 44.

20 M83 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 [F118 the specified age], he may exercise the rights within six months of that date.

Textual Amendments

F118 Words in Sch. 9 para. 20 substituted by Finance Act 1991 (c. 31, SIF 63:1), s. 38(2)(6)

Marginal Citations

M83 Source—1980 Sch.10 9

21 (1) M84 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 M85 Companies Act 1985 or Article 418 of the M86 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; and

(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.

(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.

Marginal Citations

M84 Source—1980 Sch.10 10; 1986 s.25(4), (8), (9)

M85 1985 c. 6

M86 S.I. 1986/1032 (N.I. 6).

22 M87 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.

Marginal Citations

M87 Source—1980 Sch.10 11

23 M88 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.

Marginal Citations

M88 Source—1980 Sch.10 12; 1986 s.25(5)

24 (1) M89 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) M90 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 [F119 £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.

Textual Amendments

F119 Figure in Sch. 9 para. 24(2)(a) substituted (01.09.1991) by virtue of Finance Act 1991 (c. 31, SIF 63:1), s. 40(1); S.I. 1991/1741, art.2.

Marginal Citations

M89 Source—1980 Sch.10 13(1)

M90 Source—1980 Sch.10 13(2), (3); 1984 s.39(5)

25 M91 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 [F120 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.

Textual Amendments

F120 1989 s.62(3).Previously

“90 per cent.”.

Marginal Citations

M91 Source—1980 Sch.10 14

26 (1) M92 Subject to paragraph 8 above, every person who—

(a) is a full-time 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) M93 Except as provided by paragraph 19 above or pursuant to such a provision as is referred to in paragraph 21(1)(e) 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.

Marginal Citations

M92 Source—1980 Sch.10 20; 1984 s.39(6); 1986 s.25(7)

M93 Source—1980 Sch.10 21; 1986 s.25(6)

PART IV U.K. REQUIREMENTS APPLICABLE TO OTHER SHARE OPTION SCHEMES

27 (1) M94 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) M95 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) M96 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) who is required, under the terms of his employment, to work for the company for at least 20 hours a week.

Marginal Citations

M94 Source—1984 Sch.10 4(1)(a), (2)

M95 Source—1984 Sch.10, 12

M96 Source—1984 Sch. 10 15(1)

28 (1) M97 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 the appropriate limit.

(2) The appropriate limit is the greater of—

(a) £100,000; or

(b) if there were relevant emoluments for the preceding year of assessment, four times the amount of the relevant emoluments for the current or preceding year of assessment (whichever of those years gives the greater amount); or

(c) if there were no relevant emoluments for the preceding year of assessment, four times the amount of the relevant emoluments for the period of 12 months beginning with the first day during the current year of assessment in respect of which there are relevant emoluments.

(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) For the purposes of sub-paragraph (2) above, the relevant emoluments are such of the emoluments of the office or employment by virtue of which the person in question is eligible to participate in the scheme as are liable to be paid under deduction of tax pursuant to section 203 after deducting amounts included by virtue of Chapter II of Part V.

Marginal Citations

M97 Source—1984 Sch. 10 5

[F121 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) except where stated under provision included in the scheme pursuant to sub-paragraph (2) below, must not be manifestly less than the market value of shares of the same class at the material time.

(2) The scheme may provide that, if sub-paragraph (3) below applies, scheme shares may be acquired by the exercise of a right obtained under the scheme at a price which is not manifestly less than 85 per cent. of the market value of shares of the same class at the material time.

(3) This sub-paragraph applies if the conditions specified in sub-paragraph (4)(a) and, as the case may be, (b) or (c) below, are met—

(a) where at the time the right is obtained the scheme is not a group scheme, as respects the grantor;

(b) where at the time the right is obtained the scheme is a group scheme, as respects each company to which the scheme is expressed to extend at that time.

(4) The conditions are—

(a) that the company has established, or is at the time the right is obtained a participating company in relation to, a scheme which is at that time an approved savings-related share option scheme or an approved profit sharing scheme (a “qualifying scheme”);

(b) where there is only one qualifying scheme, that every employee eligible to participate in that scheme at the time the right is obtained has, in the twelve months immediately preceding that time, been informed by an appropriate person of the scheme’s existence;

(c) where there is more than one qualifying scheme, that, in the case of each of those schemes, every employee eligible to participate in that scheme at the time the right is obtained has, in the twelve months immediately preceding that time, been informed by an appropriate person of the scheme’s existence.

(5) In determining whether the condition specified in sub-paragraph (4)(a) above is met, the withdrawal of approval under paragraph 3 above with effect from a time before the right is obtained shall be disregarded if the withdrawal takes place retrospectively from a time after the right is obtained.

(6) For the purposes of sub-paragraph (4)(b) and (c) above, an employee has been informed of the existence of a scheme by an appropriate person if he has been informed by one or more of the following—

(a) a company by virtue of employment with which the employee is eligible to participate in the scheme,

(b) the grantor, and

(c) where the scheme under which the right to acquire the shares is obtained is a group scheme, any other company which is a participating company in relation to that scheme.

(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) In this paragraph, references to the material time are to the time the right to acquire the scheme shares is obtained or, if the Board and the grantor agree in writing, such earlier time or times as may be provided in the agreement.]

Textual Amendments

F121 S. 29 substituted (1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 39(1)(7)

PART V U.K. REQUIREMENTS APPLICABLE TO PROFIT SHARING SCHEMES

30 (1) M98 The scheme must provide for the establishment of a body of persons resident in the United Kingdom (“the trustees”)— U.K.

(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) M99 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) M100 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) M101 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.

Marginal Citations

M98 Source—1978 Sch.9 1(3)

M99 Source—1978 Sch.9 3(2)

M100 Source—1978 Sch.9 1 (4); 1983 s.25(1)

M101 Source—1978 s.53(4)

31 U.K. M102 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.

Marginal Citations

M102 Source—1978 Sch.9 12

32 (1) M103 The trust instrument must contain a provision prohibiting the trustees from disposing of any shares, except as mentioned in paragraph 1(1)(a), (b) or (c) 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.

Marginal Citations

M103 Source—1978 Sch.9 13; 1980 s.46(13)

33 U.K. M104 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.

Modifications etc. (not altering text)

C25 Sch. 9 para. 33(a) modified (with effect in accordance with s. 101(11)(12) of the affecting Act) by Finance Act 1994 (c. 9), s. 101(6) (with s. 101(14))

Marginal Citations

M104 Source—1978 Sch.9 14

34 U.K. M105 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.

Marginal Citations

M105 Source—1978 Sch.9 15

35 (1) M106 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. U.K.

(2) M107 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.

Marginal Citations

M106 Source—1978 Sch.9 9

M107 Source—1978 Sch.9 10

36 (1) M108 Subject to paragraphs 8 and 35 above, every person who at any time—

(a) is a full-time 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.

Marginal Citations

M108 Source—1978 Sch.9 2; 1983 s.25(4)

PART VI U.K. MATERIAL INTEREST TEST

[F122 Interests under trusts U.K.

Textual Amendments

F122 Sch. 9 Pts. 1, 2, 6 repealed (except for specified purposes) (6.4.2003 with effect in accordance with s. 723(1) of the repealing Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 112(1), Sch 8 Pt. 1 (with Sch. 7)

37 (1) This M109 paragraph applies in a case where— U.K.

(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.

Marginal Citations

M109 Source—1987 Sch.4 6-8

Options etc. U.K.

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. U.K.

(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 U.K.

39 U.K. 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.

[F123 Shares subject to an employee benefit trust U.K.

Textual Amendments

F123 Sch. 9 para. 40 and preceding cross-heading inserted by Finance Act 1989 (c. 26), s. 65

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. U.K.

(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 U.K. FURTHER PROVISIONS RELATING TO PROFIT SHARING SCHEMES

Modifications etc. (not altering text)

C26 Sch. 10 excluded (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 238(2)(c)(4), 289 (with ss. 60, 101(1), 171, 201(3))

C27 Sch. 10 modified (29.4.1996) by Finance Act 1996 (c. 8), s. 116(3)

C28 Sch. 10 continued (6.4.2003 with effect in accordance with s. 723(1) of the affecting Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), s. 418(3) (with Sch. 7)

Limitations on contractual obligations of participants U.K.

1 (1) M110 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

(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) M111 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) M112 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.

Marginal Citations

M110 Source—1978 s.54(2); 1979 Sch.7

M111 Source—1978 s.54(1A); 1980 s.46(2)

M112 Source—1978 s.54(3)

The period of retention U.K.

2 M113 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 M114 Employment Protection (Consolidation) Act 1978 or the M115 Contracts of Employment and Redundancy Payments Act (Northern Ireland) 1965; or

(b) the date on which the participant reaches [F124 the relevant age]; or

(c) the date of the participant’s death; [F125 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.

[F126 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, to pensionable age and, in the case of a scheme approved on or after that day, to the specified age.]

Textual Amendments

F124 Words in Sch. 10 para. 2(b) substituted by Finance Act 1991 (c. 31, SIF 63:1), s. 38(3)

F125 Word at the end of Sch. 10 para. 2(c) inserted (retrospectively) by Finance Act 1988 (c. 39), s. 146, Sch. 13 paras. 1, 9

F126 Words in Sch. 10 para. 2 inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 38(3)

Marginal Citations

M113 Source—1978 s.54(4), (5); 1980 s.46(3); 1986 s.24(3)

M114 1978 c. 44.

M115 1965 c. 19 (N.I.).

The appropriate percentage U.K.

3 M116 Subject to paragraph 6(4) below, for the purposes of any of the relevant provisions charging an individual to income tax under Schedule E by reason of the occurrence of an event relating to any of his shares, any reference to “the appropriate percentage” in relation to those shares shall be determined according to the time of that event, as follows—

(a) if the event occurs before the fourth anniversary of the date on which the shares were appropriated to the participant and paragraph (c) below does not apply, the appropriate percentage is 100 per cent.;

(b) if the event occurs on or after the fourth anniversary and before the fifth anniversary of the date on which the shares were appropriated to the participant and paragraph (c) below does not apply, the appropriate percentage is 75 per cent.;

(c) if the participant—

(i) 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

(ii) reaches [F127 the relevant age],

and the event occurs before the fifth anniversary of the date on which the shares were appropriated to him, the appropriate percentage is 50 per cent.

[F128 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, to pensionable age and, in the case of a scheme approved on or after that day, to the specified age.]

Textual Amendments

F127 Words in Sch. 10 para. 3(c)(ii) substituted by Finance Act 1991 (c. 31, SIF 63:1), s. 38(3)

F128 Words in Sch. 10 para. 3 inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 38(3)

Marginal Citations

M116 Source—1978 s.54(7); 1980 s.46(5); 1985 s.45(3)

Valid from 03/05/1994

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 pensionable age.

(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 pensionable age.

(5) Where the scheme is approved on or after 25th July 1991, the relevant age is the specified age.

Capital receipts U.K.

4 (1) M117 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— U.K.

(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.

Marginal Citations

M117 Source—1978 s.56(2)-(5)

Company reconstructions U.K.

5 (1) M118 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 section 209(2)(c);

(b) share capital issued in circumstances such that section 210(1) applies; and

(c) share capital to which section 249 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 [F129 1992] Act.

Textual Amendments

F129 Word in Sch. 10 para. 5(7) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 10 para. 14(58) (with ss. 60, 101(1), 171, 201(3))

Marginal Citations

M118 Source—1978 s.57; 1979(C) Sch.7

Valid from 03/05/1994

[F130 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. U.K.

(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.]

Textual Amendments

F130 Sch. 10 para. 5A inserted (with effect in accordance with s. 101(8) of the amending Act) by Finance Act 1994 (c. 9), s. 101(4) (with s. 101(13))

Excess or unauthorised shares U.K.

6 (1) M119 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 charging an individual to income tax under Schedule E 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.

Marginal Citations

M119 Source—1978 s.58; 1983 s.25(1)

P.A.Y.E. deduction of tax U.K.

7 (1) M120 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 a participant in the scheme is chargeable to income tax under Schedule E 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 203 and any regulations made under that section as an amount of income payable to the recipient and assessable to income tax under Schedule E, 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 to which, as a result of the transfer, the participant is chargeable 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.

Marginal Citations

M120 Source—1978 s.59; 1980 s.46(8); 1987 Sch.15 11(3)

Section 188.

SCHEDULE 11 U.K. RELIEF AS RESPECTS TAX ON PAYMENTS ON RETIREMENT OR REMOVAL FROM OFFICE OR EMPLOYMENT

PART I U.K. GENERAL PROVISIONS

Preliminary U.K.

1 M121 Relief shall be allowed in accordance with the following provisions of this Schedule in respect of tax chargeable by virtue of section 148, where a claim is made under section 188(6).

Marginal Citations

M121 Source—1970 Sch.8 1

2 (1) M122 A person shall not be entitled to relief under this Schedule in so far as such relief, together with any personal relief allowed to him, would reduce the amount of income on which he is chargeable below the amount income tax on which he is entitled to charge against any other person, or to deduct, retain or satisfy out of any payment which he is liable to make to any other person.

(2) In sub-paragraph (1) above “personal relief” means relief under Chapter I of Part VII.

Marginal Citations

M122 Source—970 Sch.8 2]

Relief by reduction of sums chargeable U.K.

3 M123 In computing the charge to tax in respect of a payment chargeable to tax under section 148, being a payment made in respect of an office or employment in which the service of the holder includes foreign service, there shall be deducted from the payment a sum which bears to the amount which would be chargeable to tax apart from this paragraph the same proportion as the length of the foreign service bears to the length of the service before the relevant date.

Marginal Citations

M123 Source—1970 Sch. 8 6

Relief by reduction of tax U.K.

4 (1) M124 Subject to sub-paragraph (2)below, in the case of any payment in respect of which tax is chargeable under section 148,the following relief shall be allowed by way of deduction from the tax chargeable by virtue of that section, that is to say, there shall be ascertained—

(a) the amount of tax which would be chargeable apart from this paragraph in respect of the income of the holder or past holder of the office or employment for the chargeable period of which the payment is treated as income;

(b) the amount of tax which would have been so chargeable if the payment had not been made;

and the amount to be deducted shall be half the difference between the amount ascertained at (a)and the amount ascertained at (b).

(2) In the case of a payment which exceeds £50,000,this paragraph applies as if it were a payment of £50,000exactly.

Marginal Citations

M124 Source—1970 Sch.8 7; 1981 s.31(3); 1982 s.43(1)

5 (1) M125 Subject to sub-paragraph (2)below, in the case of a payment which exceeds £50,000and in respect of which tax is chargeable under section 148,the following relief shall be allowed by way of deduction from the tax chargeable by virtue of that section, that is to say, there shall be ascertained—

(a) the amount of tax which would be chargeable apart from this paragraph and paragraph 4above in respect of the income of the holder or past holder of the office or employment for the chargeable period of which the payment is treated as income; and

(b) the amount of tax which would have been so chargeable if the amount of the payment had been £50,000exactly;

and the amount to be deducted shall be one-quarter of the difference between the amount ascertained at (a)and the amount ascertained at (b).

(2) In the case of a payment which exceeds £75,000,this paragraph applies as if it were a payment of £75,000exactly.

(3) Any relief allowed by virtue of this paragraph shall be in addition to that allowed by virtue of paragraph 4above.

Marginal Citations

M125 Source—1970 Sch.8 7A; 1982 s.43(1)

6 M126 Where tax is chargeable under section 148in respect of two or more payments to or in respect of the same person in respect of the same office or employment and is so chargeable for the same chargeable period, those payments shall be treated for the purposes of paragraphs 4and 5above as a single payment of an amount equal to their aggregate amount.

Marginal Citations

M126 Source—1970 Sch.8 10; 1986 s.45(2)

7 M127 Where tax is chargeable under section 148in respect of two or more payments to or in respect of the same person in respect of different offices or employments and is so chargeable for the same chargeable period, paragraphs 4to 6above shall apply as if those payments were made in respect of the same office or employmentF131 .

Textual Amendments

F131 Ceases to have effect in respect of payments received on or after 6April 1988unless a notice is given in relation to it in accordance with para.12of this Schedule—see 1988(F) s.74(2), (3)and Sch.14 Part IV.

Marginal Citations

M127 Source—1970 Sch.8 11

Supplemental U.K.

8 M128 Any reference in this Schedule to the emoluments of an office or employment is a reference to those emoluments exclusive of any payment chargeable to tax under section 148; and in calculating for any purpose of this Schedule the amount of such emoluments—

(a) there shall be included any balancing charge to which the holder of the office or employment is liable under [F132 Part II of the 1990 Act], and

(b) there shall be deducted any allowances under F133 . . . [F134 Part II of the 1990 Act] and any allowances for expenses under section 198 or 201, to which he is entitled,

and any such charges or allowances for a chargeable period shall, for the purpose of ascertaining the amount of the emoluments for any year of service, be treated as accruing from day to day, and shall be apportioned in respect of time accordingly.

Textual Amendments

F132 1990(C) s.164and Sch.1. para.8(39)(a).Previously

“section 33 of the 1968 Act or under Chapter I of Part III of the Finance Act 1971 (“the 1971 Act”)”.

F133 Words in Sch. 11 para. 8(b) repealed (retrospectively) by Finance Act 1994 (c. 9), Sch. 17 para. 9, Sch. 26 Pt. 5(22)

F134 1990(C) s.164and Sch.1. para.8(39)(b).Previously

“Chapter I of Part III of the 1971 Act”.

Marginal Citations

M128 Source—1970 Sch.8 14; 1971 Sch.8 16

9 M129 In this Schedule “the relevant date” means, in relation to a payment not being a payment in commutation of annual or other periodical payments, the date of the termination or change in respect of which it is made and, in relation to a payment in commutation of annual or other periodical payments, the date of the termination or change in respect of which those payments would have been made.

Marginal Citations

M129 Source—1970 Sch.8 15

10 In this Schedule, “foreign service”, in relation to an office or employment, means— M130

(a) service before the year 1974-75 such that tax was not chargeable in respect of the emoluments of the office or employment—

(i) in the case of the year 1956-57 or any subsequent chargeable period, under Case I of Schedule E;

(ii) in the case of any preceding year of assessment, under Schedule E; or

(b) service after the year 1973-74 such that the emoluments from the office or employment were not chargeable under Case I of Schedule E (or would not have been so chargeable, had there been any) or that a deduction equal to their whole amount 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 193(1) in charging them.

Marginal Citations

M130 Source—1970 Sch.8 16; 1974 s.21(4); 1977 s.31(3)

11 Any reference in this Schedule to the amount of tax to which a person is or would be chargeable is a reference to the amount of tax to which he is or would be chargeable either by assessment or by deduction. M131

Marginal Citations

M131 Source—1970 Sch.8 17

PART II U.K. PAYMENTS IN PURSUANCE OF PRE-10th MARCH 1981 OBLIGATIONS

12 M132 Where a payment is made in pursuance of an obligation incurred before 10th March 1981, the person chargeable to tax in respect of it may, by notice given to the inspector within six years after the year of assessment in which the payment is made, elect that Part I of this Schedule shall have effect in relation to the payment subject to the modifications contained in the following provisions of this Part, and those provisions shall have effect accordingly (and not otherwise).

Marginal Citations

M132 Source—1981 s.31(7)

13 M133 The following paragraphs shall be inserted immediately before paragraph 3—

In computing the charge to tax in respect of a payment chargeable to tax under section 148, not being a payment of compensation for loss of office, there shall be deducted from the payment a sum equal to the amount (if any) by which the standard capital superannuation benefit for the office or employment in respect of which the payment is made exceeds £10,000.

2B (1) In this Schedule “the standard capital superannuation benefit”, in relation to an office or employment, means a sum arrived at as follows, that is to say—

(a) there shall be ascertained the average for one year of the holder’s emoluments from the office or employment for the last three years of his service before the relevant date (or for the whole period of his service if less than three years);

(b) one-twentieth of the amount ascertained at (a) shall be multiplied by the whole number of complete years of the service of the holder in the office or employment; and

(c) there shall be deducted from the product at (b) a sum equal to the amount, or, as the case may be, to the value at the relevant date, of any lump sum (not chargeable to tax) received or receivable by the holder in respect of the office or employment in pursuance of any such scheme or fund as was described in section 221(1) and (2) of the 1970 Act or is described in section 596.

(2) In sub-paragraph (1)(c) above the reference to a lump sum receivable by the holder includes a reference to a lump sum that would be receivable by him if he had exercised or refrained from exercising (with any necessary consent) any option or other right conferred on him by the rules of the scheme or fund.

Where tax is chargeable under section 148 in respect of two or more payments to which paragraph 2A above applies, being payments made to or in respect of the same person in respect of the same office or employment or in respect of different offices or employments held under the same employer or under associated employers, then—

(a) paragraph 2A above shall apply as if those payments were a single payment of an amount equal to their aggregate amount and, where they are made in respect of different offices or employments, as if the standard capital superannuation benefit were an amount equal to the sum of the standard capital superannuation benefits for those offices or employments, and

(b) where the payments are treated as income of different chargeable periods, the relief to be granted under that paragraph in respect of a payment chargeable for any such period shall be the amount by which the relief computed in accordance with the preceding provision in respect of that payment and any payments chargeable for previous chargeable periods exceeds the relief in respect of the last mentioned payments;

and where the standard capital superannuation benefit for an office or employment in respect of which two or more of the payments are made is not the same in relation to each of those payments, it shall be treated for the purpose of this paragraph as equal to the higher or highest of those benefits.”

Marginal Citations

M133 Source—1970 Sch.8 3, 4, 5; 1970(F) Sch.5 Pt.III 12 (6); 1971 Sch.3 12(6); 1978 s.24(1), (2)

14 M134 In paragraph 3, after the words “from the payment” there shall be inserted the words “ (in addition to any deduction allowed under the preceding provisions of this Schedule) ”.

Marginal Citations

M134 Source—1970 Sch.8 6

15 M135 In paragraph 4(1), for the words following sub-paragraph (b) there shall be substituted the following words—

“(c) the difference between the respective amounts of tax which would be so chargeable on the assumptions—

(i) that the appropriate fraction only of the payment (after deducting any relief applicable thereto under the preceding provisions of this Schedule) had been made, and

(ii) that no part of the payment had been made,

and disregarding, in each case, any other emoluments of the office or employment,

and the amount to be deducted shall be the difference between the amount ascertained at (a) and the sum of the amount ascertained at (b) and the appropriate multiple of the difference ascertained at (c).”

Marginal Citations

M135 Source—1970 Sch.8 7

16 M136 The following paragraphs shall be inserted after paragraph 5—

“5A (1) Where the income of the holder or past holder of the office or employment for the chargeable period of which the payment is treated as income includes income, income tax on which he is entitled to charge against any other person, or to deduct, retain or satisfy out of any payment which he is liable to make to any other person, the amounts referred to in sub-paragraphs (a) to (c) of paragraph 4 above shall be calculated as if that tax were not chargeable in respect of that income.

(2) Where for any year of assessment an individual claims relief under paragraph 4 above, and also under section 550 or Schedule 2, or under both that section and that Schedule, then, in computing the relief under paragraph 4 above, his income shall be deemed to include—

(a) in respect of any amount which would otherwise be included therein by virtue of section 547(1)(a), no greater amount than the appropriate fraction thereof within the meaning of section 550, and

(b) in respect of any chargeable sum within the meaning of Schedule 2 (including two or more sums treated for the purposes of paragraph 3 of that Schedule as one chargeable sum), no greater amount than the balance (if any) of the yearly equivalent thereof remaining after the making of any deduction required by that paragraph.

In this Schedule “the appropriate fraction” (except in paragraph 5A(2)(a)) and “the appropriate multiple”, in relation to any payment, mean respectively—

(a) where the payment is not a payment of compensation for loss of office, one-sixth and six, and

(b) where the payment is a payment of compensation for loss of office, one divided by the relevant number of years of unexpired service, and that number of years,

and for the purposes of this paragraph “the relevant number of years of unexpired service” means the number of complete years taken into account in calculating the amount of the payment, being years for which the holder of the office or employment would have been entitled (otherwise than by virtue of arrangements made in contemplation of his retirement or removal or of any relevant change in the functions or emoluments of the office or employment) to retain the office or employment or its full emoluments, and where the period so taken into account is less than one complete year or exceeds an exact number of years, it shall be treated for the purposes of this paragraph as one complete year or as the next higher number of complete years, as the case may be.”

Marginal Citations

M136 Source—1970 Sch.8 8, 9

17 M137 The following proviso shall be added at the end of paragraph 6— “Provided that, where the appropriate fraction and the appropriate multiple are not the same for each of the payments, the calculations of relief under paragraph 4 above shall be made separately in relation to each payment or payments having a different appropriate fraction and multiple, and in any such calculation—

(a) any payment for which the appropriate multiple is lower shall be left out of account for all the purposes of that paragraph, and

(b) in ascertaining the difference at (c) of that paragraph it shall be assumed that the appropriate fraction only of any payment for which the appropriate multiple is higher had been made,

and the relief to be allowed shall be the sum of the reliefs so calculated in respect of the payments respectively. ”

Marginal Citations

M137 Source—1970 Sch.8 10

18 M138 The following words shall be added at the end of paragraph 7—

“and as if any emoluments of any of those offices or employments were emoluments of the same office or employment.”

Marginal Citations

M138 Source—1970 Sch.8 11

19 M139 The following paragraph shall be inserted after paragraph 8—

In this Schedule “payment of compensation for loss of office” means a payment made—

(a) in pursuance of an order of a court in proceedings for wrongful dismissal or otherwise for breach of contract of employment, or by way of settlement of such proceedings or of a claim in respect of which such proceedings could have been brought, or

(b) by way of compensation for the extinguishment of any right the infringement of which would be actionable in such proceedings,

and any question whether, and to what extent, a payment is or is not a payment of compensation for loss of office shall be determined according to all the circumstances and not (or not exclusively) by reference to the terms on which it is expressed to be made.”

Marginal Citations

M139 Source—1970 Sch.8 13

Section 191A.]

[F135 SCHEDULE 11A U.K. Removal Expenses and Benefits

Textual Amendments

F135 Sch. 11A inserted (27.7.1993) by Finance Act 1993 (c. 34), s. 76, Sch. 5 para. 2

Modifications etc. (not altering text)

C29 Sch. 11A modified (6.4.2001 in accordance with reg. 1(1) of the affecting S.I.) by The Social Security (Contributions) Regulations 2001 (S.I. 2001/1004), Sch. 3 Pt. 8 para. 2(7)

F136 Part I U.K. TAX RELIEF

Textual Amendments

F136 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F137 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.

Textual Amendments

F137 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F138 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.

Textual Amendments

F138 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F139 Part II U.K. QUALIFYING EXPENSES AND QUALIFYING BENEFITS

Textual Amendments

F139 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F140 Qualifying removal expenses U.K.

Textual Amendments

F140 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F141 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.

Textual Amendments

F141 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F142 Qualifying removal benefits U.K.

Textual Amendments

F142 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F143 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.

Textual Amendments

F143 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F144 Connection with employment U.K.

Textual Amendments

F144 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F145 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.

Textual Amendments

F145 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F146 The relevant day U.K.

Textual Amendments

F146 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F147 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.

Textual Amendments

F147 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

Part III U.K. F148 ELIGIBLE REMOVAL EXPENSES

Textual Amendments

F148 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F149 Introduction U.K.

Textual Amendments

F149 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F150 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.

Textual Amendments

F150 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F151 Expenses of disposal U.K.

Textual Amendments

F151 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F152 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.

Textual Amendments

F152 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F153 Expenses of acquisition U.K.

Textual Amendments

F153 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F154 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.

Textual Amendments

F154 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F155 Expenses of abortive acquisition U.K.

Textual Amendments

F155 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F156 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.

Textual Amendments

F156 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F157 Expenses of transporting belongings U.K.

Textual Amendments

F157 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F158 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.

Textual Amendments

F158 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F159 Travelling and subsistence expenses U.K.

Textual Amendments

F159 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F160 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.

Textual Amendments

F160 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F161 Bridging loan expenses U.K.

Textual Amendments

F161 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F162 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.

Textual Amendments

F162 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F163 Duplicate expenses U.K.

Textual Amendments

F163 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F164 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.

Textual Amendments

F164 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F165 Power to amend U.K.

Textual Amendments

F165 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F166 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.

Textual Amendments

F166 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F167 Part IV U.K. ELIGIBLE REMOVAL BENEFITS

Textual Amendments

F167 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F168 Introduction U.K.

Textual Amendments

F168 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F169 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.

Textual Amendments

F169 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F170 Benefits in respect of disposal U.K.

Textual Amendments

F170 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F171 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.

Textual Amendments

F171 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F172 Benefits in respect of acquisition U.K.

Textual Amendments

F172 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F173 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.

Textual Amendments

F173 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F174 Benefits in respect of abortive acquisition U.K.

Textual Amendments

F174 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F175 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.

Textual Amendments

F175 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F176 Benefits in respect of the transporting of belongings U.K.

Textual Amendments

F176 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F177 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.

Textual Amendments

F177 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F178 Travelling and subsistence benefits U.K.

Textual Amendments

F178 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F179 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.

Textual Amendments

F179 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F180 Benefits in respect of new residence U.K.

Textual Amendments

F180 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F181 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.

Textual Amendments

F181 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F182 Power to amend U.K.

Textual Amendments

F182 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F183 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.

Textual Amendments

F183 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F184 Part V U.K. THE QUALIFYING LIMIT

Textual Amendments

F184 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F185 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.

Textual Amendments

F185 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F186 Part VI U.K. GENERAL

Textual Amendments

F186 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F187 Interpretation U.K.

Textual Amendments

F187 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F188 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.

Textual Amendments

F188 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F189 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.

Textual Amendments

F189 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F190 27 In this Schedule references to employment include references to any office, and related expressions shall be construed accordingly.

Textual Amendments

F190 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F191 28 References in this Schedule to subsistence are to food, drink and temporary living accommodation.

Textual Amendments

F191 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F192 Commencement U.K.

Textual Amendments

F192 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

F193 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.

Textual Amendments

F193 Sch. 11A inserted (27.7.1993) by 1993 c. 34, s. 76, Sch. 5 para.2

Section 193.

SCHEDULE 12 U.K. FOREIGN EARNINGS

1 This Schedule shall have effect for the purpose of supplementing the provisions of section 193(1).

[F194 Amount of emoluments] U.K.

Textual Amendments

F194 Sch. 12 para. 1A and crossheading inserted (16.7.1992 for the year 1992-93 and subsequent years of assessment) by Finance (No. 2) Act 1992 (c. 48), s. 54(1)(2)

F195 1A For the purposes of section 193(1) 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), 198, 199, 201, 332, 592 or 594.

Textual Amendments

F195 Sch. 12 para. 1A and crossheading inserted (16.7.1992 for the year 1992-93 and subsequent years of assessment) by Finance (No. 2) Act 1992 (c. 48), s. 54(1)(2)

Emoluments eligible for relief U.K.

2 (1) M140 This paragraph has effect where a deduction falls to be allowed under section 193(1) 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 [F196 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 shown to be 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.

Textual Amendments

F196 1989 s.42(5)for 1989-90and subsequent years of assessment. Previously

“emoluments from the relevant employment in respect of which such a deduction is allowed for the year of assessment”.

Marginal Citations

M140 Source—1977 Sch.7 4(1), (2), (5)

Qualifying periods U.K.

3 (1) M141 For the purposes of section 193(1) 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 62 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-sixth of the total number of days in that period.

[F197 (2A) In relation to emoluments from employment as a seafarer, sub-paragraph (2) above shall have effect—

(a) as if the number of days specified in paragraph (a) were [F198 183] instead of 62, and

(b) as if the fraction specified in paragraph (b) were [F199 one half] instead of one sixth;

and for the purposes of this sub-paragraph “employment as a seafarer” means employment consisting of the performance of duties on a ship (or of such duties and of others incidental to them).]

(3) For the purposes of section 193(1) 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.

Textual Amendments

F197 1988(F) s.67for 1988-89and subsequent years subject to certain conditions.

F198 Word in Sch. 12 para. 3(2A) substituted by Finance Act 1991 (c. 31, SIF 63:1), s. 45(1)-(3)

F199 Words in Sch. 12 para. 3(2A) substituted by Finance Act 1991 (c. 31, SIF 63:1), s. 45(1)-(3)

Marginal Citations

M141 Source—1977 Sch.7 1(2), (3), (4)

Supplementary U.K.

4 M142 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.

Marginal Citations

M142 Source—1977 Sch.7 6-8

5 M143 Notwithstanding section 132(4)(b), there shall be treated for the purposes of section 193(1) and this Schedule as performed outside the United Kingdom any duties which a person performs on a vessel or aircraft engaged on—

(a) a voyage or journey 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 or journey 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.

Marginal Citations

M143 1964 c. 29.

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 193(1), 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 M144 In this Schedule references to an employment include references to an office.

Marginal Citations

M144 Source—1977 Sch.7 11

Valid from 11/05/2001

SCHEDULE 12AA U.K. MILEAGE ALLOWANCES: INTERPRETATION

Introduction U.K.

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 U.K.

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 U.K.

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 U.K.

4 (1) The approved amount for mileage allowance payments that is applicable to a kind of vehicle is—

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—

(a)

the employer is the same;

(b)

the employers are partnerships or bodies and an individual or another partnership or body has control over both of them; or

(c)

the employers are associated companies (as defined in section 416).

Section 168(12) (meaning of “control”) applies for the purposes of paragraph (b).

(3)

The Treasury may by regulations amend sub-paragraph (2) so as to alter the rates or rate bands.

The approved amount: passenger payments U.K.

5 (1) The approved amount for passenger payments is—

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 U.K.

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 U.K.

7 “Employment” includes an office and “employee” includes an office-holder.

Tax year U.K.

8 “Tax year” means a year of assessment.

Valid from 31/07/1998

Schedule 12A U.K. Ordinary commuting and private travel

Introduction U.K.

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.

Modifications etc. (not altering text)

C30 Sch. 12A paras. 1(2), 2-7 applied (with effect in accordance with reg. 1(2) of the 2001 affecting S.I.) by The Social Security (Contributions) Regulations 1979 (S.I. 1979/591), Sch. 1ZC Pt. 8 para. 3 (as inserted by The Social Security (Contributions) (Amendment No. 3) Regulations 2001 (S.I. 2001/596), Sch. 2)

C31 Sch. 12A paras. 1(2), 2-7 applied (6.4.2001 in accordance with reg. 1(1) of the affecting S.I.) by The Social Security (Contributions) Regulations 2001 (S.I. 2001/1004), Sch. 3 Pt. 8 para. 3

Ordinary commuting and private travel U.K.

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.

Modifications etc. (not altering text)

C32 Sch. 12A paras. 1(2), 2-7 applied (with effect in accordance with reg. 1(2) of the 2001 affecting S.I.) by The Social Security (Contributions) Regulations 1979 (S.I. 1979/591), Sch. 1ZC Pt. 8 para. 3 (as inserted by The Social Security (Contributions) (Amendment No. 3) Regulations 2001 (S.I. 2001/596), Sch. 2)

C33 Sch. 12A paras. 1(2), 2-7 applied (6.4.2001 in accordance with reg. 1(1) of the affecting S.I.) by The Social Security (Contributions) Regulations 2001 (S.I. 2001/1004), Sch. 3 Pt. 8 para. 3

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.

Modifications etc. (not altering text)

C34 Sch. 12A paras. 1(2), 2-7 applied (with effect in accordance with reg. 1(2) of the 2001 affecting S.I.) by The Social Security (Contributions) Regulations 1979 (S.I. 1979/591), Sch. 1ZC Pt. 8 para. 3 (as inserted by The Social Security (Contributions) (Amendment No. 3) Regulations 2001 (S.I. 2001/596), Sch. 2)

C35 Sch. 12A paras. 1(2), 2-7 applied (6.4.2001 in accordance with reg. 1(1) of the affecting S.I.) by The Social Security (Contributions) Regulations 2001 (S.I. 2001/1004), Sch. 3 Pt. 8 para. 3

Permanent and temporary workplaces U.K.

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.

Modifications etc. (not altering text)

C36 Sch. 12A paras. 1(2), 2-7 applied (with effect in accordance with reg. 1(2) of the 2001 affecting S.I.) by The Social Security (Contributions) Regulations 1979 (S.I. 1979/591), Sch. 1ZC Pt. 8 para. 3 (as inserted by The Social Security (Contributions) (Amendment No. 3) Regulations 2001 (S.I. 2001/596), Sch. 2)

C37 Sch. 12A paras. 1(2), 2-7 applied (6.4.2001 in accordance with reg. 1(1) of the affecting S.I.) by The Social Security (Contributions) Regulations 2001 (S.I. 2001/1004), Sch. 3 Pt. 8 para. 3

The 24 month rule and fixed term appointments U.K.

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.

Modifications etc. (not altering text)

C38 Sch. 12A paras. 1(2), 2-7 applied (with effect in accordance with reg. 1(2) of the 2001 affecting S.I.) by The Social Security (Contributions) Regulations 1979 (S.I. 1979/591), Sch. 1ZC Pt. 8 para. 3 (as inserted by The Social Security (Contributions) (Amendment No. 3) Regulations 2001 (S.I. 2001/596), Sch. 2)

C39 Sch. 12A paras. 1(2), 2-7 applied (6.4.2001 in accordance with reg. 1(1) of the affecting S.I.) by The Social Security (Contributions) Regulations 2001 (S.I. 2001/1004), Sch. 3 Pt. 8 para. 3

Depots and bases U.K.

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.

Modifications etc. (not altering text)

C40 Sch. 12A paras. 1(2), 2-7 applied (with effect in accordance with reg. 1(2) of the 2001 affecting S.I.) by The Social Security (Contributions) Regulations 1979 (S.I. 1979/591), Sch. 1ZC Pt. 8 para. 3 (as inserted by The Social Security (Contributions) (Amendment No. 3) Regulations 2001 (S.I. 2001/596), Sch. 2)

C41 Sch. 12A paras. 1(2), 2-7 applied (6.4.2001 in accordance with reg. 1(1) of the affecting S.I.) by The Social Security (Contributions) Regulations 2001 (S.I. 2001/1004), Sch. 3 Pt. 8 para. 3

Area-based employees U.K.

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.

Modifications etc. (not altering text)

C42 Sch. 12A paras. 1(2), 2-7 applied (with effect in accordance with reg. 1(2) of the 2001 affecting S.I.) by The Social Security (Contributions) Regulations 1979 (S.I. 1979/591), Sch. 1ZC Pt. 8 para. 3 (as inserted by The Social Security (Contributions) (Amendment No. 3) Regulations 2001 (S.I. 2001/596), Sch. 2)

C43 Sch. 12A paras. 1(2), 2-7 applied (6.4.2001 in accordance with reg. 1(1) of the affecting S.I.) by The Social Security (Contributions) Regulations 2001 (S.I. 2001/1004), Sch. 3 Pt. 8 para. 3

Section 238(5), 241(4)

SCHEDULE 13 U.K. COLLECTION OF ADVANCE CORPORATION TAX

Modifications etc. (not altering text)

C44 Sch. 13 excluded (22.3.1992) by S.I. 1992/569, reg. 17

C45 See 1970(M) s.87—interest on overdue advance corporation tax.

Duty to make returns U.K.

1 (1) M145 A company shall for each of its accounting periods make, in accordance with this Schedule, returns to the collector of the franked payments made and franked investment income received by it in that period and of the advance corporation tax (if any) payable by it 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 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 made no franked payments.

Modifications etc. (not altering text)

C46 See s.250—returns in connection with stock dividends.

Marginal Citations

M145 Source—1972 Sch.14

Contents of return U.K.

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 made by it in that period;

(b) the amount of franked investment income, if any, received by it in that period, and

(c) if any advance corporation tax is payable in respect of those payments, the amount thereof.

(2) The return shall specify 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.

(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 at the rate of advance corporation tax in force for the financial year in which the return period ends on an amount which, when that tax is added to it, is equal to that excess or, if no amount is shown under sub-paragraph (1)(b) above, to the amount shown under sub-paragraph (1)(a) above.

Modifications etc. (not altering text)

C47 For rates of corporation tax see Tables Kand Lin Vol.1.

Payment of tax U.K.

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 the inspector that there is a franked payment which ought to have been and has not been included in a return, or if the inspector is dissatisfied with any return, he 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.

Valid from 03/05/1994

International headquarters companies U.K.

3A (1) This paragraph and paragraph 3B below apply where—

(a) a company pays a foreign income dividend in a return period, and

(b) at the time it pays the dividend the company treats itself as an international headquarters company by virtue of section 246S(9).

(2) The return made by the company for the return period—

(a) shall state that the company has so treated itself;

(b) shall show the basis on which it has so treated itself;

(c) shall not include the amount of the dividend in the amount shown under paragraph 2(1)(d) above;

(d) shall state separately that the dividend was paid and show its amount.

(3) The dividend shall be treated for the purposes of section 246F(1) and (2), paragraph 2(5) above and paragraph 4A below as if it had not been paid.

3B (1) Without prejudice to paragraph 3 above, if at any time before the end of the accounting period in which the return period mentioned in paragraph 3A(1) above falls the inspector is not satisfied that there was a reasonable basis for the company treating itself as mentioned in paragraph 3A(1) he 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 the company had not so treated itself.

(2) Where an assessment which takes account of the dividend mentioned in paragraph 3A(1) above is made under sub-paragraph (1) above, then, subject to any appeal—

(a) the company shall be deemed for the purposes of Chapter VA of this Part not to have treated itself as an international headquarters company by virtue of section 246S(9) at the time it paid the dividend;

(b) paragraph 3A(3) above shall not apply to the dividend.

(3) In a case where—

(a) the company is not an international headquarters company in the accounting period in which the return period mentioned in paragraph 3A(1) above falls, and

(b) as regards any relevant return period amount X exceeds amount Y,

after the end of the accounting period the inspector may make an assessment on the company for an amount of advance corporation tax equal to the excess; and a relevant return period is a return period falling within the accounting period in question.

(4) For the purposes of sub-paragraph (3) above—

(a) amount X is the amount of advance corporation tax which, if the company had not treated itself as an international headquarters company at any time in the accounting period and had made a return for the relevant return period under paragraph 2 above accordingly, would have been payable by the company in respect of the relevant return period under paragraph 2(6) above;

(b) amount Y is the aggregate of the amounts mentioned in sub-paragraph (5) below.

(5) The amounts referred to in sub-paragraph (4)(b) above are—

(a) the amount (if any) of advance corporation tax which was in fact payable by the company under paragraph 2(6) above in respect of the relevant return period,

(b) any amount of advance corporation tax to which the company has been assessed under sub-paragraph (1) above in respect of that period, and

(c) any amount of advance corporation tax to which the company has been assessed under paragraph 3 above in respect of that period and which is attributable to foreign income dividends.

(6) Any advance corporation tax due under an assessment made by virtue of sub-paragraph (3) 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 the company had not treated itself as an international headquarters company at any time in the accounting period.

Receipt of franked investment income after payment of advance corporation tax U.K.

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) 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 the amount of the repayment shall not exceed the amount of the tax credit comprised in the franked investment income received; and in any other case the repayment shall not exceed the amount of the tax credit comprised in so much of that franked investment income, if any, as exceeds the amount of the franked payments made in that return period.

Valid from 03/05/1994

Receipt of foreign income dividends after payment of advance corporation tax U.K.

4A (1) This paragraph shall have effect where—

(a) a return has been made of foreign income dividends paid in any return period falling within an accounting period and advance corporation tax has been paid in respect of those dividends, and

(b) the company receives foreign income dividends 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 foreign income dividends are received whether or not it has made any franked payments, or paid any foreign income dividends, in that period, and, subject to sub-paragraphs (3) to (5) below, shall be entitled to repayment of any advance corporation tax paid (and not repaid) in respect of foreign income dividends paid in the accounting period in question.

(3) If no foreign income dividends were paid by the company in the return period for which a return is made by virtue of sub-paragraph (2) above (the relevant return period), the amount of the repayment shall not exceed the amount which would have been payable under paragraph 2 above as regards the relevant return period if the company—

(a) had paid in the period foreign income dividends of an amount equal to the foreign income dividends actually received by it in the period and had paid in the period no other foreign income dividends or franked payments, and

(b) had received in the period no foreign income dividends or franked investment income.

(4) If at least one foreign income dividend was paid by the company in the relevant return period and the amount of the foreign income dividends received by it in the period exceeds the amount of the foreign income dividends paid by it in the period, the amount of the repayment shall not exceed the amount which would have been payable under paragraph 2 above as regards the relevant return period if the company—

(a) had paid in the period foreign income dividends of an amount equal to the foreign income dividends actually received by it in the period and had paid in the period no other foreign income dividends or franked payments, and

(b) had received in the period foreign income dividends of an amount equal to the foreign income dividends actually paid by it in the period and had received in the period no other foreign income dividends or franked investment income.

(5) If at least one foreign income dividend was paid by the company in the relevant return period and the amount of the foreign income dividends paid by it in the period exceeds the amount of the foreign income dividends received by it in the period, the company shall not be entitled to a repayment under this paragraph as regards the relevant return period.

Claims for set-off in respect of franked investment income received by a company U.K.

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 the inspector 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.

Valid from 03/05/1994

Claims for set-off in respect of foreign income dividends received by a company U.K.

6A (1) Where under paragraph 2 or 4A above foreign income dividends received by a company fall 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 the foreign income dividends in the appropriate return shall be treated as a claim by the company to have them so taken into account, and any such claim shall be supported by such evidence as the inspector may reasonably require.

(2) Paragraph 6 above shall apply in relation to a claim under this paragraph as it applies in relation to a claim under paragraph 5 above.

Qualifying distributions which are not payments and payments of uncertain nature U.K.

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 shall be shown in respect of the qualifying distribution or payment under paragraph 2(1)(a) or (c) above and paragraph 3(1) above shall not apply to the payment of advance corporation tax in respect thereof.

(3) 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, apart from that distribution or payment, no franked payment is made in that period, a return containing those particulars shall be made for that period under paragraph 1 above.

(4) 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 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; and

(b) for the purposes of the application of sub-paragraph (3) of that paragraph to any subsequent return period, the amount of that franked payment shall be taken to be the amount so calculated.

Valid from 29/04/1996

Amended return where company becomes aware of an error U.K.

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.

Modifications etc. (not altering text)

C48 Sch. 13 para. 7A applied (with modifications) (1.7.1997 with effect in accordance with reg. 6(2) of the amending instrument the appointed day being 1.7.1997 (S.I. 1998/3173 art. 2)) by The Manufactured Dividends (Tax) Regulations 1997 (S.I. 1997/993), reg. 6

Items included in error U.K.

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, the inspector 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 U.K.

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.

Valid from 03/05/1994

Manufactured foreign income dividends U.K.

9A (1) This paragraph applies in any case where, by virtue of paragraph 2(2) and (6) of Schedule 23A, a company is treated as having paid a foreign income dividend.

(2) No amount shall be shown under paragraph 2(1)(d) above in respect of the dividend which is treated as having been paid, but the company’s return for the return period in which the dividend is treated as having been paid shall state separately that it was treated as paid and shall show its amount.

Assessments and due date of tax U.K.

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 [F200 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.

Textual Amendments

F200 1989 s.149(3)(c)—not to affect the making of assessments before 1983-84or for accounting periods ending before 1April 1983.Previously

“sections 36 and 39”.

Modifications etc. (not altering text)

C49 Sch. 13 para. 10 applied (with modifications) (1.7.1997) by The Manufactured Dividends (Tax) Regulations 1997 (S.I. 1997/993), reg. 6

Valid from 29/04/1996

SCHEDULE 13A U.K. Surrenders of advance corporation tax

General U.K.

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 U.K.

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. U.K.

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 U.K.

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 U.K.

5 (1) Where a claim could be made by being included in a return under section 11 of the Management Act, or an amendment of such a return, it must be so made.

(2) Section 42 of and Schedule 1A to the Management Act (procedure for making claims) shall 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. U.K.

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 U.K.

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 U.K.

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 U.K.

10 Nothing in the Management Act shall be read as allowing a claim to be amended.

Further self-assessments by the surrendering company U.K.

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 U.K.

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 U.K.

14 (1) The standard provisions about enquiries into self-assessments (which correspond, in general terms, to certain provisions of section 28A of the Management Act) 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 self-assessment under section 28A(4) of that Act.

(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 against an amendment of a self-assessment under section 28A(2) or (4) of the Management Act.

(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 U.K.

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.

Valid from 27/07/1999

Schedule 13B U.K. Children’s Tax Credit

Child living with more than one adult: married and unmarried couples U.K.

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.

(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), 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

(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 U.K.

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.

(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.).

(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 U.K.

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.

Change of circumstances U.K.

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 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—

(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).

SCHEDULE 14 U.K. PROVISIONS ANCILLARY TO SECTION 266

PART I U.K. MODIFICATION OF SECTION 266 IN CERTAIN CASES

Husband and wife U.K.

1 (1) M146 The references in section 266 to an individual’s spouse shall include any person who was that individual’s spouse at the time the insurance or contract was made, unless the marriage was dissolved before 6th April 1979.

(2) Where an election under section 287 is in force, the relief to which either the husband or the wife is entitled under section 266 in respect of an insurance or contract on the life of the other or made by the other shall not be affected by section 287(4), (5) or (6) F201 .

(3) Where throughout a year of assessment a woman is a married woman living with her husband, then—

(a) if no election under section 283 is in force, section 274 and paragraph 6 below shall apply as if any relief to which the wife is entitled under section 266 were relief to which the husband is entitled; and

(b) if such an election is in force, section 274 and paragraph 6 below shall apply separately to the amounts paid by each of them, but as if for the limit specified in that section there were substituted, in relation to each of them, a limit of £750 or one-twelfth of their total income, whichever is the greater, plus any amount by which the payments in respect of which relief can be given to the other fall short of the limit so substituted F201 .

Textual Amendments

F201 Sch. 14 para. 1(2)(3) repealed by Finance Act 1988 (c. 39), Sch.14 Part VIII, Note 6

Marginal Citations

M146 Source—1976 Sch.4 8, 9, 10

Premiums payable to friendly societies and industrial assurance companies U.K.

2 (1) M147 This paragraph applies to—

(a) a policy issued in the course of an industrial assurance business; and

(b) a policy issued by a [F202 friendly society] in the course of tax exempt life or endowment business (as defined in section 466).

(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.

Textual Amendments

F202 Words in Sch. 14 para. 2(1)(b) substituted (19.2.1993) by Finance (No. 2) Act 1992 (c. 48), s. 56, Sch. 9 para. 18(2); S.I. 1993/236, art.2

Marginal Citations

M147 Source—1976 Sch.4 11; 1979/1576; 1982 s.35(2), (4); 1970 s.10

3 (1) M148 Where a policy is issued or a contract is made by a [F203 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. U.K.

(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 [F203 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 [F204 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 [F204 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 F205 . . . .

(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 M149 Decimal Currency Act 1969 shall, with the necessary modifications, apply in relation to regulations made under this paragraph.

Textual Amendments

F203 Words in Sch. 14 para. 3(1)(3)(a) substituted (19.2.1993) by Finance (No. 2) Act 1992 (c. 48), s. 56, Sch. 9 para. 18(2)(3); S.I. 1993/236, art.2

F204 Words in Sch. 14 para. 3(3)(a) substituted (6.4.1989) by Finance Act 1988 (c. 39), s. 29

F205 Words in Sch. 14 para. 3(4) repealed (with effect in accordance with s. 173 of the repealing Act) by Finance Act 1989 (c. 26), Sch. 17 Pt. 9, Note

Marginal Citations

M148 Source—1976 Sch.4 13; 1978 Sch.3 7; 1980 s.29(2)(c); 1987 Sch.15 9

M149 1969 c.19.

PART II U.K. SUPPLEMENTARY PROVISIONS AS TO RELIEF UNDER SECTION 266

4 (1) M150 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. U.K.

(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.

Marginal Citations

M150 Source—1976 Sch.4 14; 1978 Sch.3 2, 8

5 M151 Where a person is entitled to relief under section 266 in respect of a payment to which section 595 applies, section 266(5) shall not apply but the like relief shall be given to him under paragraph 6 below.

Marginal Citations

M151 Source—1976 Sch.4 14A; 1978 Sch.3 9

6 (1) M152 Where in any year of assessment the relief to which a person is entitled under section 266, otherwise than in accordance with subsections (6) and (7) of that section, 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 and as if—

(a) the assessment were among those specified in sections 55(1) (recovery of tax not postponed) and 86(2) (interest on overdue tax) of that Act; and

(b) the sum charged by the assessment were tax specified in paragraph 3 of the Table in section 86(4) of that Act (reckonable date).

Marginal Citations

M152 Source—1976 Sch.4 15

7 (1) M153 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(3)(c) (excessive relief);

(b) section 30 (recovery of tax repaid in consequence of fraud or negligence etc.);

(c) section 88 (interest); and

(d) section 95 (incorrect return or accounts);

shall apply in relation to the payment of a sum claimed under section 266(5)(b) to which the claimant was not entitled as if it had been income tax repaid as a relief which was not due.

Modifications etc. (not altering text)

C50 For regulations see Part III Vol.5.

Marginal Citations

M153 Source—1976 Sch.4 16; 1978 Sch.3 10

8 (1) M154 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) M155 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.

(4) 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.

Marginal Citations

M154 Source—1970 s.19(5)

M155 Source—1984 s.72(2)-(4), (6), (7)

Section 267.

SCHEDULE 15 U.K. QUALIFYING POLICIES

Modifications etc. (not altering text)

C51 Sch. 15 modified by Finance Act 1991 (c. 31, SIF 63:1), s. 50, Sch. 9 para. 5 (2)

C52 Sch. 15 modified (1.5.1995) by Finance Act 1995 (c. 4), Sch. 10 para. 4(2)(3)

Valid from 17/07/2013

[F206 PART A1 U.K. Premium limit for qualifying policies

Textual Amendments

F206 Sch. 15 Pt. A1 inserted (17.7.2013) by Finance Act 2013 (c. 29), Sch. 9 para. 2

Premium limit for qualifying policies to apply from 6 April 2013 U.K.

A1 (1) Sub-paragraph (2) applies if— U.K.

(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 U.K.

A2 (1) Sub-paragraph (2) applies if— U.K.

(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 U.K.

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— U.K.

(a) exceeds £3,600, or

(b) could exceed £3,600 as a result of—

(i) the exercise of any one or more relevant options conferred by one or more relevant policies, or

(ii) so far as not covered by sub-paragraph (i), the application of one or more terms of one or more relevant policies relating to increases in premiums.

(2) For the purposes of sub-paragraph (1)—

(a) so much of a premium payable under a relevant policy as is charged on the grounds that an exceptional risk of death or disability is involved is to be left out of account in determining the premiums payable under the policy,

(b) so much of the first premium payable under a relevant policy the liability for the payment of which—

(i) is discharged in accordance with paragraph 15(2) below, or

(ii) in the case of a policy in relation to which paragraph 3 below applies, is discharged under a provision of the policy falling within paragraph 3(4)(c),

is to be left out of account in determining the premiums payable under the policy (subject to sub-paragraph (3) below),

(c) in determining the premiums payable under a relevant policy any provision for the waiver of premiums by reason of a person's disability is to be ignored, and

(d) “relevant period” means any period of 12 months beginning at or after the time when the event falling within paragraph A1(3) or A2(3) above (“the relevant event”) occurs.

(3) The maximum amount that may be left out of account under sub-paragraph (2)(b) in the case of a relevant policy is—

where N is the number of complete years for which ran—

a

the other policy involved, or

b

if there is more than one other policy involved, the policy which ran for the most number of complete years.

(4) For the purposes of this paragraph the following are “relevant policies”—

(a) the policy to which the relevant event relates, and

(b) any other policy—

(i) which is a qualifying policy, and

(ii) under which the individual is a beneficiary.

(5) But neither a protected policy nor a pure protection policy is to be a relevant policy by virtue of sub-paragraph (4)(b).

(6) Sub-paragraph (7) applies if this paragraph is to be applied in the case of an individual in consequence of two or more events occurring at the same time (including where one or more of the events falls within paragraph A1(3) above and one or more of the events falls within paragraph A2(3) above).

(7) For the purpose of applying this paragraph in the case of the individual in consequence of any of the events, sub-paragraph (4)(a) has effect as if the reference to the policy to which the relevant event relates were a reference to all the policies to which the events, taken together, relate.

(8) But sub-paragraph (7) does not apply, and sub-paragraph (9) applies instead, if—

(a) all the policies in question are policies issued by the same issuer, and

(b) each of them has an unique identifier in a series of unique identifiers which the issuer gives to policies issued by it.

(9) For the purpose of applying this paragraph in the case of the individual in consequence of any of the events, an event relating to a policy (“policy A”) is treated as occurring before an event relating to another policy (“policy B”) if, in the issuer's series of unique identifiers, policy A's unique identifier comes before policy B's unique identifier.

Protected policies U.K.

A4 (1) This paragraph applies for the purposes of this Part of this Schedule. U.K.

(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 U.K.

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. U.K.

(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 U.K.

A6 (1) In this Part of this Schedule— U.K.

(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 U.K. QUALIFYING CONDITIONS

Valid from 17/07/2013

[F207 RULES FOR QUALIFYING POLICIES U.K.

Textual Amendments

F207 Sch. 15 paras. B1-B3, cross-headings and preceding heading inserted (17.7.2013) by Finance Act 2013 (c. 29), Sch. 9 para. 3

Rights to be beneficially owned by individuals only U.K.

B1 (1) Sub-paragraph (2) applies in relation to a policy issued in respect of an insurance made on or after 6 April 2013. U.K.

(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 U.K.

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. U.K.

(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 U.K.

B3 (1) Sub-paragraph (2) applies if any of the following events occurs— U.K.

(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 U.K.

1 (1) M156 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) M157 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 is issued in the course of an industrial assurance business, 10 per cent. of the premiums payable under the policy shall be treated as so included.

(7) M158 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) M159 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;”.

Marginal Citations

M156 Source—1970 Sch.1 1(1)-(4A); 1975 Sch.2 4(2), (3)

M157 Source—1975 Sch.2 4(4)

M158 Source—1970 Sch.1 1(5)-(7); 1975 Sch.2 4(5), (6)

M159 Source—1975 Sch.2 4(1)

General rules applicable to endowment assurances U.K.

2 (1) M160 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 issued in the course of industrial assurance business 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) M161 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”.

Marginal Citations

M160 Source—1970 Sch.1 2; 1975 Sch.2 4(7), (8)

M161 Source—1975 Sch.2 4(1)

Special types of policy U.K.

(i)Friendly Society policies U.K.

3 (1) M162 Paragraphs 1 and 2 above do not apply to a policy issued by a [F208 friendly society] in the course of tax exempt life or endowment 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; F209 . . .

F209 (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) until the expiration of three-quarters of the term of the policy of assurance, or of ten years from the beginning of the term, whichever is the shorter, the policy may not be surrendered to the friendly society [F210 (or any successor of it)] for consideration exceeding the amount of the premiums paid, except that if a surrender value is prescribed by section 24 of the M163 Industrial Assurance Act 1923 or section 3 of the M164 Industrial Assurance and Friendly Societies Act 1929 or by Article 30 or 35 of and Schedule 7 to the M165 Industrial Assurance (Northern Ireland) Order 1979, the limit on the consideration shall be either that value or the amount of the premiums paid whichever is the greater.

(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 [F210 (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 tax exempt life or endowment business; and

(d) may make provision for the waiver of premiums by reason of a person’s disability.

[F211 (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 new society, there shall be disregarded an amount equal to 10 per cent. of those premiums;

(ii) where the policy is issued by a society other than a new society, there shall be disregarded an amount equal to £10 for each year for which account is taken of those premiums [F212 or, where those premiums are payable otherwise than annually, an amount equal to 10 per cent. of those premiums if that is greater]; F213 . . .

(iii) F213 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c) F213 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(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.

Textual Amendments

F208 Words in Sch. 15 para. 3(1) substituted (19.2.1993) by Finance (No. 2) Act 1992 (c. 48), s. 56, Sch. 9 para. 19(2); S.I. 1993/236, art.2

F209 Sch. 15 para. 3(1)(c) and word preceding it repealed by Finance Act 1991 (c. 31, SIF 63:1), ss. 50, 123, Sch. 9 para. 4(1)(2), Sch. 19 Pt. V, Note 7

F210 Words in Sch. 15 para. 3(2)(c)(4)(c) inserted (19.2.1993) by Finance (No. 2) Act 1992 (c. 48), s. 56, Sch. 9 para. 19(3)(4); S.I. 1993/236, art.2

F211 Sch. 15 para. 3(4A) inserted (19.2.1993) by Finance (No. 2) Act 1992 (c. 48), s. 56, Sch. 9 para. 19(5); S.I. 1993/236, art.2

F212 Words in Sch. 15 para. 3(8)(b)(ii) inserted by Finance Act 1990 (c. 29), s. 49(5)

F213 Sch. 15 para. 3(8)(b)(iii)(c) and word preceding para. (b)(iii) repealed (retrospectively with effect in accordance with s. 172(6) of the repealing Act) by Finance Act 2003 (c. 14), s. 172(3), Sch. 43 Pt. 3(13), Note 3

Marginal Citations

M162 Source—1970 ss.334(2)–(4), 337(5)(a), Sch.1 3, 3A; 1984 s.72(a); 1985 s.41(4), (6), Sch.10 Pt.I; 1979/1576

M163 1923 c.8

M164 1929 c.28

M165 S.I. 1979/1574 (N.I. 13).

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—

[F214 (i) it was effected in the course of business within class VI of Head A or class I of Head B of Schedule 2 to the Friendly Societies Act 1992,]

(ii) it was issued by a new society, and

(iii) the rights conferred by it are surrendered in whole or in part.

Textual Amendments

F214 Sch. 15 para. 4(3)(b)(i) substituted (19.2.1993) by Finance (No. 2) Act 1992 (c. 48), s. 56, Sch. 9 paras. 19(6), 22; S.I. 1993/236, art. 2

5 M166 Section 466 shall apply for the interpretation of paragraphs 3 and 4 above as it applies for the interpretation of sections 460 to 465.

Marginal Citations

M166 Source—1970 s.337(1)(b); 1985 s.41(7)(a)

6 (1) M167 A policy which was issued by [F215 any registered friendly society (as defined in section 466)], or branch of [F215 such a society], in the course of tax exempt life or endowment business (as defined in section 466) 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) M168 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 464, 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.

Textual Amendments

F215 Words in Sch. 15 para. 6(1) substituted (19.2.1993) by Finance (No. 2) Act 1992 (c. 48), s. 56, Sch. 9 para. 19(7); S.I. 1993/236, art.2

Marginal Citations

M167 Source—1970 Sch.1, 3; 1985 s.41(4)

M168 Source—FSA 1974 s.64(2B); 1985 s.41(1); 1987 s.30(6)

Valid from 17/07/2012

[F216 6A U.K. 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.]

Textual Amendments

F216 Sch. 15 para. 6A inserted (with effect in accordance with s. 178 of the amending Act) by Finance Act 2012 (c. 14), Sch. 18 para. 13(6)

(ii) Industrial assurance policies U.K.

7 (1) M169 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— U.K.

(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.

Marginal Citations

M169 Source—1970 Sch.1 4; 1976 Sch.4 12

8 U.K. M170 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.

Marginal Citations

M170 Source—1975 Sch.2 7; 1976 Sch.4 19(4)

Valid from 29/04/1996

[F217 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— U.K.

(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.]

Subordinate Legislation Made

P1 Sch. 15 para. 8A power exercised: 1.12.2001 appointed by S.I. 2001/3643, art. 2(c)

Textual Amendments

F217 Sch. 15 para. 8A inserted (29.4.1996) by Finance Act 1996 (c. 8), s. 167(8)

(iii) Family income policies and mortgage protection U.K.

9 (1) M171 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— U.K.

(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.

Marginal Citations

M171 Source—1970 Sch.1 5

Other special provisions U.K.

(i) Short-term assurances U.K.

10 U.K. M172 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.

Marginal Citations

M172 Source—1976 Sch.4 2, 2A; 1978 Sch.3 4; 1982 s.35(1)

(ii) Personal accident insurance U.K.

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 contract falling within Class I or Class III in Schedule 1 to the M173 Insurance Companies Act 1982.

(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 M174 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.

Marginal Citations

M173 1982 c. 50.

M174 1974 c. 49.

(iii) Exceptional [F218 risk of death or disability] U.K.

Textual Amendments

F218 Words in Sch. 15 para. 12 heading substituted (retrospectively with effect in accordance with s. 172(6) of the amending Act) by Finance Act 2003 (c. 14), s. 172(2)

12 U.K. M175 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 [F219 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 [F219 or disability].

Textual Amendments

F219 Words in Sch. 15 para. 12 inserted (retrospectively with effect in accordance with s. 172(6) of the amending Act) by Finance Act 2003 (c. 14), s. 172(1)

Marginal Citations

M175 Source—1970 Sch.1 6, 7

(iv) Connected policies U.K.

13 U.K. M176 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.

Marginal Citations

M176 Source—1980 s.30; 1984 s.74; 1982 s.35(3)

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 effected in the course of long term business, as defined in section 1 of the M177 Insurance Companies Act 1982, and includes any such policy issued outside the United Kingdom.

(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) The Board may, by notice, require any person who is, or appears to them to be, concerned in the issue of any such policy as is mentioned in sub-paragraph (4) above, to furnish them within such time (not being less than 30 days) as may be specified in the notice with such particulars as they think necessary for the purposes of this paragraph and as the person to whom the notice is addressed has or can reasonably obtain; but no solicitor shall be deemed for the purposes of this sub-paragraph to have been concerned in the issue of a policy by reason only that he has given professional advice to a client in connection with that policy.

(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.

Modifications etc. (not altering text)

C53 See S.I.1989 No.1343(N.I.14) Art.10(2)and Sch.1 para.38(3)for construction in the case of a solicitor who is a member of a recognised body.

Marginal Citations

M177 1982 c. 50.

(v) Premiums paid out of sums due under previous policies U.K.

15 (1) M178 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. U.K.

(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.

Marginal Citations

M178 Source—1970 Sch.1 8

(vi) Additional premiums under section 72(9) of the Ginance Act 1984 U.K.

16 U.K. M179 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.

Marginal Citations

M179 Source—1984 s.72(9)(a)

(viii) Substituitions and variations U.K.

17 (1) M180 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—

(a) if the new policy would apart from this paragraph be a qualifying policy but the old policy was [F220 not,] 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) M181 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 branch or agency 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) M182 Where the new policy is one issued on or after 1st April 1976 then, in determining under sub-paragraph (2) 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.

Textual Amendments

F220 Word in Sch. 15 para. 17(2)(a) inserted (retrospectively) by Finance Act 1988 (c. 39), s. 146, Sch. 13 paras. 1, 10

Marginal Citations

M180 Source—1970 Sch.1 9(1), (2)

M181 Source—1970 Sch.1 9(3); 1984 s.76(3), (6)

M182 Source—1975 Sch.2 5

18 (1) M183 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 [F221 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 [F222 , or

(d) any variation which alters the method for calculating the benefits secured by the policy.]

[F223 (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.]

Textual Amendments

F221 Word in Sch. 15 para. 18(2) substituted (retrospectively) by Finance Act 1988 (c. 39), s. 146, Sch. 13 paras. 1, 11

F222 Sch. 15 para. 18(3)(d) and preceding word inserted (partly retrospective, and otherwise with effect in accordance with s. 87(5) of the amending Act) by Finance Act 2006 (c. 25), s. 87(2)(4)(6)

F223 Sch. 15 para. 18(4) inserted (retrospectively with effect in accordance with s. 172(6) of the amending Act) by Finance Act 2003 (c. 14), s. 172(4)

Marginal Citations

M183 Source—1970 Sch.1 10

19 (1) M184 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. U.K.

(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.

Marginal Citations

M184 Source—1975 Sch.2 3

20 (1) M185 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 540 and 541; 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 and 540 and 541, 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; and

(b) shall not be regarded, in relation to that single policy, as a relevant capital payment, within the meaning of section 541.

(4) This paragraph applies where the later policy comes into existence on or after 25th March 1982.

Marginal Citations

M185 Source—1982 s.34

Valid from 01/04/2011

[F224 (viii) Policy reinstated after non-payment of premium U.K.

Textual Amendments

F224 Sch. 15 para. 20ZA and preceding cross-heading inserted (1.4.2011 with effect in accordance with art. 15(2) of the amending S.I.) by The Enactment of Extra-Statutory Concessions Order 2011 (S.I. 2011/1037), arts. 1, 15(1)

20ZA (1) This paragraph applies to a qualifying policy (“the original policy”) if conditions A to D are satisfied. U.K.

(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.]

PART II U.K. CERTIFICATION OF QUALIFYING POLICIES

Policies issued in respect of insurances made on or after 1st April 1976 or varied on or after that date U.K.

21 (1) M186 A policy of life insurance issued in respect of an insurance made on or after 1st April 1976 or varied on or after that date (other than one to which paragraph 22(2)(c) below applies) shall not be a qualifying policy unless—

(a) it is certified by the Board as being a qualifying policy; or

(b) it conforms with a form which at the time the policy is issued or varied is either—

(i) a standard form certified by the Board as a standard form of qualifying policy; or

(ii) a form varying from a standard form so certified in no other respect than by making such additions thereto as are, at the time the policy is issued, certified by the Board as compatible with a qualifying policy when made to that standard form and satisfy any conditions subject to which they are so certified;

and any certificate issued in pursuance of paragraph (a) above shall be conclusive evidence that the policy is a qualifying policy.

(2) In issuing a certificate in pursuance of sub-paragraph (1) above the Board may disregard any provision of the policy, standard form or addition which appears to them insignificant.

(3) Where the Board refuse to certify a policy as being a qualifying policy, the person to whom it is issued may appeal to the General Commissioners or, if he so elects, to the Special Commissioners.

(4) Sub-paragraphs (1) to (3) above do not apply in relation to such a policy as is mentioned in paragraphs 3 to 6 above.

Modifications etc. (not altering text)

C54 Sch. 15 para. 21 restricted by Finance Act 1995 (c. 4), s. 55(1)(9) (with s. 55(2)(3)) (as amended (29.4.1996) by Finance Act 1996 (c. 8), s. 162(1))

Marginal Citations

M186 Source—1975 Sch.2 1; 1987 Sch.15 7

22 (1) M187 A body which issues or which, after 5th April 1979, has issued any policy of life insurance (other than one to which sub-paragraph (2)(c) below applies)—

(a) which is certified by the Board as being a qualifying policy; or

(b) which conforms with such a form as is mentioned in paragraph 21(1)(b) above, and is in the opinion of the body issuing it a qualifying policy,

shall, within three months of receipt of a request in writing by the policy holder, give to the policy holder a duly authenticated certificate to that effect, specifying in the certificate the name of the policy holder, the name of the person whose life is assured, the reference number or other means of identification allocated to the policy, the reference number of the relevant Inland Revenue certificate (if any), the capital sum or sums assured and the amounts and dates for payment of the premiums.

(2) M188 Subject to sub-paragraph (3) below, where a policy of life insurance is varied after 5th April 1979, and, after the variation—

(a) it is certified by the Board as a qualifying policy, or

(b) it conforms with such a form as is referred to in sub-paragraph (1) above and is in the opinion of the body by whom it was issued a qualifying policy, or

(c) in the case of a policy issued in respect of an insurance made before 1st April 1976, it is in the opinion of the body by whom it was issued a qualifying policy,

that body shall, within three months of receipt of a request in writing by the policy holder, give to the policy holder a like certificate with respect to the policy as varied.

(3) M189 Sub-paragraph (2) above shall 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 of a policy issued in respect of an insurance made on or before 19th March 1968, other than a variation by virtue of which the policy falls, under paragraph 8(1) and (2) of Schedule 14, to be treated as issued in respect of an insurance made after that date [F225 ; or

(c) any variation which alters the method for calculating the benefits secured by the policy.]

Textual Amendments

F225 Sch. 15 para. 22(3)(c) and preceding word inserted (partly retrospective, and otherwise with effect in accordance with s. 87(5) of the amending Act) by Finance Act 2006 (c. 25), s. 87(3)(4)(6)

Marginal Citations

M187 Source—1970 Sch.1 11(1); 1975 Sch.2 2(1); 1976 s.33(1); 1978 Sch.3 13(1)(a), (b)

M188 Source—1970 Sch.1 11(2); 1975 Sch.2 2(2); 1976 s.33(2); 1978 Sch.3 13(1)(b)

M189 Source—1970 Sch.1 11(3)

PART III U.K. POLICIES ISSUED BY NON-RESIDENT COMPANIES

23 U.K. M190 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.

Marginal Citations

M190 Source—1984 Sch.15 Pt.II 1

24 (1) M191 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) Notwithstanding anything in paragraph 21—

(a) a new non-resident policy shall not be certified under sub-paragraph (1)(a) of that paragraph, and

(b) a new non-resident policy which conforms with such a form as is mentioned in sub-paragraph (1)(b) of that paragraph shall not be a qualifying policy,

until such time as the conditions in either sub-paragraph (3) or sub-paragraph (4) below are fulfilled with respect to it.

(3) The conditions first 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 431(2)); and

(b) that the premiums under the policy are payable to a branch in the United Kingdom of the issuing company, being a branch 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 branch.

(4) The conditions secondly referred to in sub-paragraph (2) above are—

(a) that the policy holder is resident in the United Kingdom; and

(b) that the income of the issuing company from the investments of its life assurance fund is, by virtue of section 445, charged to corporation tax under Case III of Schedule D;

and expressions used in paragraph (b) above have the same meaning as in section 445(1).

Marginal Citations

M191 Source—1975 Sch.2 1A; 1984 Sch.5 Pt.I

25 (1) M192 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 and any related policy (within the meaning of paragraph 17(2)(b)) of which account falls to be taken would have been, or would have been capable of being certified as, a qualifying policy under paragraph 21, 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, or would be capable of being certified as, a qualifying policy, it shall not be such a policy or, as the case may be, be capable of being so certified unless the circumstances are as specified in paragraph 17(3); and

(c) in paragraph 17(3)(b) the words “either by a branch or agency of theirs outside the United Kingdom or” shall be omitted.

(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.

Marginal Citations

M192 Source—1984 Sch.15 Pt.II 2-4

26 U.K. 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 paragraphs 21 and 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.

Valid from 01/05/1995

SCHEDULE 15A U.K. CONTRACTUAL SAVINGS SCHEMES

Introduction U.K.

1 This Schedule shall have effect for the purposes of section 326.

Share option linked schemes U.K.

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 savings-related share 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—

(a) “savings-related share option scheme” has the meaning given by paragraph 1 of Schedule 9, and

(b) “approved” means approved under that Schedule.

Relevant European institutions U.K.

3 A relevant European institution is an institution which—

(a) is a European authorised institution within the meaning of the M193 Banking Co-ordination (Second Council Directive) Regulations 1992, and

(b) may accept deposits in the United Kingdom in accordance with those regulations.

Marginal Citations

M193 S.I. 1992/3218.

Treasury specifications U.K.

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 U.K.

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.

Valid from 01/05/1995

[F226 SCHEDULE 15B U.K. Venture Capital Trusts: Relief from Income Tax

Textual Amendments

F226 Sch. 15B inserted (with effect in accordance with s. 71(4) of the amending Act) by Finance Act 1995 (c. 4), s. 71(2), Sch. 15

Part I U.K. Relief on investment

Entitlement to claim relief U.K.

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 £100,000.

(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 tax at the lower rate for that year on 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 M194 Finance Act 1989,

(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) Where, in the case of any claim for relief under this Part of this Schedule in respect of any shares issued in any year of assessment, effect is given to the claim by repayment of tax, section 824 shall have effect in relation to the repayment as if the time from which the twelve months mentioned in subsections (1)(a) and (3)(a) of that section are to be calculated were the end of the year of assessment in which the shares were issued.

(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.

Marginal Citations

M194 1989 c. 26.

Loan-linked investments U.K.

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 five years after the issue of the shares.

Loss of investment relief U.K.

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 issue of those shares 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 married man to his wife or by a married woman to her husband if it is made, in either case, 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 (“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 U.K.

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 under Case VI of Schedule D 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 under Case VI of Schedule D 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 U.K.

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 U.K.

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 preferential 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 U.K. Relief on distributions

Modifications etc. (not altering text)

C55 Sch. 15B Pt. 2 applied (1.5.1995) by Taxation of Chargeable Gains Act 1992 (c. 12), s. 151A(6) (as inserted by Finance Act 1995 (c. 4), s. 72(3))

7 (1) A relevant distribution of a venture capital trust shall not be regarded as income for any income tax purposes if the person beneficially entitled to it is a qualifying investor.

(2) For the purposes of this paragraph a person is a qualifying investor, in relation to any distribution, if he is an individual who has attained the age of eighteen years and is beneficially entitled to the distribution—

(a) as the person who himself holds the shares in respect of which the distribution is made, or

(b) as a person with such a beneficial entitlement to the shares as derives from their being held for him, or for his benefit, by a nominee of his.

(3) In this paragraph “relevant distribution”, in relation to a company which is a venture capital trust, means any distribution which—

(a) consists in a dividend (including a capital dividend) which is paid in respect of any ordinary shares in that company which—

(i) were acquired by the person to whom the distribution is made at a time when the company was such a trust, and

(ii) are not shares acquired in excess of the permitted maximum for any year of assessment;

and

(b) is not a dividend paid in respect of profits or gains arising or accruing in any accounting period ending at a time when the company was not such a trust.

Meaning of “permitted maximum” U.K.

8 (1) For the purposes of this Part of this Schedule shares in a venture capital trust shall be treated, in relation to any individual, as acquired in excess of the permitted maximum for any year of assessment to the extent that the value of the shares comprised in the relevant acquisitions of that individual for that year exceeds £100,000.

(2) The reference in sub-paragraph (1) above to the relevant acquisitions of an individual for a year of assessment is a reference to all shares which—

(a) are acquired in that year of assessment by that individual or any nominee of his;

(b) are ordinary shares in a company which is a venture capital trust at the time of their acquisition; and

(c) are shares so acquired 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.

(3) Sub-paragraph (4) below applies where—

(a) any ordinary shares in a venture capital trust (“the new shares”) are acquired by any individual in circumstances in which they are required for the purposes of the 1992 Act to be treated as the same assets as any other shares; and

(b) the other shares consist of or include any ordinary shares in a venture capital trust that were, or are treated as, acquired otherwise than in excess of the permitted maximum for any year of assessment.

(4) Where this sub-paragraph applies—

(a) the value of the new shares shall be disregarded in determining whether any other shares acquired in the same year of assessment as the new shares are acquired in excess of the permitted maximum for that year; and

(b) the new shares or, as the case may be, an appropriate proportion of them shall be treated as themselves acquired otherwise than in excess of the permitted maximum.

(5) For the purposes of this paragraph the value of any shares acquired by or on behalf of any individual shall be taken to be their market value (within the meaning of the 1992 Act) at the time of their acquisition.

(6) Where any shares in a venture capital trust are acquired in excess of the permitted maximum for any year of assessment, the shares representing the excess shall be identified for the purposes of this Part of this Schedule—

(a) by treating shares acquired later in the year as comprised in the excess before those acquired earlier in the year;

(b) by treating shares of different descriptions acquired on the same day as acquired within the permitted maximum in the same proportions as are borne by the respective values of the shares comprised in the acquisitions of each description to the total value of all the shares in the trust acquired on that day; and

(c) by applying the rules in section 151A(4) and (5) of the 1992 Act for determining the shares to which any disposal of shares in the trust relates (even one which is not a disposal for the purposes of that Act).

Interpretation of Part II] U.K.

9 (1) In this Part of this Schedule “ordinary shares”, in relation to a company, means shares forming part of the company’s ordinary share capital.

(2) In this Part of this Schedule “nominee”, in relation to any individual, includes the trustees of a bare trust of which that individual is the only beneficiary.

Section 350(4).

SCHEDULE 16 U.K. M195 COLLECTION OF INCOME TAX ON COMPANY PAYMENTS WHICH ARE NOT DISTRIBUTIONS

Modifications etc. (not altering text)

C56 Sch. 16 modified by S.I. 1991/512, reg.3

Sch. 16 excluded (22.3.1992) by S.I. 1992/569, reg. 13(2)(d)

Sch. 16 applied (with modifications) (24.9.1992) by S.I. 1992/2074, reg. 14(5)

Sch. 16 applied (with modifications) (1.10.1993) by S.I. 1993/2004, reg. 13(3)

C57 See—1970(M) s.55—recovery of tax not in dispute.1970(M) s.87—interest on overdue ACT.1988 s.339—donations to charity.1988 s.341—payments of interest etc between related companies.1988 s.479—interest paid on deposits with banks etc. (but ceases to have effect as regards interest paid or credited on or after 6April 1991).1988 s.480A—relevant deposits: deduction of tax from interest payments.S.I. 1988 No.482 (in Part III Vol.5) regn. 7—Building Society Regulations.

Marginal Citations

M195 Source—1972 Sch.20

Interpretation U.K.

1 In this Schedule “relevant payment” means any payment to which section 350(4)(a) applies.

Duty to make returns U.K.

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.

Modifications etc. (not altering text)

C58 Sch. 16 para. 2(2)(a) modified by Finance Act 1991 (c. 31, SIF 63:1), s. 52(1), Sch. 11 para. 3(1)

Contents of returns U.K.

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 U.K.

4 (1) Subject to sub-paragraph [F227 (3)] below, 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 the inspector that there is a relevant payment which ought to have been and has not been included in a return, or if the inspector is dissatisfied with any return, he 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) Where a payment has been included in a return under Schedule 13 by virtue of paragraph 7(1)(b) of that Schedule and it becomes apparent that the payment is not a qualifying distribution but a relevant payment—

(a) sub-paragraph (1)(a) above shall not apply to that payment; and

(b) income tax shall be assessed in respect of it on the company.

Textual Amendments

F227 1990 s.89and Sch.14 para.13 (correction of errors)—deemed always to have had effect. Previously

“(4)”.

Set-off of income tax borne on company income against tax payable U.K.

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.

Modifications etc. (not altering text)

C59 Sch. 16 para. 5 restricted by Finance Act 1991 (c. 31, SIF 63:1), s. 52(1), Sch. 11 para. 4(1)(2)

C60 Sch. 16 para. 5 restricted (with effect in accordance with s. 105(1) of the affecting Act) by Finance Act 1996 (c. 8), s. 91(1)(7) (with Schs. 10, 11, 15)

C61 See s.341—payments of interest between related companies.

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 poinding for tax.

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).

Valid from 29/04/1996

Amended return where company becomes aware of an error U.K.

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 U.K.

8 Where any item has been included in a return or claim under this Schedule as a relevant payment but should have been included in a return under Schedule 13, the inspector 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 been included in the right return.

Relevant payment made otherwise than in accounting period U.K.

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 U.K.

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 [F228 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.

Textual Amendments

F228 1989 s.149(3)(d)—not to affect the making of assessments before 1983-84or for accounting periods ending before 1April 1983.Previously

“sections 36 and 37”.

Saving U.K.

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.

Section 404.

SCHEDULE 17 U.K. M196 DUAL RESIDENT INVESTING COMPANIES

Marginal Citations

M196 Source—1987 (No.2) Sch.4

PART I U.K. 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 U.K. EARLY PAYMENTS OF INTEREST ETC. AND CHARGES ON INCOME

Interpretation U.K.

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. U.K.

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 U.K.

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 U.K.

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 to the Special Commissioners 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 U.K. 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.

Section 412.

Schedule 17A U.K. Group Relief: Claims

Introductory U.K.

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 U.K.

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 U.K.

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 U.K.

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 U.K.

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 U.K.

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.

Section 413(10).

SCHEDULE 18 U.K. M197 GROUP RELIEF: EQUITY HOLDERS AND PROFITS OR ASSETS AVAILABLE FOR DISTRIBUTION F229

Textual Amendments

F229 See—s.240(13)—application of Sch.18for purposes of s.240—set-off of surplus ACT.s.247(9A)—application of Sch.18for purposes of.s.247(8A), (9)(c)—dividends etc. paid by one member of a group to another.s.769(6C)—application of Sch.18for purposes of.s.769(6B)—rules for ascertaining change in ownership of company.1990 s.32(12)—application of Sch.18for relief for disposal of shares to employee share ownership trusts.

Modifications etc. (not altering text)

C62 Sch. 18 applied (E.W.S) (16.1.1992) by S.I. 1992/58, art. 35(5)

Sch. 18 applied (with modifications) (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 170(8), 289 (with ss. 60, 101(1), 171, 201(3))

Sch. 18 applied (with modifications) (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 228(10), 289 (with ss. 60, 101(1), 171, 201(3))

Marginal Citations

M197 Source—1973 Sch. 12 Pt. I; 1973 s. 32(6); 1987 Sch. 15 5

1 (1) For the purposes of [F230 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 fixed-rate preference shares.

(3) In this Schedule “fixed-rate preference shares” means shares which—

(a) are issued for consideration which is or includes new consideration; and

F231 [0(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) do not carry any right to dividends other than dividends which—

(i) are of a fixed amount or at a fixed rate per cent. of the nominal value of the shares, and

(ii) 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

(d) on repayment do not carry any rights to an amount exceeding that new consideration except in so far as those rights are reasonably comparable with those general for fixed dividend shares listed in the Official List of the 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—

F232 [0(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 in the Official List of the Stock Exchange.

[F233 (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 quoted 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.]

[F234 (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, 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.

(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) a first-year allowance within the meaning of [F235 Part II of the 1990 Act] in respect of expenditure incurred by the company on the provision of machinery or plant;

(ii) a writing-down allowance within the meaning of [F236 Part II of the 1990 Act] in respect of expenditure incurred by the company on the provision of machinery or plant; or

(iii) an allowance under section [F237 137 of the 1990 Act] in respect of expenditure incurred by the company on scientific research;

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 .

Textual Amendments

F230 Words in Sch. 18 paras. 1(1), 2(1), 3(1), 4(3)(4), 5A(3)(4), 5C(3)(4), 5D(3)(4), 5E(3)(4), 6 substituted (retrospectively) by Finance Act 2000 (c. 17), s. 100(4)(a)(5)

F231 1989 s.101(2)from 27July 1989;from 14March 1989for purposes of subss. (1D)and (1E)of 1970 s.272.Previously

“(b) do not carry any right either to conversion into shares or securities of any other description or to the acquisition of any additional shares or securities;”.

F232 1989 s.101(3)from 27July 1989;from 14March

for purposes of subss. (1D)and (1E)of 1970 s.272.Previously

“(a) which does not carry any right either to conversion into shares or securities of any other description or to the acquisition of additional shares or securities;”.

F233 1989 s.101(4)from 27July 1989;from 14March 1989for purposes of subss. (1D)and (1E)of 1970 s.272.

F234 Sch. 18 para. 1(5E)-(5I) inserted (1.4.1991) by Finance Act 1991 (c. 31, SIF 63:1), s. 77(1)-(3)

F235 1990(C) s.164and Sch.1 para.8(40)(a).Previously

“Chapter I of Part III of the Finance Act 1971 (“the 1971 Act”)”.

F236 1990(C) s.164and Sch.1 para.8(40)(b).Previously

“Chapter II of Part I of the 1968 Act or, as the case may be, Chapter I of Part III of the 1971 Act”.

F237 1990(C) s.164and Sch.1. para.8(40)(c).Previously

“91 of the 1968 Act”.

Modifications etc. (not altering text)

C63 See 1990 s.32(12)(b).Reference to

“section 413(7) to (9)”

to be construed as a reference to 1990 s.31(4)where Sch.18applies to disposals of shares to employee share ownership trusts.

C64 Sch. 18 para. 1(5) applied (with modifications) (1.5.1995) by Finance Act 1993 (c. 34), s. 153(11A) (as inserted by Finance Act 1995 (c. 4), Sch. 24 para 4(4))

C65 See s.291(6)—para.1applied for purposes of business expansion scheme.

Valid from 21/07/2009

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 [F238 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”.

(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.

Textual Amendments

F238 Words in Sch. 18 paras. 1(1), 2(1), 3(1), 4(3)(4), 5A(3)(4), 5C(3)(4), 5D(3)(4), 5E(3)(4), 6 substituted (retrospectively) by Finance Act 2000 (c. 17), s. 100(4)(a)(5)

Modifications etc. (not altering text)

C66 See 1990 s.32(12)(b).Reference to

“section 413(7) to 9”

to be construed as a reference to 1990 s.31(4)where Sch.18applies to disposals of shares to employee share ownership trusts.

3 (1) Subject to the following provisions of this Schedule, for the purposes of [F239 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 .

Textual Amendments

F239 Words in Sch. 18 paras. 1(1), 2(1), 3(1), 4(3)(4), 5A(3)(4), 5C(3)(4), 5D(3)(4), 5E(3)(4), 6 substituted (retrospectively) by Finance Act 2000 (c. 17), s. 100(4)(a)(5)

Modifications etc. (not altering text)

C67 See 1990 s.32(13)(b).Reference to

“section 413(7) to 9”

to be construed as a reference to 1990 s.31(4)where Sch.18applies to disposals of shares to employee share ownership trusts.

C68 See s.291(6)—para.3applied for purposes of business expansion scheme.

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 [F240 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 [F240 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.

Textual Amendments

F240 Words in Sch. 18 paras. 1(1), 2(1), 3(1), 4(3)(4), 5A(3)(4), 5C(3)(4), 5D(3)(4), 5E(3)(4), 6 substituted (retrospectively) by Finance Act 2000 (c. 17), s. 100(4)(a)(5)

Modifications etc. (not altering text)

C69 See 1990 s.32(12)(b).References to

“section 413(7) to (9)”

construed as references to 1990 s.31(4)where Sch.18applies to disposals of shares to employee share ownership trusts.

C70 See 1990 s.32(12)(b).References to

“section 413(7) to (9)”

construed as references to 1990 s.31(4)where Sch.18applies to disposals of shares to employee share ownership trusts.

F241 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.

Textual Amendments

F241 Sch. 18 para. 5A substituted (16.7.1992 or as mentioned in Sch. 6 para. 6 of the amending Act) for para. 5(5) by Finance (No. 2) Act 1992 (c. 48), s. 24, Sch. 6 paras.1, 6

[F242 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 [F243 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 [F243 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.]

Textual Amendments

F242 Sch. 18 para. 5A substituted (16.7.1992 or as mentioned in Sch. 6 para. 6 of the amending Act) for para. 5(5) by Finance (No. 2) Act 1992 (c. 48), s. 24, Sch. 6 paras.1, 6

F243 Words in Sch. 18 paras. 1(1), 2(1), 3(1), 4(3)(4), 5A(3)(4), 5C(3)(4), 5D(3)(4), 5E(3)(4), 6 substituted (retrospectively) by Finance Act 2000 (c. 17), s. 100(4)(a)(5)

[F244 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 fixed-rate 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 approved under Schedule 9 at the time it was obtained.

(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.]

Textual Amendments

F244 Sch. 18 paras. 5B-5E inserted (16.7.1992 with application where the option arrangements are made on or after 15.11.1991) by Finance (No. 2) Act 1992 (c. 48), s. 24, Sch. 6 paras. 2, 7

Modifications etc. (not altering text)

C71 Sch. 18 para. 5B excluded (retrospective to 5.11.1993) by Finance Act 1994 (c. 9), s. 252(2), Sch. 24 para. 17(2)

C72 Sch. 18 para. 5B excluded (19.9.1994) by Coal Industry Act 1994 (c. 21), s. 68(4), Sch. 4 para. 16 (with s. 40(7)); S.I. 1994/2189, art. 2, Sch.

C73 Sch. 18 para. 5B excluded (19.7.1995) by Crown Agents Act 1995 (c. 24), s. 7(2)

C74 Sch. 18 para. 5B excluded (8.11.1995) by Atomic Energy Authority Act 1995 (c. 37), Sch. 3 para. 8(2)

C75 Sch. 18 para. 5B excluded (24.7.1996) by Broadcasting Act 1996 (c. 55), s. 149(1)(f), Sch. 7 para. 20(2) (with s. 43)

F245 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 [F246 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 [F246 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.

Textual Amendments

F245 Sch. 18 paras. 5B-5E inserted (16.7.1992 with application where the option arrangements are made on or after 15.11.1991) by Finance (No. 2) Act 1992 (c. 48), s. 24, Sch. 6 paras. 2, 7

F246 Words in Sch. 18 paras. 1(1), 2(1), 3(1), 4(3)(4), 5A(3)(4), 5C(3)(4), 5D(3)(4), 5E(3)(4), 6 substituted (retrospectively) by Finance Act 2000 (c. 17), s. 100(4)(a)(5)

F247 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 [F248 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 [F248 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.

Textual Amendments

F247 Sch. 18 paras. 5B-5E inserted (16.7.1992 with application where the option arrangements are made on or after 15.11.1991) by Finance (No. 2) Act 1992 (c. 48), s. 24, Sch. 6 paras. 2, 7

F248 Words in Sch. 18 paras. 1(1), 2(1), 3(1), 4(3)(4), 5A(3)(4), 5C(3)(4), 5D(3)(4), 5E(3)(4), 6 substituted (retrospectively) by Finance Act 2000 (c. 17), s. 100(4)(a)(5)

F249 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 [F250 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 [F250 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.

Textual Amendments

F249 Sch. 18 paras. 5B-5E inserted (16.7.1992 with application where the option arrangements are made on or after 15.11.1991) by Finance (No. 2) Act 1992 (c. 48), s. 24, Sch. 6 paras. 2, 7

F250 Words in Sch. 18 paras. 1(1), 2(1), 3(1), 4(3)(4), 5A(3)(4), 5C(3)(4), 5D(3)(4), 5E(3)(4), 6 substituted (retrospectively) by Finance Act 2000 (c. 17), s. 100(4)(a)(5)

Valid from 28/07/2000

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.

(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 [F251 sections 403C and 413(7)] and paragraphs 2 to [F252 5E] 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.

Textual Amendments

F251 Words in Sch. 18 paras. 1(1), 2(1), 3(1), 4(3)(4), 5A(3)(4), 5C(3)(4), 5D(3)(4), 5E(3)(4), 6 substituted (retrospectively) by Finance Act 2000 (c. 17), s. 100(4)(a)(5)

F252 Word in Sch. 18 para. 6 substituted (16.7.1992 with application as mentioned in Sch. 6 para. 8 of the substituting Act) by Finance (No. 2) Act 1992 (c. 48), s. 24, Sch. 6 paras.3, 8

Modifications etc. (not altering text)

C76 See 1990 s.32(12)(b):references to

“section 413(7) to (9)”

and to section 413(7)construed as references to 1990 s.31(4)where Sch.18applies to disposals of shares to employee share ownership trusts.

7 (1) In this Schedule “the relevant accounting period” means—

(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 [F253 section 403C], the accounting period in relation to which the share in the consortium falls to be determined .

(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.

Textual Amendments

F253 Words in Sch. 18 para. 7(1)(b) substituted (retrospectively) by Finance Act 2000 (c. 17), s. 100(4)(b)

Modifications etc. (not altering text)

C77 See 1990 s.32(12)(b):references to

“section 413(7) to (9)”

and to section 413(7)construed as references to 1990 s.31(4)where Sch.18applies to disposals of shares to employee share ownership trusts.

C78 See 1990 s.32(12)(d). Para 7(1)(b)omitted where Sch.18applies to disposals of shares to employee share ownership trusts.

Valid from 19/07/2006

Section 403F

SCHEDULE 18A U.K. Group relief: overseas losses of non-resident companies

Part 1 U.K. Meaning of conditions for the purposes of section 403F

Introduction U.K.

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 U.K.

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 U.K.

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 U.K.

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 U.K.

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 U.K.

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 U.K.

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 U.K.

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 U.K.

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 U.K. Application of UK rules to non-resident company

Modifications etc. (not altering text)

C79 Sch. 18A Pt. 2 modified (28.10.2008 with effect in accordance with reg. 1(2) of the modifying S.I.) by The Group Relief for Overseas Losses (Modification of the Corporation Tax Acts for Non-resident Insurance Companies) Regulations 2008 (S.I. 2008/2646), regs. 1(1), 2

Introduction U.K.

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 U.K.

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 U.K.

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 U.K.

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 Schedule A purposes in relation to land in the United Kingdom.

Deemed accounting period U.K.

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 U.K.

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 U.K.

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 U.K. Definitions for the purposes of this Schedule

Charge to tax under the law of any territory outside the United Kingdom U.K.

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.

F254 F254 SCHEDULE 19 U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F254 Sch. 19 repealed by Finance Act 1989 (c. 26), ss. 103, 187, Sch. 17 Pt. V, Notes 1, 3

Section 431]

[F259 SCHEDULE 19AA U.K. OVERSEAS LIFE ASSURANCE FUND

Textual Amendments

F259 Sch. 19AA inserted (for accounting periods beginning on or after 1 January 1990) by Finance Act 1990 (c. 29), Sch.7 paras. 6, 10

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.

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 business 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 business 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 business fund .

(3) Where—

(a) in any period of account assets are acquired by a company as assets of the long term business 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 business fund they are either—

(i) linked solely to the overseas life assurance business of the company, or

(ii) 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 business 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 business fund.

Modifications etc. (not altering text)

C88 See 1990 s. 42 and Sch.7 para.10(2) regarding treatment of assets in relation to the first period of account of an insurance company

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 business 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 business 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 business 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 is the aggregate of—

(a) the liabilities of the company’s overseas life assurance business at the end of the period of account, and

(b) the appropriate part of the investment reserve at that time.

(2) In sub-paragraph (1)(b) above the “appropriate part”, in relation to the investment reserve, means—

(a) where all of the liabilities of the long term business are linked liabilities, the part of that reserve which bears to the whole the same proportion as the amount of the liabilities of the overseas life assurance business bears to the whole amount of the liabilities of the long term business,

(b) where any of the liabilities of the long term business are not linked liabilities but none (or none but an insignificant proportion) are with-profits liabilities, the part of that reserve which bears to the whole the same proportion as the amount of the liabilities of the overseas life assurance business which are not linked liabilities bears to the whole amount of the liabilities of the long term business which are not linked liabilities, and

(c) in any other case, the part of that reserve which bears to the whole the same proportion as the amount of the with-profits liabilities of the overseas life assurance business bears to the whole amount of the with-profits liabilities of the long term business;

and in this sub-paragraph “linked liabilities” means liabilities in respect of benefits to be determined by reference to the value of linked assets.

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 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 liabilities in respect of benefits expressed in that currency so far as referable to overseas life assurance business;

(c) assets the management of which is under the control of a person whose normal place of work is at a branch or agency at or through which the company carries on overseas life assurance business;

(d) securities issued by the Treasury with a FOTRA condition and securities to which section 581 of this Act applies;

(e) assets not within paragraph (f) below;

(f) shares in companies resident in the United Kingdom;

but assets linked solely to pension business or basic life assurance business are not within any paragraph of this sub-paragraph (and may not be designated for the purposes of paragraph 3 above).

(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.

(7) For the purposes of sub-paragraph (5)(d) above securities are issued with a FOTRA condition if—

(a) they are issued with the condition that the interest on the securities shall not be liable to income tax so long as it is shown, in a manner directed by the Treasury, that the securities are in the beneficial ownership of persons who are not ordinarily resident in the United Kingdom, or

(b) they are issued with the condition mentioned in section 22(1) of the M236 Finance (No.2) Act 1931 whether or not modified by virtue of section 60(1) of the M237 Finance Act 1940.

Marginal Citations

M236 1931 c. 49.

M237 1940 c. 29.

Section 438A.]

[F260 F261 Schedule 19AB U.K. PENSION BUSINESS: PAYMENTS ON ACCOUNT OF TAX CREDITS AND DEDUCTED TAX

Textual Amendments

F260 Sch. 19AB inserted (with effect in relation to accounting periods beginning on or after 2.10.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 49, Sch. 8; S.I. 1992/1746, art. 2

F261 Sch. 19AB repealed (with effect in accordance with s. 87(2)-(5) of the repealing Act) by Finance Act 2001 (c. 9), s. 87(1), Sch. 33 Pt. 2(12), Note (the provisions of Sch. 19AB not applying in relation to tax credits in respect of distributions made on or after 6th April 2004)

Modifications etc. (not altering text)

C89 Sch. 19AB: power to modify conferred (with application as mentioned in s. 121(2) of the affecting Act) by 1993 c. 34, s. 121(1)(2)

C90 Sch. 19AB modified (1.1.1994 with effect in accordance with reg. 1 of the modifying S.I.) by The Friendly Societies (Provisional Repayments for Exempt Business) Regulations 1993 (S.I. 1993/3112), regs. 2-9 (as amended (20.3.1997 with effect in accordance with reg. 1 of the amending S.I.) by The Friendly Societies (Provisional Repayments for Exempt Business) (Amendment) Regulations 1997 (S.I. 1997/474), regs. 2-5); and the 1993 modifying S.I. and the 1997 amending S.I. are revoked (30.3.1999 with effect in accordance with reg. 1(2) of the revoking S.I.) by The Friendly Societies (Provisional Repayments for Exempt Business) Regulations 1999 (S.I. 1999/622), reg. 13

C91 Sch. 19AB modified (2.1.1996) by The Insurance Companies (Gilt-edged Securities) (Periodic Accounting for Tax on Interest) Regulations 1995 (S.I. 1995/3223), regs. 4-10

C92 Sch. 19AB modified (31.7.1997) by Finance (No. 2) Act 1997 (c. 58), Sch. 3 para. 12

C93 Sch. 19AB applied (with modifications) (6.4.1999) by The Individual Savings Account (Insurance Companies) Regulations 1998 (S.I. 1998/1871), regs. 20, 21 (as amended (1.1.2002 with effect in accordance with reg. 1 of the amending S.I.) by The Individual Savings Account (Insurance Companies) (Amendment) Regulations 2001 (S.I. 2001/3974), regs. 2-5, Sch.)

C94 Sch. 19AB applied (with modifications) (30.3.1999 with effect in accordance with reg. 1(2) of the affecting S.I.) by The Friendly Societies (Provisional Repayments for Exempt Business) Regulations 1999 (S.I. 1999/622), regs. 2-12

F262 Entitlement to certain payments on account U.K.

Textual Amendments

F262 Sch. 19AB inserted (25.7.1991 with effect as mentioned in s. 49(3) in relation to accounting periods beginning on or after 2.10.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 49, Sch. 8; S.I. 1992/1746, art.2

F263 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 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, the reference in subsection (5) to “the relevant fraction” shall be taken as a reference to a fraction determined in accordance with subsections (6) to (9)—

(a) for the latest preceding accounting period of the company for which an inspector is satisfied that the company has supplied him with such information as would enable the relevant fraction for that accounting period to be estimated with reasonable accuracy, and

(b) by reference to that information,

and, subject to sub-paragraph (4)(b) below, any reference in this paragraph to “the provisional fraction” is a reference to the fraction so determined.

(4) For the purposes of sub-paragraph (3) above—

(a) “information” means any information, accounts, statements or reports delivered under section 11 of the Management Act; and

(b) unless and until an inspector is satisfied as mentioned in paragraph (a) of that sub-paragraph, the provisional fraction shall be taken to be nil.

(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 solely to pension business, the whole; and

(ii) in any other case, the provisional fraction.

(6) An inspector shall not give effect to any claim under this paragraph unless and until he is satisfied that the claimant has supplied to him in connection with the claim such information as will enable the inspector to determine that the amount claimed has been computed in accordance with the provisions of this paragraph.

(7) A provisional repayment for a provisional repayment period shall be regarded as a payment on account of the amount (if any) which, disregarding any pension business repayments, the company would be entitled to be paid or repaid in respect of its pension business by the Board 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, and

(b) tax credits in respect of distributions received by the company in that accounting period and referable to its pension business,

when the assessment to corporation tax for that accounting period is finally determined or when effect is given to a claim such as is mentioned in section 7(6) or in section 42(5A) of the Management Act made in respect of that accounting period.

(8) Where a company makes an election under section 438(6) as respects all or any part of its franked investment income arising in an accounting period, that franked investment income or, as the case may be, that part of it, and the tax credits in respect thereof, shall be left out of account in making with respect to that accounting period any determination for the purposes of this paragraph or of paragraph 2 or 3 below of the amount referred to in sub-paragraph (7) above.

F264 (9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(10) In this paragraph “pension business repayments” means—

(a) provisional repayments; and

(b) repayments of income tax, and payments of tax credits, on any claim such as is mentioned in section 7(6) or in section 42(5A) of the Management Act.

Textual Amendments

F263 Sch. 19AB inserted (25.7.1991 with effect as mentioned in s. 49(3) in relation to accounting periods beginning on or after 2.10.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 49, Sch. 8; S.I. 1992/1746, art. 2

F264 Sch. 19AB para. 1(9) repealed (27.7.1993 with effect as mentioned in s. 103(3)(4) of the amending Act) by 1993 c. 34, s. 103(2)(h)(3)(4), 213, Sch. 23 Pt. III(9)

Modifications etc. (not altering text)

C95 Sch. 19AB para. 1(8) amended (27.7.1993 with application as mentioned in s. 78(11) of the amending Act) by 1993 c. 34, s. 78(6)(11)

F265 Changes in the provisional fraction U.K.

Textual Amendments

F265 Sch. 19AB inserted (25.7.1991 with effect as mentioned in s. 49(3) in relation to accounting periods beginning on or after 2.10.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 49, Sch.8; S.I. 1992/1746, art.2

F266 2 (1) This paragraph applies in any case where, after a claim has been made for a provisional repayment in respect of a provisional repayment period falling within an accounting period, the provisional fraction falling to be applied in the case of that accounting period is varied as a result of a determination such as is mentioned in paragraph 1(3) above being made in consequence of the delivery of a return under section 11 of the Management Act.

(2) Where this paragraph applies, the amount of any provisional repayment to which the company is entitled—

(a) for the first provisional repayment period falling within that accounting period for which a claim is made by reference to the later (or, if there has been more than one such determination, the latest) provisional fraction, or

(b) for any subsequent provisional repayment period in that accounting period for which a claim is made,

shall be an amount determined in accordance with sub-paragraph (3) below or such lesser amount as may be specified in the claim.

(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—

(a) the provisional repayment period to which the claim relates, and

(b) any earlier provisional repayment period in the same accounting period,

had the later or, as the case may be, latest provisional fraction applicable in relation to that accounting period been so applicable 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.

Textual Amendments

F266 Sch. 19AB inserted (25.7.1991 with effect as mentioned in s. 49(3) in relation to accounting periods beginning on or after 2.10.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 49, Sch.8; S.I. 1992/1746, art.2

F267 Repayment, with interest, of excessive provisional repayments U.K.

Textual Amendments

F267 Sch. 19AB inserted (25.7.1991 with effect as mentioned in s. 49(3) in relation to accounting periods beginning on or after 2.10.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 49, Sch. 8; S.I. 1992/1746, art.2

F268 3 (1) In any case where—

(a) the assessment to corporation tax for an accounting period of an insurance company has been finally determined, and

(b) the aggregate amount of the provisional repayments made to the company for that accounting period exceeds the amount referred to in paragraph 1(7) above,

the excess, together with the amount of any relevant interest, shall be treated for the purposes of section 30 of the Management Act 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.

(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 section 30 of that Act 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 10 of the principal 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 (7) 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 section 30 of the Management Act 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).

Textual Amendments

F268 Sch. 19AB inserted (25.7.1991 with effect as mentioned in s. 49(3) in relation to accounting periods beginning on or after 2.10.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 49, Sch.8; S.I. 1992/1746, art.2

F269 Reduced entitlement during transitional period U.K.

Textual Amendments

F269 Sch. 19AB inserted (25.7.1991 with effect as mentioned in s. 49(3) in relation to accounting periods beginning on or after 2.10.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 49, Sch.8; S.I. 1992/1746, art.2

F270 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.

Textual Amendments

F270 Sch. 19AB inserted (25.7.1991 with effect as mentioned in s. 49(3) in relation to accounting periods beginning on or after 2.10.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 49, Sch. 8; S.I. 1992/1746, art.2

F271 Transitional application of pay and file provisions U.K.

Textual Amendments

F271 Sch. 19AB inserted (25.7.1991 with effect as mentioned in s. 49(3) in relation to accounting periods beginning on or after 2.10.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 49, Sch. 8; S.I. 1992/1746, art.2

F272 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.

Textual Amendments

F272 Sch. 19AB inserted (25.7.1991 with effect as mentioned in s. 49(3) in relation to accounting periods beginning on or after 2.10.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 49, Sch. 8; S.I. 1992/1746, art.2

F273 Interpretation U.K.

Textual Amendments

F273 Sch. 19AB inserted (25.7.1991 with effect as mentioned in s. 49(3) in relation to accounting periods beginning on or after 2.10.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 49, Sch. 8; S.I. 1992/1746, art.2

F274 6 (1) In this Schedule—

• “provisional fraction” shall be construed in accordance with paragraphs 1(3), (4)(b) 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) Until an insurance company makes a return under section 11 of the Management Act as amended by section 82 of the Finance (No.2) Act 1987, paragraph 1(4) above shall have effect in relation to that company as if for paragraph (a) there were substituted—

”(a) “information” means any information contained in a return under section 11 of the Management Act as that section has effect apart from section 82 of the Finance (No.2) Act 1987; and”.

Textual Amendments

F274 Sch. 19AB inserted (25.7.1991 with effect as mentioned in s. 49(3) in relation to accounting periods beginning on or after 2.10.1992) by Finance Act 1991 (c. 31, SIF 63:1), s. 49, Sch. 8; S.I. 1992/1746, art.2

Valid from 27/12/2007

Section 440D

SCHEDULE 19ABA U.K. MODIFICATION OF LIFE ASSURANCE PROVISIONS OF THE CORPORATION TAX ACTS IN RELATION TO BLAGAB GROUP REINSURERS

Part 1 U.K. 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 U.K. MODIFICATIONS OF THIS ACT

2 This Act shall have effect with the following modifications.

Modification of section 76 (expenses of insurance companies) U.K.

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) U.K.

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) M238 ;”,

““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—

(a)

technical provisions (item C), and

(b)

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—

(a)

the technical account for life assurance business of the company included in the IAD accounts,

(b)

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

(c)

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—

(a)

in relation to a company preparing IAD accounts, the IAD accounts, and

(b)

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”.

Marginal Citations

M238 O.J. L374, 31.12.1991, p.7.

Modification of section 432B (apportionment of receipts brought into account) U.K.

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) U.K.

6 Omit section 432E (section 432B apportionment: participating funds).

Modification of section 432F (section 432B apportionment: supplementary provisions) U.K.

7 Omit section 432F (section 432B apportionment: supplementary provisions).

Modification of section 444AA (transfers of business: deemed periodic return) U.K.

8 Omit section 444AA (transfers of business: deemed periodic return).

Valid from 12/08/2008

Modification of section 444ABA (relevant non-transferred assets) U.K.

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—

  (a)

  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

  (b)

  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 being brought forward in that balance sheet, and

  (ii)

  in the case of IAS accounts, the amount of retained earnings shown as being brought forward in that balance sheet.”.

Valid from 12/08/2008

Modification of section 444ABB (retained assets) U.K.

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.”.

Valid from 12/08/2008

Modification of section 444ABD (transferor's period of account including transfer) U.K.

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 ”.

Valid from 12/08/2008

Modification of section 444AC (transfer schemes: reduction of income of transferee) U.K.

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).

Valid from 12/08/2008

Modification of section 444AE (transfers of business: FAFTS) U.K.

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).

Valid from 12/08/2008

Modification of section 444AEA (transfer schemes: anti-avoidance rule) U.K.

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 ”.

Modification of section 804C (insurance companies: allocation of expenses etc in computations under Case 1 of Schedule D) U.K.

9 In section 804C (insurance companies: allocation of expenses etc in computations under Case 1 of Schedule D) in subsection (14) for “construed—” and paragraphs (a) and (b) substitute “construed in accordance with section 804E (interpretation of section 804C in relation to other insurance business).”.

Modification of section 804D (interpretation of section 804C in relation to life insurance business) U.K.

10 Omit section 804D (interpretation of section 804C in relation to life insurance business).

Modification of section 804E (interpretation of section 804C in relation to other insurance business) U.K.

11 In section 804E (interpretation of section 804C in relation to other insurance business) in subsection (1) omit the words from “where” to the end.

Part 3 U.K. MODIFICATION OF THE FINANCE ACT 1989

Modification of the Finance Act 1989 U.K.

12 The Finance Act 1989 M239 shall have effect with the following modifications.

Marginal Citations

M239 1989 c. 26.

Modification of section 82B (unappropriated surplus on valuation) U.K.

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) U.K.

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) U.K.

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) U.K.

16 Omit section 82F (section 82D: treatment of transferees under insurance business transfer schemes).

Modification of section 83 (receipts to be taken into account) U.K.

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) U.K.

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) M240 ”.

Marginal Citations

M240 O.J. L374, 31.12.1991, p.7.

Modification of section 83YA (changes in value of assets brought into account: non-profit companies) U.K.

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) U.K.

20 Omit section 83YB (meaning of “appropriate line 51” amount for purposes of section 83YA).

Valid from 12/08/2008

Modification of section 83YC to 83YF (financing-arrangement-funded transfers) U.K.

20A Omit sections 83YC to 83YF (financing-arrangement-funded transfers).

Modification of section 83A (meaning of brought into account) U.K.

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) U.K.

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 Case 1 profits) U.K.

23 In section 85A (excess adjusted Case 1 profits) in subsection (8)(a) for “Step 8” substitute “ Step 7 ”.

Modification of section 86 (spreading of relief for acquisition expenses) U.K.

24 Omit section 86 (spreading of relief for acquisition expenses).

Modification of section 89 (policy holders' share of profits) U.K.

25 In section 89 (policy holders' share of profits) omit subsection (6).

Valid from 01/04/2010

Part 4 U.K. 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) U.K.

27 Omit section 102.

Modification of section 103 (interpreting sections 99 to 101 for other insurance business) U.K.

28 In section 103(1) omit the words from “if” to the end.

Section 444B.]

[F275 SCHEDULE 19AC U.K. Modification of Act in relation to overseas life insurance companies

Textual Amendments

F275 Sch. 19AC inserted (27.7.1993) by 1993 c. 34, s. 97, Sch. 9 para.1

F276 1 In its application to an overseas life insurance company this Act shall have effect with the following modifications.

Textual Amendments

F276 Sch. 19AC inserted (27.7.1993) by 1993 c. 34, s. 97, Sch. 9 para.1

F277 2 (1) In section 6(4), the words “and section 444D”shall be treated as inserted after the words “Part XI”.

(2) This paragraph shall apply in relation to accounting periods beginning after 31st December 1992.

Textual Amendments

F277 Sch. 19AC inserted (27.7.1993) by 1993 c. 34, s. 97, Sch. 9 para.1

F278 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 business 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 business fundhas the meaning given by section 431(2).”

(4) This paragraph shall apply in relation to accounting periods beginning after 31st December 1992.

Textual Amendments

F278 Sch. 19AC inserted (27.7.1993) by 1993 c. 34, s. 97, Sch. 9 para.1

F279 4 (1) The following sections shall be treated as inserted after section 11—

“11A “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.

11B 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 39 of the M241 Insurance Companies Act 1982, other than an asset not treated as so maintained by virtue of a direction under subsection (2) of that section;

(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 by virtue of a direction under subsection (2) of that section;

(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 an order under section 68 of the Insurance Companies Act 1982;

(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.

11C 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—

(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—

(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) This paragraph shall apply in relation to accounting periods beginning after 31st December 1992.

Textual Amendments

F279 Sch. 19AC inserted (27.7.1993) by 1993 c. 34, s. 97, Sch. 9 para. 1

Marginal Citations

M241 1982 c. 50.

Valid from 01/05/1995

4A (1) In section 12(7A), the reference to a transfer of the whole or part of a company’s long term business in accordance with a scheme sanctioned by a court under Part I of Schedule 2C to the M242 Insurance Companies Act 1982 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 long term insurance Directive.

(3) In sub-paragraph (2) above “the third long term insurance Directive” has the same meaning as in that Act of 1982.

Marginal Citations

M242 1982 c. 50.

F280 5 (1) In section 76, the following subsections shall be treated as inserted after subsection (6)—

“(6A) In its application to an overseas life insurance company this section shall have effect as if—

(a) the reference in subsection (1)(ca) to any reinsurance commission were to any such reinsurance commission concerned as is attributable to the branch or agency in the United Kingdom through which the company carries on life assurance business;

(b) the references in subsection (1) to income and gains were to such income and gains concerned as are so attributable.

(6B) In their application to an overseas life insurance company section 75(5) and subsections (2) and (3)(b) above shall have effect as if for “242” there were substituted “444D”.”

(2) This paragraph shall apply in relation to accounting periods beginning after 31st December 1992.

Textual Amendments

F280 Sch. 19AC inserted (27.7.1993) by 1993 c. 34, s. 97, Sch. 9 para.1

Valid from 28/09/2004

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) F281 , 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.”.

Textual Amendments

F281 This section was inserted by section 149 of the Finance Act 2003.

Valid from 01/05/1995

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.

Valid from 01/05/1995

5B (1) An overseas life insurance company may, on making a claim for the purpose, require that any UK distribution income for an accounting period shall for all or any of the purposes mentioned in sub-paragraph (2) below be treated as if it were a like amount of profits chargeable to corporation tax; and where it does so—

(a) the provisions mentioned in that sub-paragraph shall apply to reduce the amount of the UK distribution income, and

(b) the company shall be entitled to have paid to it the amount of the tax credits comprised in the amount of UK distribution income which is so reduced.

(2) The purposes for which a claim may be made under this paragraph are those of—

(a) the setting of trading losses against total profits under section 393A(1);

(b) the deduction of charges on income under section 338 or paragraph 5 of Schedule 4;

(c) the deduction of expenses of management under section 76;

(d) the setting of certain capital allowances against total profits under section 145(3) of the 1990 Act.

(3) Subsections (3), (4) and (8) of section 242 shall apply for the purposes of a claim under this paragraph as they apply for the purposes of a claim under that section.

(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).

Valid from 01/05/1995

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 interest on any securities issued by the Treasury is excluded by virtue of a condition of the issue of those securities regulating the treatment of the interest on them for tax purposes, the relief under section 76 shall be reduced so that it bears to the amount of relief which would be granted apart from this sub-paragraph the same proportion as the amount of that income excluding that interest bears to the amount of that income including that interest.

F282 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—

(a)

relevant assets are such assets of the company’s long term business fund 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; and

(b)

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—

(a)

liabilities as estimated for the purposes of the company’s periodical return, or

(b)

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

(c)

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) In that subsection, the following words shall be treated as inserted after paragraph (b) of the definition of “overseas life assurance business”—

“but none of the life assurance business of an overseas life insurance company shall be treated as overseas life assurance business;”.

(4) In that subsection, at the end of the definition of “overseas life assurance fund” the following words shall be treated as inserted , “but that Schedule shall not apply in the case of an overseas life insurance company”.

(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—

(a)

their value as taken into account for the purposes of the company’s periodical return, or

(b)

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

(c)

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) This paragraph shall apply in relation to accounting periods beginning after 31st December 1992.

Textual Amendments

F282 Sch. 19AC inserted (27.7.1993) by 1993 c. 34, s. 97, Sch. 9 para.1

Valid from 01/05/1995

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”.

F283 7 (1) In section 432A, the following subsection shall be treated as inserted after subsection (2)—

“(2A) In the case of an overseas life insurance company—

(a) any income which falls within section 11(2)(aa) or (ab); and

(b) any chargeable gains or allowable losses which fall within section 11(2)(d) or (e),

shall be referable to life assurance business.”

(2) The following subsection shall be treated as inserted after subsection (9) of that section—

“(9A) In its application to an overseas life insurance company this section shall have effect as if—

(a) the references in subsections (3), (6) and (8) to assets were to such of the assets concerned 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 subsections (6) and (8) to liabilities were to such of the liabilities concerned as are attributable to the branch or agency;

and any expression used in this subsection to which a meaning is given by section 11A has that meaning.”

(3) This paragraph shall apply in relation to accounting periods beginning after 31st December 1992.

Textual Amendments

F283 Sch. 19AC inserted (27.7.1993) by 1993 c. 34, s. 97, Sch. 9 para.1

F284 8 (1) In subsection (1) of section 432B, the words “or treated as brought into account by virtue of paragraph 1 of Schedule 8A to the Finance Act 1989” shall be treated as inserted after the word “1982”.

(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 paragraph 1(6), (7) or (8) of Schedule 8A to the Finance Act 1989 applies. ”

(3) The following subsection shall be treated as inserted after subsection (3) of that section—

“(4) In their application to an overseas life insurance company—

(a) subsection (3) above shall have effect as if after “with which an account is concerned” there were inserted “or in respect of which items are treated as brought into account by virtue of paragraph 1 of Schedule 8A to the Finance Act 1989”; and

(b) 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) This paragraph shall apply in relation to accounting periods beginning after 31st December 1992.

Textual Amendments

F284 Sch. 19AC inserted (27.7.1993) by 1993 c. 34, s. 97, Sch. 9 para.1

F285 9 (1) In section 434, the following subsection shall be treated as inserted after subsection (1)—

“(1A) Nothing in paragraph (a), (aa) or (ab) of section 11(2) shall prevent UK distribution income of an overseas life insurance company from being taken into account as part of the profits in computing trading income in accordance with the provisions applicable to Case I of Schedule D.”

(2) In subsection (2) of that section, the words “UK distribution income of an overseas life insurance company” shall be treated as substituted for the words “franked investment income of a company so resident”.

(3) This paragraph shall apply in relation to accounting periods beginning after 31st December 1992.

Textual Amendments

F285 Sch. 19AC inserted (27.7.1993) by 1993 c. 34, s. 97, Sch. 9 para.1

Valid from 01/05/1995

9A In section 434A(1)—

(a) the words “UK distribution income” shall be treated as substituted for “franked investment income”, and

(b) the words “an overseas life insurance company” shall be treated as substituted for “a company resident in the United Kingdom”.

Valid from 01/05/1995

9B In section 434B the following subsection shall be treated as inserted after subsection (2)—

”(3) 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.”.

Valid from 01/05/1995

9C In its application to an overseas life insurance company section 434D(4) shall have effect as if the references to liabilities were only to such liabilities as are attributable to the branch or agency in the United Kingdom through which the company carries on the business concerned.

F286 10 (1) In section 438, the following subsection shall be treated as inserted after subsection (3)—

“(3A) Subject to subsection (6) below, nothing in paragraph (a), (aa) or (ab) of section 11(2) shall prevent UK distribution income of an overseas life insurance company from being taken into account as part of the profits in computing under section 436 income from pension business.”

(2) In subsections (6) and (6A) of that section, the words “UK distribution income” shall be treated as substituted for the words “franked investment income” in each place where they occur.

(3) This paragraph shall apply in relation to accounting periods beginning after 31st December 1992.

Textual Amendments

F286 Sch. 19AC inserted (27.7.1993) by 1993 c. 34, s. 97, Sch. 9 para.1

Valid from 01/05/1995

10A In section 439B the following subsection shall be treated as inserted after subsection (7) of that section—

”(7A) In ascertaining whether or to what extent the company has incurred a loss on its life reinsurance business, UK distribution income of an overseas life insurance company shall be taken into account (notwithstanding anything in paragraph (a), (aa) or (ab) of section 11(2)) as part of the profits of that business.”.

Valid from 01/05/1995

10AA In section 440(2)(a), the reference to a transfer of the whole or part of a company's long term business in accordance with a scheme sanctioned by a court under Part I of Schedule 2C to the M243 Insurance Companies Act 1982 shall be treated as including a reference to a qualifying overseas transfer (within the meaning of paragraph 4A above).

Marginal Citations

M243 1982 c. 50.

Valid from 01/05/1995

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.”.

(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.

Valid from 01/05/1995

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 business 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.”.

F287 11 (1) In subsection (2) of section 440A, in paragraphs (a) and (b) the words “UK securities” shall be treated as substituted for the word “securities” in the first place where it occurs in each paragraph.

(2) Paragraph (c) of that subsection shall be treated as omitted.

(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—

“(7) 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) This paragraph shall apply in relation to accounting periods beginning after 31st December 1992.

Textual Amendments

F287 Sch. 19AC inserted (27.7.1993) by 1993 c. 34, s. 97, Sch. 9 para.1

Valid from 01/05/1995

11A (1) In section 441A, the following subsection shall be treated as inserted after subsection (1)—

”(1A) The exclusion from section 11(2)(a), (aa) and (ab) of distributions received from companies resident in the United Kingdom shall not apply in relation to a distribution in respect of any asset of the overseas life assurance fund of an overseas life insurance company.”.

(2) The following subsection shall be treated as substituted for subsections (2) and (3) of that section—

”(3) An overseas life insurance company shall be entitled to a tax credit in respect of a distribution which—

(a) is a distribution in respect of an asset of the company’s overseas life assurance fund, and

(b) is received from a company resident in the United Kingdom,

if and to the extent that regulations made by the Board so provide.”.

Valid from 01/05/1995

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.”.

Valid from 01/05/1995

11C In sections 444A(1) and 460(10A), the references to a transfer of the whole or part of a company’s long term business in accordance with a scheme sanctioned by a court under Part I of Schedule 2C to the M244 Insurance Companies Act 1982 shall be treated as including references to a qualifying overseas transfer (within the meaning of paragraph 4A above).

Marginal Citations

M244 1982 c. 50.

F288 12 (1) In paragraph A of section 704, in sub-paragraph (e) the words “UK distribution income under section 444D”shall be treated as substituted for the words “a surplus of franked investment income under section 242 or 243”.

(2) This paragraph shall apply in relation to accounting periods beginning after 31st December 1992.

Textual Amendments

F288 Sch. 19AC inserted (27.7.1993) by 1993 c. 34, s. 97, Sch. 9 para.1

F289 13 (1) In subsection (2) of section 794, the following shall be treated as inserted after paragraph (c) “and

(d) for tax paid under the law of any territory in respect of the UK branch income or UK branch gains of an overseas life insurance company for the chargeable period in question but only where the following conditions are fulfilled, namely—

(i) that the territory under whose law the tax was paid is not one in which the company is liable to tax by reason of domicile, residence or place of management; and

(ii) that the amount of relief claimed does not exceed (or is by the claim expressly limited to) that which would have been available if the branch or agency concerned had been an insurance company resident in the United Kingdom and the income or gains in question had been income or gains of that company. ”

(2) The following subsections shall be treated as inserted after that subsection—

“(3) For the purposes of subsection (2)(d) above—

(a) “UK branch income”, in relation to an overseas life insurance company, means such of its income falling within section 11(2)(a), (aa) or (ab) as arises from assets of its long term business fund;

(b) “UK branch gains”, in relation to an overseas life insurance company, means such of its chargeable gains falling within section 11(2)(b), (c), (d) or (e) as accrue on the disposal of assets of its long term business fund;

(c) “long term business fund” has the meaning given by section 431(2).

(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)(d) 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) This paragraph shall apply in relation to chargeable periods beginning after 31st December 1992.

Textual Amendments

F289 Sch. 19AC inserted (27.7.1993) by 1993 c. 34, s. 97, Sch. 9 para.1

F290 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) This paragraph shall apply in relation to accounting periods beginning after 31st December 1992.

Textual Amendments

F290 Sch. 19AC inserted (27.7.1993) by 1993 c. 34, s. 97, Sch. 9 para.1

Valid from 01/05/1995

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—

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 business 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; and

(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 any expression used in this paragraph to which a meaning is given by section 11A has that meaning.”.”

F291 15 (1) In paragraph 1(8) of Schedule 19AB, the words “UK distribution income” shall be treated as substituted for the words “franked investment income” in each place where they occur.

(2) This paragraph shall apply in relation to accounting periods beginning after 31st December 1992.

Textual Amendments

F291 Sch. 19AC inserted (27.7.1993) by 1993 c. 34, s. 97, Sch. 9 para.1

Section 450.]

[F292 F293 SCHEDULE 19A U.K. UNDERWRITERS: ASSESSMENT AND COLLECTION OF TAX

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F292 Sch. 19A inserted (1988-89 and subsequent years) by Finance Act 1988 (c. 39), s. 58(4)(a)(5), Sch. 5

F293 Sch. 19A repealed and superseded (with Sch. 19 of the amending Act) (27.7.1993 with effect for the year 1992-93 and subsequent years of assessment) by 1993 c. 34, ss. 173(2), 213, Sch. 23 Pt. III(12) Note 5

Valid from 22/07/2004

Section 496A

[F309 SCHEDULE 19B U.K. Petroleum extraction activities: exploration expenditure supplement

Textual Amendments

F309 Sch. 19B inserted (22.7.2004) by Finance Act 2004 (c. 12), s. 286(3), Sch. 38

Part 1 U.K. Introductory

About this Schedule U.K.

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, 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 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 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 U.K. Application and interpretation

Qualifying companies U.K.

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) 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 U.K.

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—

  (a)

  which is the commencement period, or

  (b)

  which ends after the commencement period;

• “pre-commencement period” means any accounting period ending—

  (a)

  on or after 1st January 2004, and

  (b)

  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.

The relevant percentage U.K.

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 U.K.

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 U.K.

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.

(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.

Unrelieved group ring fence profits for accounting periods U.K.

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 U.K.

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 U.K. Pre-commencement supplement

Supplement in respect of a pre-commencement accounting period U.K.

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 U.K.

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 U.K.

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 U.K.

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 U.K.

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 U.K.

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 U.K. Post-commencement supplement

Supplement in respect of a post-commencement period U.K.

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) 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 U.K.

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.

(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 U.K.

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 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.

(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 U.K.

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.

Valid from 19/07/2006

Special rule for straddling periods U.K.

[F310 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 paragraph 18 of Schedule 19C for the purposes of Part 4 of that Schedule.]

Textual Amendments

F310 Sch. 19B para. 18A inserted (19.7.2006) by Finance Act 2006 (c. 25), s. 154(9)

The pool of qualifying E&A losses and the pool of non-qualifying losses U.K.

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 U.K.

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 U.K.

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 U.K.

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.

Reductions in respect of unrelieved group ring fence profits U.K.

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 U.K.

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.]

Valid from 19/07/2006

Section 496B

SCHEDULE 19C U.K. Petroleum extraction activities: ring fence expenditure supplement

Part 1 U.K. Introductory

About this Schedule U.K.

1 (1) This Schedule entitles a company carrying on a ring fence trade, on making a claim in respect of an accounting period beginning on or after 1st January 2006, to a supplement (initially of 6%, but variable by Treasury order) in respect of—

(a) qualifying pre-commencement expenditure incurred before the trade is set up and commenced,

(b) losses incurred in the trade, and

(c) some or all of the supplement allowed in respect of earlier periods.

(2) Part 2 makes provision about the application and interpretation of this Schedule.

(3) 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.

(4) Part 4 makes provision about supplement in relation to losses incurred in carrying on the ring fence trade.

(5) There is a limit on the number of accounting periods (6) in respect of which a company may claim supplement.

(6) In determining the amount of supplement allowable, reductions fall to be made in respect of—

(a) disposal receipts in respect of any asset representing qualifying pre-commencement expenditure,

(b) ring fence losses that could be set off under section 393A 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 U.K. Application and interpretation

Qualifying companies U.K.

2 This Schedule applies in relation to any company which—

(a) carries on a ring fence trade, or

(b) is engaged in any activities 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 U.K.

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 beginning on or after 1st January 2006—

  (a)

  which is the commencement period, or

  (b)

  which ends after the commencement period;

• “pre-commencement period” means any accounting period—

  (a)

  beginning on or after 1st January 2006, and

  (b)

  ending before the commencement period.

(2) For the purposes of this Schedule a company not within the charge to corporation tax which incurs any 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 activities in the course of 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) But special provision is made elsewhere in this Schedule in relation to straddling periods (see paragraphs 5, 18 and 21(4) to (6)).

The relevant percentage U.K.

4 (1) For the purposes of this Schedule, the relevant percentage for any accounting period beginning on or after 1st January 2006 is 6%.

(2) The Treasury may by order vary the percentage for the time being specified in sub-paragraph (1) above for such accounting periods as may be specified in the order.

Limit on number of accounting periods for which supplement may be claimed U.K.

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.

(3) A claim for supplement by the company under Schedule 19B (exploration expenditure supplement) in respect of an accounting period is to count for the purposes of this paragraph as a claim for supplement under this Schedule in respect of that accounting period.

(4) But, if the company makes a claim for supplement under this Schedule in respect of the deemed accounting period, any claim for supplement by the company under Schedule 19B in respect of the Schedule 19B deemed accounting period is to be ignored for the purposes of this paragraph.

(5) For this purpose—

• “the deemed accounting period” means the deemed accounting period under paragraph 3(3) beginning on 1st January 2006, and

• “the Schedule 19B deemed accounting period” means the deemed accounting period under paragraph 3(3) of Schedule 19B ending before 1st January 2006.

Qualifying pre-commencement expenditure U.K.

6 (1) For the purposes of this Schedule, expenditure is “qualifying pre-commencement expenditure” if it meets conditions A to D.

(2) Condition A is that the expenditure is incurred on or after 1st January 2006.

(3) Condition B is that the expenditure is incurred in the course of oil extraction activities.

(4) Condition C is that the expenditure is incurred by a person with a view to carrying on a ring fence trade but before the person sets up and commences the ring fence trade.

(5) Condition D is that the expenditure—

(a) is subsequently allowable as a deduction in calculating the profits of the ring fence trade for the commencement period (whether or not any part of it is so allowable for any post-commencement period), or

(b) is relevant R&D expenditure incurred by an SME.

(6) For the purposes of this paragraph, expenditure incurred by a company is “relevant R&D expenditure incurred by an SME” if—

(a) the company makes an election under paragraph 14 of Schedule 20 to the Finance Act 2000 (R&D tax relief for SMEs: alternative treatment of pre-trading expenditure) in respect of that expenditure, but

(b) the company does not make a claim for an R&D tax credit under that Schedule in respect of that expenditure.

(7) In the case of any qualifying pre-commencement expenditure which is relevant R&D expenditure incurred by an SME, the amount of that expenditure is treated for the purposes of this Schedule as being equal to 150% of its actual amount.

(8) In the case of any qualifying pre-commencement expenditure which is relevant R&D expenditure incurred by a large company, the amount of that expenditure is treated for the purposes of this Schedule as being equal to 125% of its actual amount.

(9) For this purpose “relevant R&D expenditure incurred by a large company” means qualifying expenditure within the meaning given by paragraph 11(3) of Schedule 12 to the Finance Act 2002 (R&D tax relief for large companies).

Unrelieved group ring fence profits for accounting periods U.K.

7 (1) There is an amount of unrelieved group ring fence profits for an accounting period of a qualifying company (“company Q”) if—

(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) If 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) If 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 U.K.

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 U.K. Pre-commencement supplement

Supplement in respect of a pre-commencement accounting period U.K.

9 (1) If—

(a) a qualifying company incurs qualifying pre-commencement expenditure in respect of a ring fence trade, and

(b) the expenditure is incurred before the commencement period,

the company may 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 is to be treated as expenditure—

(a) which is incurred by the company in the commencement period, and

(b) which is allowable as a deduction in calculating the profits of the ring fence trade for that period.

(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) is to 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 pre-commencement expenditure and supplement previously allowed U.K.

10 (1) For the purpose of determining the amount of any pre-commencement supplement, a qualifying company is to be taken to have had, at all times in the pre-commencement periods of the company, a continuing mixed pool of—

(a) the relevant amount (if any) which the company carries forward under Schedule 19B,

(b) qualifying pre-commencement expenditure, and

(c) pre-commencement supplement.

(2) The pool is to be taken to have consisted of—

(a) the relevant amount (if any) which the company carries forward under Schedule 19B,

(b) the company's qualifying pre-commencement expenditure, allocated to the pool for each pre-commencement period in accordance with sub-paragraph (3), and

(c) 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 pre-commencement 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 pre-commencement expenditure mentioned in paragraph 9(1) 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 is to 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 is to be taken to have been added to the pool in that period.

(5) In this paragraph references to the relevant amount (if any) which the company carries forward under Schedule 19B are to the amount in its mixed pool for the purposes of Part 3 of Schedule 19B immediately before 1st January 2006.

Reduction in respect of disposal receipts under the Capital Allowances Act U.K.

11 (1) This paragraph applies in the case of the qualifying company if—

(a) it incurs qualifying pre-commencement expenditure in respect of a ring fence trade in any pre-commencement period,

(b) it would, on the relevant assumption, be entitled to an allowance under any provision of the Capital Allowances Act in respect of that expenditure,

(c) an event occurs in relation to any asset representing the expenditure in any pre-commencement period, and

(d) the event would, on the relevant assumption, require a disposal value (the “deductible amount”) to be brought into account under any provision of the Capital Allowances Act for any pre-commencement period.

(2) The relevant assumption is that the company was carrying on the ring fence trade—

(a) when the expenditure was incurred, and

(b) when the event giving rise to the disposal value occurred.

(3) For the purpose of allocating qualifying pre-commencement expenditure to the pool for each pre-commencement period—

(a) find the total amount of the disposal values in the case of all such events (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.

Reduction in respect of unrelieved group ring fence profits U.K.

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 pre-commencement 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 U.K.

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 pre-commencement 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 U.K.

14 (1) Any claim for pre-commencement supplement in respect of a pre-commencement period must be made as a claim for the commencement period.

(2) Paragraph 74 of Schedule 18 to the Finance Act 1998 (company tax returns etc: time limit for claims for group relief) applies in relation to a claim for pre-commencement supplement as it applies in relation to a claim for group relief.

Part 4 U.K. Post-commencement supplement

Supplement in respect of a post-commencement period U.K.

15 (1) A qualifying company which incurs a ring fence 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 is to be treated for the purposes of the Corporation Tax Acts (other than this Part of this Schedule or Part 4 of Schedule 19B) as if it were a loss—

(a) which is incurred in carrying on the ring fence trade in that period, and

(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) applies 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 U.K.

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) is to be reduced proportionally.

(3) Paragraphs 19 to 23 have effect for the purpose of determining the reference amount for a post-commencement period.

Ring fence losses U.K.

17 (1) If—

(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), the following assumption is to be made.

(3) The assumption is 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.

(4) This paragraph is subject to paragraph 18 (special rule for straddling periods).

(5) This paragraph has effect for the purposes of this Part of this Schedule.

Special rule for straddling periods U.K.

18 (1) This paragraph applies if the period of the loss in which a ring fence loss is incurred is the deemed accounting period under paragraph 3(3) beginning on 1st January 2006 (“the deemed accounting period”).

(2) The amount of the ring fence loss in the deemed accounting period is determined as follows.

• Step 1

• Calculate so much of the ring fence loss in the straddling period as, for the purposes of Part 4 of Schedule 19B, is attributable to qualifying E&A allowances for the straddling period.

• The amount given by this step is “the qualifying Schedule 19B amount”.

• Step 2

• Calculate so much of the ring fence loss in the straddling period as is attributable to allowances for the straddling period under Part 6 of the Capital Allowances Act in respect of relevant expenditure.

• For the purposes of this step “relevant expenditure” means expenditure incurred by the company on or after 1st January 2006 which, but for that fact, would be qualifying E&A expenditure for the purposes of Schedule 19B.

• For the purposes of this step a ring fence loss is attributable to those allowances to the extent that the amount of the loss (less the qualifying Schedule 19B amount) does not exceed the amount of those allowances for that period.

• The amount given by this step is “the amount of the post-1st January 2006 E&A allowances”.

• Step 3

• Deduct the qualifying Schedule 19B amount and the amount of the post-1st January 2006 E&A allowances from the amount of the ring fence loss in the straddling period.

• Step 4

• Apportion the remaining amount of that loss (if any) to the deemed accounting period in proportion to the number of days in the deemed accounting period that fall in the straddling period.

• The amount given by this step is “the amount of the apportioned loss”.

• Step 5

• The amount of the ring fence loss in the deemed accounting period is the amount of the apportioned loss plus the amount of the post-1st January 2006 E&A allowances.

(3) In this paragraph “the straddling period”, in relation to a qualifying company, means an accounting period of the company—

(a) beginning before 1st January 2006, and

(b) ending on or after that date,

disregarding paragraph 3(3).

(4) In this paragraph references to the ring fence loss in the straddling period are to that loss determined on the assumption that the straddling period is the period of the loss for the purposes of paragraph 17.

(5) This paragraph has effect for the purposes of this Part of this Schedule.

The pool of ring fence losses and the pool of non-qualifying Schedule 19B losses U.K.

19 (1) For the purpose of determining the amount of any post-commencement supplement, a qualifying company is to be taken at all times in its post-commencement periods to have a continuing mixed pool (the “ring fence pool”) of—

(a) the carried forward qualifying Schedule 19B amount,

(b) the company's ring fence losses, and

(c) post-commencement supplement.

(2) The ring fence pool continues even if the amount in it is nil.

(3) For the purpose of determining the amount of any post-commencement supplement, a qualifying company is also to be taken in its post-commencement periods to have a non-qualifying pool consisting of the carried forward non-qualifying Schedule 19B amount.

(4) But the non-qualifying pool ceases to exist when the amount in it is reduced to nil.

(5) In this paragraph—

• “the carried forward qualifying Schedule 19B amount”, in relation to a qualifying company, means the amount in its qualifying pool for the purposes of Part 4 of Schedule 19B immediately before 1st January 2006, and

• “the carried forward non-qualifying Schedule 19B amount”, in relation to a qualifying company, means the amount in its non-qualifying pool for the purposes of Part 4 of Schedule 19B immediately before 1st January 2006.

The ring fence pool U.K.

20 (1) The ring fence pool consists of—

(a) the carried forward qualifying Schedule 19B amount,

(b) the company's ring fence losses, allocated to the pool in accordance with sub-paragraph (2)(a), and

(c) the company's post-commencement supplement, allocated to the pool in accordance with sub-paragraph (2)(b).

(2) The allocation of ring fence losses and post-commencement supplement to the pool is as follows—

(a) the amount of a ring fence 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 ring fence pool is subject to reductions in accordance with the following provisions of this Part of this Schedule.

(4) If a reduction in the amount in the ring fence 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 ring fence 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 are to be read accordingly.

(5) In this paragraph “the carried forward qualifying Schedule 19B amount”, in relation to a qualifying company, means the amount in its qualifying pool for the purposes of Part 4 of Schedule 19B immediately before 1st January 2006.

Reductions in respect of utilised ring fence losses U.K.

21 (1) If one or more ring fence losses are set off under section 393 against any profits of a post-commencement period, reductions are to be made in that period in accordance with this paragraph.

(2) If the company has a non-qualifying pool, the amount in the non-qualifying pool is to be reduced (but not below nil) by setting against it a sum equal to the total amount so set off.

(3) If—

(a) any of that sum remains after being so set against the amount in the non-qualifying pool, or

(b) the company does not have a non-qualifying pool,

the amount in the ring fence pool is to be reduced (but not below nil) by setting against it so much of that sum as so remains or (as the case may be) a sum equal to the total amount set off as mentioned in sub-paragraph (1).

(4) If the post-commencement period is the deemed accounting period under paragraph 3(3) beginning on 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—

(a) beginning before 1st January 2006, and

(b) ending on or after that date,

disregarding paragraph 3(3).

Reductions in respect of unrelieved group ring fence profits U.K.

22 (1) If there is an amount of unrelieved group ring fence profits for a post-commencement period, reductions are to be made in that period in accordance with this paragraph.

(2) If, after making any reductions that fall to be made in accordance with paragraph 21, the company does not have a non-qualifying pool, the remaining amount in the ring fence pool is to 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.

(3) If, after making any reductions that fall to be made in accordance with paragraph 21, the company has an amount in a non-qualifying pool, the amount in that pool is to 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 amount in the non-qualifying pool, the remaining amount in the ring fence pool is to be reduced (but not below nil) by setting against it so much of that sum as so remains.

(5) For the purposes of this paragraph references to the remaining amount in the ring fence pool are references to so much (if any) of the amount in the ring fence pool as remains after making any reductions that fall to be made in accordance with paragraph 21.

The reference amount for a post-commencement period U.K.

23 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 ring fence pool as remains after making any reductions required by paragraph 21 or 22.

Section 506.

SCHEDULE 20 U.K. CHARITIES: QUALIFYING INVESTMENTS AND LOANS M245

Marginal Citations

M245 Source—1986 c. 60 Sch. 7 Pts. II—IV.

PART I U.K. QUALIFYING INVESTMENTS

1 Investments specified in any of the following paragraphs of this Part of this Schedule are qualifying investments for the purposes of section 506.

2 Any investment falling within Part I, Part II, apart from paragraph 13 (mortgages etc.) or Part III of Schedule 1 to the M246 Trustee Investments Act 1961.

Marginal Citations

M246 1961 c. 62.

3 Any investment in a common investment fund established under section 22 of the M247 Charities Act 1960 [F311 , section 24 of the Charities Act 1993] or section 25 of the M248 Charities Act (Northern Ireland) 1964 or in any similar fund established for the exclusive benefit of charities by or under any enactment relating to any particular charities or class of charities.

Textual Amendments

F311 Words in Sch. 20 para. 3 inserted (1.8.1993) by 1993 c. 10, ss. 98(1), 99(1), Sch. 6 para. 25(a)

Marginal Citations

M247 1960 c. 58.

M248 1964 c. 33 (N.I.).

[F312 3A Any investment in a common deposit fund established under section 22A of the Charities Act 1960 [F313 or section 25 of the Charities Act 1993] or in any similar fund established for the exclusive benefit of charities by or under any enactment relating to any particular charities or class of charities.]

Textual Amendments

F312 Sch. 20 para. 3A inserted (1.9.1992) by Charities Act 1992 (c. 41), s. 78(1), Sch. 6 para. 17; S.I. 1992/1900, art. 2(1), Sch. 1

F313 Words in Sch. 20 para. 3A inserted (1.8.1993) by 1993 c. 10, ss. 98(1), 99(1), Sch. 6 para. 25(b)

4 Any interest in land, other than an interest held as security for a debt of any description.

5 Shares in, or securities of, a company which are quoted on a recognised stock exchange, or which are dealt in on the Unlisted Securities Market.

6 Units, or other shares of the investments subject to the trusts, of a unit trust scheme within the meaning of the M249 Financial Services Act 1986.

Marginal Citations

M249 1986 c. 60.

Valid from 28/04/1997

6A Shares in an open-ended investment company.

7 (1) Deposits with an institution authorised under the M250 Banking Act 1987 in respect of which interest is payable at a commercial rate.

(2) A deposit mentioned in sub-paragraph (1) above is not a qualifying investment if it is made as part of an arrangement under which a loan is made by the authorised institution to some other person.

Marginal Citations

M250 1987 c. 22.

Valid from 06/04/2005

7A Uncertificated eligible debt security units as defined in section 552(2) of ITTOIA 2005.

8 Certificates of deposit as defined in section 56(5).

9 (1) Any loan or other investment as to which the Board are satisfied, on a claim made to them in that behalf, that the loan or other investment is made for the benefit of the charity and not for the avoidance of tax (whether by the charity or any other person).

(2) The reference in sub-paragraph (1) above to a loan includes a loan which is secured by a mortgage or charge of any kind over land.

PART II U.K. QUALIFYING LOANS

10 For the purposes of section 506, a loan which is not made by way of investment is a qualifying loan if it consists of—

(a) a loan made to another charity for charitable purposes only; or

(b) a loan to a beneficiary of the charity which is made in the course of carrying out the purposes of the charity; or

(c) money placed on current account with an institution authorised under the Banking Act 1987 otherwise than as part of such an arrangement as is mentioned in paragraph 7(2) above; or

(d) any other loan as to which the Board are satisfied, on a claim made to them in that behalf, that the loan is made for the benefit of the charity and not for the avoidance of tax (whether by the charity or by some other person).

PART III U.K. ATTRIBUTION OF EXCESS NON-QUALIFYING EXPENDITURE TO EARLIER CHARGEABLE PERIODS

11 This Part of this Schedule applies in the circumstances specified in subsection (6) of section 506 and in this Part—

(a) “the primary period” means the chargeable period of the charity concerned in which there is such an excess as is mentioned in that subsection;

(b) “unapplied non-qualifying expenditure” means so much of the excess referred to in that subsection as does not exceed the non-qualifying expenditure of the primary period; and

(c) “earlier period”, in relation to an amount of unapplied non-qualifying expenditure, means any chargeable period of the charity concerned which ended not more than six years before the end of the primary period.

12 (1) So much of the unapplied non-qualifying expenditure as is not shown by the charity to be the expenditure of non-taxable sums received by the charity in the primary period shall be treated in accordance with paragraph 13 below as non-qualifying expenditure of earlier periods.

(2) In sub-paragraph (1) above “non-taxable sums” means donations, legacies and other sums of a similar nature which, apart from section 505(1) of this Act and section [F314 256 of the 1992] Act, are not within the charge to tax.

Textual Amendments

F314 Words in Sch. 20 para. 12(2) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 10 para. 14(59) (with ss. 60, 101(1), 171, 201(3))

13 (1) Where, in accordance with paragraph 12 above, an amount of unapplied non-qualifying expenditure (“the excess expenditure”) falls to be treated as non-qualifying expenditure of earlier periods—

(a) it shall be attributed only to those earlier periods (if any) which, apart from the attribution, (but taking account of any previous operation of this paragraph) the relevant income and gains exceed the aggregate of the qualifying and non-qualifying expenditure incurred in that period; and

(b) the amount to be attributed to any such earlier period shall not be greater than the excess of that period referred to in paragraph (a) above.

(2) Where there is more than one earlier period to which the excess expenditure can be attributed in accordance with sub-paragraph (1) above, it shall be attributed to later periods in priority to earlier periods.

(3) In so far as any of the excess expenditure cannot be attributed to earlier periods in accordance with this paragraph, it shall be disregarded for the purposes of section 506(6) (and this Part of this Schedule).

14 All such adjustments shall be made, whether by way of the making of assessments or otherwise, as may be required in consequence of the provisions of this Part of this Schedule.

Sections 570 and 572.

SCHEDULE 21 U.K. TAX RELIEF IN CONNECTION WITH SCHEMES FOR RATIONALIZING INDUSTRY AND OTHER REDUNDANCY SCHEMES M251

Marginal Citations

M251 Source—1970 c.10, Sch.11

PART I U.K. PRELIMINARY

1 (1) In this Schedule— U.K.

• “scheme” means a scheme which is for the time being certified or has at any time been certified by the Secretary of State under section 568;

• “payment” means a payment made under a scheme, being a payment made to a person carrying on a trade to which the scheme relates and not being a payment made by way of repayment of contributions;

• “the person chargeable” means, in relation to any such payment, the person liable to pay any tax which may fall to be paid by reason of the receipt of the payment;

• “damage” includes any loss, liability, expense or other burden, and references to the amount of any damage are references to the sum which would be fair compensation for that damage;

• “contribution” includes part of a contribution, and “deductible contribution” means a contribution allowed to be deducted under section 568, any reduction under Part III of this Schedule being left out of account; and

• “asset” includes part of an asset.

(2) For the purposes of this Schedule, a sum received by any person by way of repayment of contributions shall be deemed to be by way of repayment of the last contribution paid by him, and, if the sum exceeds the amount of that contribution, by way of repayment of the penultimate contribution so paid, and so on.

PART II U.K. RELIEF IN RESPECT OF CERTAIN PAYMENTS

2 U.K. The question whether any, and if so, what, relief is to be given shall be determined separately in relation to each payment made under the scheme in respect of the trade, but for the purpose of determining that question regard shall be had, as provided by the following provisions of this Part of this Schedule, to the sum (“the total payment”) produced by adding the amount of the payment to the amount of any payments previously so made.

3 No relief shall be given in respect of the payment unless the person chargeable shows—

(a) the amount of the damage in respect of which the total payment has been made; and

(b) how much of that amount is referable to damage in respect of which no relief may be given under the Tax Acts.

4 U.K. No relief shall be given in respect of the payment unless the total payment, or the amount of the damage in respect of which the total payment has been made, whichever is the smaller, exceeds the aggregate amount of the deductible contributions which have been paid in furtherance of the scheme in respect of the trade in question before the payment is made, exclusive of any contributions which have been repaid before the payment is made.

5 U.K. The amount of the reduction to be made in respect of the payment shall be arrived at by—

(a) ascertaining the sum which bears to the excess mentioned in paragraph 4 above the same proportion that the amount mentioned in paragraph 3(b) above bears to the amount mentioned in paragraph 3(a); and

(b) deducting from that sum the total amount of any reductions which have been or fall to be made under this Schedule in respect of payments previously made under the scheme in respect of the trade.

6 (1) For the purposes of this Schedule, and subject to sub-paragraph (2) below, damage shall be deemed to be damage in respect of which relief may be given under the Tax Acts if and only if—

(a) the damage is attributable to any of the following events, that is to say, the demolition, destruction or putting out of use of any asset, or the disposition or termination of an interest in any asset, and, by reason of that event, an allowance falls to be made under [F315 Part I or II of the 1990 Act] in taxing the trade; or

(b) the damage consists of any loss, liability, expense or other burden in respect of which an allowance may be made in computing the profits or gains of the trade for the purposes of the Tax Acts.

(2) F316 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) Where any event occurs which would give rise to an allowance under the Tax Acts in respect of any asset in taxing, or computing the profits or gains of, a trade but for any of the following matters, that is to say—

(a) that there are no profits or gains against which the allowance could be made, or

(b) that account is required to be taken of allowances previously made or deemed to have been made in respect of the asset; or

(c) that account is required to be taken of any sum which falls to be written off the expenditure incurred on the asset for the purpose of determining whether any and if so what allowance may be given by reason of the event; or

(d) that account is required to be taken of any sum falling to be taken into account as sale, insurance, salvage or compensation moneys, the like consequences shall ensue under this Schedule as if an allowance had fallen to be made by reason of that event.

(4) Where any damage is attributable to a permanent change in the purposes for which an asset is used, or the temporary or permanent putting out of use of an asset, the question whether the damage is damage in respect of which relief may be given under the Tax Acts shall be determined as if the damage had been attributable to a sale of the asset on the date upon which the change or putting out of use took place.

Textual Amendments

F315 Words in Sch. 21 para. 6(1)(a) substituted (with effect in accordance with s. 164(1)(2) and with application in accordance with s. 164(1)(2) of the amending Act) by Capital Allowances Act 1990 (c. 1), Sch. 1 para. 8(41), s. 164(3)

F316 Sch. 21 para. 6(2) repealed (with effect in accordance with s. 164(1)(2) of the repealing Act) by Capital Allowances Act 1990 (c. 1), s. 164(4)(5), Sch. 2

PART III U.K. EXCLUSION OF RELIEF IN RESPECT OF CONTRIBUTIONS PAID AFTER RELIEF HAS BEEN GIVEN UNDER PART II

7 U.K. The provisions of this Part of this Schedule shall have effect where—

(a) a contribution is paid under a scheme in respect of a trade; and

(b) before the contribution is paid, payments have been made under the scheme to the person carrying on the trade; and

(c) reductions have been made, under Part II of this Schedule, in the amounts which, by reason of those payments, are to be treated as trading receipts of the trade.

8 U.K. There shall be ascertained—

(a) the total amount of those reductions; and

(b) the sum by which that total would have been decreased if the contribution, and any previous contributions to which this Part of this Schedule applies, had been paid before any of the payments were made.

9 U.K. For the purpose of determining what deduction is to be made in respect of the contribution under section 568, the contribution shall be deemed to be reduced by the sum specified in paragraph 8(b) above, but—

(a) for the purpose of the application of paragraph 8 above in relation to contributions subsequently paid under the scheme in respect of the trade, the total amount of the reductions referred to in that paragraph shall be treated as decreased by that sum; and

(b) for the purpose of the application of paragraph 5 above in relation to payments subsequently made under the scheme in respect of the trade, the total amount of the reductions referred to in that paragraph shall be treated as decreased by that sum.

10 U.K. When two or more contributions are paid at the same time, the provisions of this Part of this Schedule shall have effect as if they were a single contribution.

Section 603.

SCHEDULE 22 U.K. REDUCTION OF PENSION FUND SURPLUSES M252

Marginal Citations

M252 Source—1986 c. 53, Sch.12 Pt.II

1 (1) The Board may make regulations providing for this Schedule to apply, as from a prescribed date, in relation to any exempt approved scheme which is of a prescribed kind.

(2) The Board may make regulations providing for prescribed provisions of this Schedule to apply, as from a prescribed date, in prescribed circumstances, and subject to any prescribed omissions or modifications, in relation to any exempt approved scheme of another prescribed kind.

(3) In this Schedule “prescribed” means prescribed by regulations made by the Board.

Modifications etc. (not altering text)

C97 For regulations see Part III Vol.5 (under “Pension scheme surpluses: valuation”).

2 (1) The administrator of a scheme in relation to which this Schedule applies shall, in prescribed circumstances and at a prescribed time, either produce to the Board a written valuation such as is mentioned in sub-paragraph (2) below or give to the Board a certificate such as is mentioned in sub-paragraph (3) below.

(2) The valuation must be a valuation of the assets held for the purposes of the scheme and the liabilities of the scheme, must be determined in accordance with prescribed principles and fulfil prescribed requirements, and must be signed by a person with qualifications of a prescribed kind.

(3) The certificate must state whether or not the value of the assets (as determined in accordance with prescribed principles) exceeds the value of the liabilities (as so determined) by a percentage which is more than a prescribed maximum, must be in a prescribed form, and must be signed by a person with qualifications of a prescribed kind.

3 (1) Subject to paragraph 4(4) below, where a valuation produced under paragraph 2 shows, or a certificate given under that paragraph states, that the value of the assets exceeds the value of the liabilities by a percentage which is more than the prescribed maximum, the administrator of the scheme shall within a prescribed period submit to the Board for their approval proposals which comply with sub-paragraph (2) below.

(2) The proposals must be proposals for reducing (or, subject to paragraph (b) below, eliminating) the excess in a way or ways set out in the proposals and falling within sub-paragraph (3) below; and they must be such as to secure that—

(a) by the end of a prescribed period the percentage (if any) by which the value of the assets exceeds the value of the liabilities is no more than the prescribed maximum; and

(b) if the way, or one of the ways, set out in the proposals falls within sub-paragraph (3)(a) below, there remains an excess which is of a level not less than the prescribed minimum.

(3) Subject to sub-paragraph (4) below, the permitted ways of reducing or eliminating the excess are—

(a) making payments to an employer;

(b) suspending for a period (of five years or less) set out in the proposals an employer’s obligation to pay contributions under the scheme or reducing for such a period the amount of an employer’s contributions under the scheme;

(c) suspending for a period (of five years or less) set out in the proposals the obligation of employees to pay contributions under the scheme or reducing for such a period the amount of employees’ contributions under the scheme;

(d) improving existing benefits provided under the scheme;

(e) providing new benefits under the scheme;

(f) such other ways as may be prescribed.

(4) In prescribed circumstances sub-paragraph (3) above shall apply subject to such omissions or modifications as may be prescribed.

(5) Subject to paragraph 4(4) below, if the administrator of the scheme fails to submit proposals to the Board within the period mentioned in subparagraph (1) above, or if the proposals submitted to them within that period are not approved by the Board within a further prescribed period, paragraph 7 below shall apply.

4 (1) Where a valuation has been produced under paragraph 2 above, the Board may serve on the administrator of the scheme a notice requiring him to furnish the Board, within a prescribed period, with such particulars relating to the valuation as may be specified in the notice.

(2) Where a certificate has been given under paragraph 2 above, the Board may serve on the administrator of the scheme a notice requiring him to produce to the Board, within a prescribed period, a written valuation such as is mentioned in paragraph 2(2) above.

(3) Where a valuation has been produced in compliance with a notice served under sub-paragraph (2) above, the Board may serve on the administrator of the scheme a further notice requiring him to furnish the Board, within a prescribed period, with such particulars relating to the valuation as may be specified in the notice.

(4) Where a notice is served on the administrator of a scheme under sub-paragraph (1) or (2) above, paragraph 3(1) and (5) above shall cease to apply.

5 (1) Where particulars have been furnished under paragraph 4 above, or a valuation has been produced under that paragraph, the Board shall, within a prescribed period, serve on the administrator of the scheme a notice—

(a) stating that they accept the valuation produced under paragraph 2 or, as the case may be, 4 above; or

(b) stating that they do not accept the valuation so produced, and specifying their estimate of the value of the liabilities of the scheme at the relevant time and their estimate of the value of the assets held for the purposes of the scheme at that time.

(2) For the purposes of sub-paragraph (1)(b) above, the relevant time is the time specified in the valuation produced under paragraph 2 or 4 above as the time by reference to which the values of the assets and liabilities are determined.

(3) Where—

(a) in a case falling within sub-paragraph (1)(a) above, the valuation shows that the value of the assets exceeds the value of the liabilities by a percentage which is more than the prescribed maximum; or

(b) in a case falling within sub-paragraph (1)(b) above, the value of the assets as estimated by the Board exceeds the value of the liabilities as so estimated by a percentage which is more than the prescribed maximum;

the administrator of the scheme shall within a prescribed period submit to the Board for their approval proposals which comply with paragraph 3(2) to (4) above.

(4) If the administrator of the scheme fails to submit proposals to the Board within the period mentioned in sub-paragraph (3) above, or if proposals submitted to them within that period are not approved by the Board within a further prescribed period, paragraph 7 below shall apply.

6 (1) Where proposals are submitted to the Board under paragraph 3(1) or 5(3) above and they approve them within the further prescribed period mentioned in paragraph 3(5) or 5(4) above, the administrator of the scheme shall carry out the proposals within the period mentioned in paragraph 3(2) above.

(2) If the administrator fails to carry out the proposals within that period, paragraph 7 below shall apply.

7 (1) Where this paragraph applies the Board may specify a percentage equivalent to the fraction—

where—

• A represents their estimate of the value of the liabilities of the scheme at the relevant time increased by a prescribed percentage; and

• B represents their estimate of the value of the assets held for the purposes of the scheme at that time.

(2) For the purposes of this paragraph the relevant time is the time specified—

(a) in the valuation produced or certificate given under paragraph 2 above; or

(b) where a valuation has been produced under paragraph 4 above, in that valuation,

as the time by reference to which the values of the assets and liabilities are determined.

(3) Where a percentage has been so specified—

(a) section 592(2) shall apply only to that percentage of any income derived in the relevant period from the assets held for the purposes of the scheme;

(b) section 592(3) shall apply only to that percentage of any underwriting commissions applied in the relevant period for the purposes of the scheme;

(c) section 56 shall by virtue of subsection (3)(b) of that section not apply only to that percentage of any profits or gains arising to the scheme in the relevant period; and

(d) section [F317 271(1)(g) of the 1992] Act (capital gains tax exemption) shall apply only to that percentage of any gain accruing on the disposal in the relevant period of any of those assets.

(4) Sub-paragraphs (5) to (8) below shall apply where a percentage has been so specified, securities are transferred in the relevant period, and the transferor or transferee is such that, if he became entitled to any interest on them, exemption could be allowed under section 592(2).

(5) Section 715(1)(k) shall not apply.

(6) Where, in consequence of sub-paragraph (5) above, section 713(2)(a) or (3)(b) applies, the sum concerned shall be treated as reduced by an amount equal to the specified percentage of itself.

(7) Where, in consequence of sub-paragraph (5) above, section 713(2)(b) or (3)(a) applies, the relief concerned shall be treated as reduced by an amount equal to the specified percentage of itself.

(8) For the purposes of section 714(5), the amount of interest falling to be reduced by the amount of the allowance shall be treated as the amount found after applying section 592(2).

(9) In sub-paragraphs (4) to (8) above expressions which also appear in sections 710 to 728 have the same meanings as in those sections.

(10) In this paragraph “the relevant period” means the period begining at the relevant time and ending when it is proved to the satisfaction of the Board that the value of the assets (as determined in accordance with prescribed principles) exceeds the value of the liabilities (as so determined) by a percentage which is no more than the prescribed maximum.

Textual Amendments

F317 Words in Sch. 22 para. 7 substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 10 para. 14(60) (with ss. 60, 101(1), 171, 201(3))

Modifications etc. (not altering text)

C98 See S.I.1989 No.2290, regn.10(5)in Part III Vol.5.

C99 Sch. 22 para. 7(3)(d) modified (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 271(10), 289 (with ss. 60, 101(1), 171, 201(3))

C100 See S.I.1989 No.2290, regn.10(5)in Part III Vol.5.

Valid from 06/04/2005

7A (1) This paragraph applies if a calculation falls to be made under paragraph 7 above in a case where—

(a) relief is to be given under section 454 of ITTOIA 2005 (listed deeply discounted securities held since 26th March 2003: relief for losses) in respect of a loss sustained on the disposal of securities, and

(b) had there been a profit on the disposal it would have been eligible for relief from tax for the year of assessment in which the loss is sustained by virtue of section 592(2).

(2) That relief is to be given before the calculation under paragraph 7 above is made.

(3) Then the amount of income to which the specified percentage is applied by virtue of sub-paragraph (3)(a) of that paragraph is reduced by the amount of that relief.

(4) In this paragraph “disposal” has the same meaning as in Chapter 8 of Part 4 of ITTOIA 2005.

8 (1) The Board may make regulations providing that an appeal may be brought against a notice under paragraph 5(1)(b) above as if it were notice of the decision of the Board on a claim made by the administrator of the scheme concerned.

(2) Regulations under this paragraph may include—

(a) provision that bringing an appeal shall suspend the operation of paragraph 5(3) and (4) above; and

(b) other provisions consequential on the provision that an appeal may be brought (including provisions modifying this Schedule).

Section 609.

SCHEDULE 23 U.K. OCCUPATIONAL PENSION SCHEMES: SCHEMES APPROVED BEFORE 23rd JULY 1987 M253

Marginal Citations

M253 Source—1987 (No. 2) c. 51, Sch.3 Pt. II

Preliminary U.K.

1 (1) This Schedule shall be deemed to have come into force on 17th March 1987 and, subject to sub-paragraphs (2) and (3) below, applies in relation to any retirement benefits scheme approved by the Board before the passing of the Finance (No.2) Act 1987 (23rd July 1987).

[F318 (2) The Board may by regulations provide that, in circumstances prescribed in the regulations, this Schedule or any provision of it shall not apply or shall apply with such modifications as may be so prescribed.

(2A) Regulations under sub-paragraph (2) above—

(a) may include provision authorising the Board to direct that this Schedule or any provision of it shall not apply in any particular case where in the opinion of the Board the facts are such that its application would not be appropriate;

(b) may take effect (and may authorise any direction given under them to take effect) as from 17th March 1987 or any later date;

(c) may make such supplementary provision as appears to the Board to be necessary or expedient.]

(3) This Schedule shall not apply to a retirement benefits scheme if, before the end of 1987, the administrator of the scheme gave notice to the Board that it is not to apply.

(4) Where a notice is given to the Board under sub-paragraph (3) above, the scheme shall, with effect from 17th March 1987 or (if later) the date with effect from which it was approved, cease to be approved.

Textual Amendments

F318 1988(F) s.56.Previously

“(2) The Board may by regulations provide that this Schedule, or any provision of it, shall not apply in relation to a scheme or to an employee—(a) in circumstances prescribed in the regulations; (b) in any case where in the opinion of the Board the facts are such that it would be appropriate for this Schedule, or the provision in question, not to apply.”

For regulations see Part III Vol.5under “Retirement Benefit Schemes: transitional provisions”.

Accelerated accrual U.K.

2 (1) This paragraph applies where an employee becomes a member of the scheme on or after 17th March 1987.

(2) Notwithstanding anything to the contrary in the rules of the scheme, they shall have effect as if they did not allow the provision for the employee of a pension exceeding one-thirtieth of his relevant annual remuneration for each year of service up to a maximum of 20.

Modifications etc. (not altering text)

C101 See S.I.1988 No.1436 (in Part III Vol.5)for circumstances when paras.2-4, 5(2), 5(3), 6and 7disapplied and when para.2modified.

3 (1) This paragraph applies where an employee becomes a member of the scheme on or after 17th March 1987 and the scheme allows him to commute his pension or part of it for a lump sum or sums.

(2) If the employee’s full pension (that is, the pension before any commutation) is equal to or less than a basic rate commutable pension, the rules of the scheme shall have effect (notwithstanding anything in them to the contrary) as if they did not allow him to obtain by way of commutation a lump sum or sums exceeding in all a basic rate lump sum.

(3) If the employee’s full pension is greater than a basic rate commutable pension but less than a maximum rate commutable pension, the rules of the scheme shall have effect (notwithstanding anything in them to the contrary) as if they did not allow him to obtain by way of commutation a lump sum or sums exceeding in all the aggregate of—

(a) a basic rate lump sum, and

(b) an amount equal to the relevant percentage of the difference between a basic rate lump sum and a maximum rate lump sum.

(4) In this paragraph, as it applies in relation to an employee—

(a) a “basic rate commutable pension” means a pension of one-sixtieth of his relevant annual remuneration for each year of service up to a maximum of 40;

(b) a “maximum rate commutable pension” means a pension of one-thirtieth of his relevant annual remuneration for each year of service up to a maximum of 20;

(c) a “basic rate lump sum” means a lump sum of three-eightieths of his relevant annual remuneration for each year of service up to a maximum of 40;

(d) a “maximum rate lump sum” means a lump sum of such amount as may be determined by or under regulations made by the Board for the purposes of this paragraph and paragraph 4 below;

(e) “the relevant percentage” means the difference between a basic rate commutable pension and the employee’s full pension expressed as a percentage of the difference between a basic rate commutable pension and a maximum rate commutable pension.

Modifications etc. (not altering text)

C102 For regulations see Part III Vol.5 (under “Retirement benefit schemes: maximum lump sum”).

C103 See S.I.1988 No.1436 (in Part III Vol.5)for circumstances when paras.2-4, 5(2), 5(3), 6and 7disapplied.

4 (1) This paragraph applies where an employee becomes a member of the scheme on or after 17th March 1987 and the scheme provides a lump sum or sums for him otherwise than by commutation of his pension or part of it.

(2) If the employee’s pension is equal to or less than a basic rate non-commutable pension, the rules of the scheme shall have effect (notwithstanding anything in them to the contrary) as if they did not allow the payment to him, otherwise than by way of commutation, of a lump sum or sums exceeding in all a basic rate lump sum.

(3) If the employee’s pension is greater than a basic rate non-commutable pension but less than a maximum rate non-commutable pension the rules of the scheme shall have effect (notwithstanding anything in them to the contrary) as if they did not allow the payment to him, otherwise than by way of commutation, of a lump sum or sums exceeding in all the aggregate of—

(a) a basic rate lump sum, and

(b) an amount equal to the relevant percentage of the difference between a basic rate lump sum and a maximum rate lump sum.

(4) In this paragraph, as it applies in relation to an employee—

(a) a “basic rate non-commutable pension” means a pension of one-eightieth of his relevant annual remuneration for each year of service up to a maximum of 40,

(b) a “maximum rate non-commutable pension” means a pension of one-fortieth of his relevant annual remuneration for each year of service up to a maximum of 20,

(c) “basic rate lump sum” and “maximum rate lump sum” have the same meanings as in paragraph 3 above, and

(d) “the relevant percentage” means the difference between a basic rate non-commutable pension and the employee’s actual pension expressed as a percentage of the difference between a basic rate non-commutable pension and a maximum rate non-commutable pension.

Modifications etc. (not altering text)

C104 See S.I.1988 No.1436 (in Part III Vol.5)for circumstances when paras.2-4, 5(2), 5(3), 6and 7disapplied.

Final remuneration U.K.

5 (1) his paragraph applies where an employee who is a member of the scheme retires on or after 17th March 1987.

(2) The rules of the scheme shall have effect as if they provided that in determining the employee’s relevant annual remuneration for the purpose of calculating benefits, no account should be taken of anything excluded from the definition of “remuneration” in section 612(1).

(3) In the case of an employee—

(a) whose employer is a company and who at any time in the last ten years of his service is a controlling director of the company, or

(b) whose relevant annual remuneration for the purpose of calculating benefits, so far as the remuneration is ascertained by reference to years beginning on or after 6th April 1987, would (apart from this Schedule) exceed the permitted maximum,

the rules of the scheme shall have effect as if they provided that his relevant annual remuneration must not exceed his highest average annual remuneration for any period of three or more years ending within the period of ten years which ends with the date on which his service ends.

(4) In the case of an employee within paragraph (b) of sub-paragraph (3) above who retires before 6th April 1991, the rules of the scheme shall have effect as if they provided that his relevant annual remuneration must not exceed the higher of—

(a) the average annual remuneration referred to in that sub-paragraph, and

(b) his remuneration (within the meaning given by section 612(1)) assessable to income tax under Schedule E for the year of assessment 1986-87.

(5) For the purposes of this paragraph a person is a controlling director of a company if—

(a) he is a director (as defined in section 612), and

(b) he is within paragraph (b) of section 417(5),

in relation to the company.

Modifications etc. (not altering text)

C105 See S.I.1988 No.1436 (in Part III Vol.5)for circumstances when paras.2-4, 5(2), 5(3), 6and 7disapplied.

C106 See S.I.1988 No.1436 (in Part III Vol.5)for circumstances when paras.2-4and 5(2), 5(3), 6and 7disapplied, and when paras.5(3), (4)modified.

Lump sums U.K.

6 (1) This paragraph applies where an employee becomes a member of the scheme on or after 17th March 1987.

(2) If the rules of the scheme allow the employee to obtain, (by commutation of his pension or otherwise), a lump sum or sums calculated by reference to his relevant annual remuneration, they shall have effect as if they included a rule that in calculating a lump sum any excess of that remuneration over the permitted maximum should be disregarded.

Modifications etc. (not altering text)

C107 See S.I.1988 No.1436 (in Part III Vol.5)for circumstances when paras.2-4and 5(2), 5(3), 6and 7disapplied, and when paras.5(3), (4)modified.

Additional voluntary contributions U.K.

7 (1) This paragraph applies where—

(a) the rules of the scheme make provision for the payment by employees of voluntary contributions, and

(b) on or after 8th April 1987 an employee enters into arrangements to pay such contributions.

(2) Notwithstanding anything in the rules of the scheme, they shall have effect as if they did not allow the payment to the employee of a lump sum in commutation of a pension if or to the extent that the pension is secured by the voluntary contributions.

Modifications etc. (not altering text)

C108 See S.I.1988 No.1436 (in Part III Vol.5)for circumstances when paras.2-4, 5(2), 5(3), 6and 7disapplied.

8 (1) This paragraph applies where an employee who is a member of the scheme (“the main scheme”)is also a member of an approved scheme (“the voluntary scheme”)which provides additional benefits to supplement those provided by the main scheme and to which no contributions are made by any employer of his.

(2) Any rules of the main scheme imposing a limit on the amount of a benefit provided for the employee shall have effect (notwithstanding anything in them to the contrary)as if they provided for the limit to be reduced by the amount of any like benefit provided for the employee by the voluntary schemeF319 .

Textual Amendments

F319 Repealed by 1989 ss.75and 187and Sch.6 paras.17and 18(10)and Sch.17 Part IV.

Supplementary U.K.

9 In this Schedule “relevant annual remuneration” means final remuneration or, if the scheme provides for benefits to be calculated by reference to some other annual remuneration, that other annual remuneration.

Valid from 28/07/2000

Section 631A.

SCHEDULE 23ZA U.K. Conversion of certain approved retirement benefits schemes

Interpretation U.K.

1 (1) In this Schedule—

• “the date of the change” shall be construed in accordance with paragraph 3(2) below;

• “eligible scheme” shall be construed in accordance with paragraph 2(4) below;

• “the personal pension provisions of this Act” means this Schedule and the other provisions of Chapter IV of Part XIV;

• “prescribed” (except in paragraph 2(3)(c)) means specified in, or determined in accordance with, regulations;

• “regulations” means regulations made by the Board.

(2) Any power conferred by this Schedule to make regulations includes power to make different provision for different cases or different purposes.

Eligible schemes U.K.

2 (1) This Schedule applies to any retirement benefits scheme which is for the time being approved under Chapter I of Part XIV.

(2) Sub-paragraph (1) above is subject to the following provisions of this paragraph.

(3) This Schedule applies to a retirement benefits scheme only if—

(a) it is an occupational pension scheme, as defined in section 1 of the M254 Pension Schemes Act 1993 or section 1 of the M255 Pensions Schemes (Northern Ireland) Act 1993;

(b) it is a money-purchase scheme, as defined in section 181 of the M256 Pension Schemes Act 1993 or section 176 of the M257 Pensions Schemes (Northern Ireland) Act 1993;

(c) any documents relating to the scheme which are prescribed under section 631(1) are such that, subject to approval under paragraph 3 below, the scheme is capable of being an approved personal pension scheme for the purposes of Chapter IV of Part XIV as from the date of the change; and

(d) such other conditions as may be prescribed are satisfied in the case of the scheme.

(4) Any retirement benefits scheme to which this Schedule applies is referred to in this Schedule as an “eligible scheme".

Marginal Citations

M254 1993 c. 48.

M255 1993 c. 49.

M256 1993 c. 48.

M257 1993 c. 49.

Approval of eligible schemes as approved personal pension schemes U.K.

3 (1) The trustees of an eligible scheme may at any time on or after 1st October 2000 apply to the Board for approval of the scheme under this paragraph.

(2) If an application under sub-paragraph (1) above is granted, the eligible scheme shall, as from such date as the Board may specify in granting the application (the “date of the change”),—

(a) irrevocably cease to be approved, and to be capable of approval, under Chapter I of Part XIV; and

(b) become an approved personal pension scheme (and subject accordingly to section 631(4) and the other provisions of Chapter IV of Part XIV).

(3) The date of the change must not be earlier than 6th April 2001.

(4) An application under sub-paragraph (1) above shall be in such form, shall contain such information, and shall be accompanied by such documents, in such form, and prepared as at such time, as the Board may prescribe.

(5) The Board may at their discretion grant or refuse an application under sub-paragraph (1) above.

(6) The Board’s discretion under sub-paragraph (5) above shall be subject to the restrictions set out in sections 632 to 638A and this Schedule.

(7) The Board shall give notice to the applicant of the grant or refusal of an application.

(8) A notice under sub-paragraph (7) above shall, in the case of a refusal, state the grounds for the refusal.

(9) If, at any time after the making of an application under sub-paragraph (1) above, the eligible scheme concerned ceases to be approved under Chapter I of Part XIV otherwise than by virtue of the operation of sub-paragraph (2)(a) above, the scheme shall not, by virtue of that application, become an approved personal pension scheme.

Excessive funding of certain individual members U.K.

4 (1) The Board may refuse or withhold approval under paragraph 3 above in the case of an eligible scheme of a prescribed description if or so long as they are not satisfied that prescribed requirements will be fulfilled with respect to—

(a) the value of any prescribed benefits which may be provided for or in respect of an individual member of a prescribed description, and

(b) the value of the assets held for the purpose of providing benefits for or in respect of that member,

if approval under paragraph 3 above is granted.

(2) Regulations may make provision for or in connection with cases where the value mentioned in paragraph (b) of sub-paragraph (1) above exceeds, or exceeds by more than a prescribed percentage, the value mentioned in paragraph (a) of that sub-paragraph.

(3) The provision that may be made by virtue of sub-paragraph (2) above includes provision for or in connection with eliminating or reducing any such excess within a prescribed period by one or more prescribed methods.

(4) Regulations may make provision for the purposes of this paragraph for or in connection with—

(a) the valuation of benefits; or

(b) the valuation of assets.

(5) The provision that may be made by virtue of sub-paragraph (4)(a) or (b) above includes provision with respect to, or in connection with,—

(a) the person by whom any such valuation is to be made;

(b) the method or principles of valuation to be used;

(c) certification of any such valuations and of any prescribed matters relating to or connected with them;

(d) any facts, matters or assumptions by reference to which any such valuation is to be made;

(e) any tables to be used for the purpose of making any such valuation;

(f) the basis on which any such tables are to be prepared;

(g) the manner in which any such tables are to be applied.

(6) The methods or principles of valuation and the tables that may be prescribed by virtue of sub-paragraph (5) above include methods or principles or, as the case may be, tables published by the Government Actuary for any purposes of the personal pension provisions of this Act.

Directions as to contributions between valuation and date of change etc. U.K.

5 (1) The Board may give directions for or in connection with—

(a) prohibiting the making of contributions during the post-valuation period, or

(b) restricting the amount of the contributions that may be made during that period,

by or in respect of members of a converting scheme.

(2) Directions under sub-paragraph (1) above—

(a) may be given in respect of schemes generally, schemes of a particular description or any particular scheme or schemes; and

(b) may make different provision in relation to different schemes or different members.

(3) Any directions under sub-paragraph (1) above must be complied with by—

(a) the trustees and managers, or administrators, of any scheme to which the directions relate;

(b) any member of such a scheme to whom the directions relate; and

(c) any person who is the employer of such a member.

(4) If there is any contravention of, or failure to comply with, directions under sub-paragraph (1) above, the Board may—

(a) refuse or withhold approval of the conversion application in question; or

(b) revoke or vary any approval granted or any conditions pending the satisfaction of which approval is withheld.

(5) Sub-paragraph (4) above is without prejudice to any other powers of the Board.

(6) In this paragraph—

• “conversion application”, in the case of a converting scheme, means the application under paragraph 3(1) above in respect of the scheme;

• “converting scheme” means a scheme in respect of which an application under paragraph 3(1) above has been made and not withdrawn or finally refused;

• “the post-valuation period”, in the case of a converting scheme, means the period which—

  (a)

  begins with the day as at which any valuation for the purposes of paragraph 4 above is made in connection with the conversion application; and

  (b)

  ends with the day preceding the date of the change (or, if earlier, the date on which the conversion application is withdrawn or finally refused).

(7) For the purposes of this paragraph, an application is “finally refused” when it has been refused by the Board and—

(a) the time for appealing under section 651 against the refusal has expired without such an appeal being made; or

(b) an appeal under that section against the refusal has been withdrawn or finally disposed of in a way which affirms refusal of the application.

(8) Any directions under this paragraph must be given in writing.

Scheme rules to allow changes for purpose of conversion U.K.

6 An approved retirement benefits scheme shall be taken to include provisions allowing the making of changes to any provisions of the scheme for the purpose of enabling the scheme to become an eligible scheme, notwithstanding anything to the contrary in any provision of the scheme.

Section 736A.]

[F320 Schedule 23A U.K. MANUFACTURED DIVIDENDS AND INTEREST

Textual Amendments

F320 Sch. 23A inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 58, Sch. 13 para. 1 (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg.2; 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs.2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs.2, 3(b), 4)

Interpretation U.K.

F321 1 (1) In this Schedule—

• “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 [F322 271(9) of the 1992 Act] apply;

• “dividend manufacturer” has the meaning given by paragraph 2(1) below;

• “dividend manufacturing regulations” means regulations made by the Treasury under this Schedule;

• “interest manufacturer” has the meaning given by paragraph 3(1) below;

• “manufactured dividend”, “manufactured interest” and “manufactured overseas dividend” shall be construed respectively in accordance with paragraphs 2, 3 and 4 below, as shall references to the gross amount thereof;

• “market maker”, in relation to any shares, stock or other securities, means a person who—

(a) holds himself out at all normal times in compliance with the rules of the Stock Exchange as willing to buy and sell shares, stock or other securities of the kind concerned at a price specified by him, and

(b) is recognised as doing so by the Council of the Stock Exchange,

but subject to any regulations under sub-paragraph (2) below;

• “overseas dividend” means any interest, dividend or other annual payment payable in respect of any overseas securities;

• “overseas dividend manufacturer” has the meaning given by paragraph 4(1) below;

• “overseas securities” means—

(a) shares, stock or other securities issued by a government or public or local authority of a territory outside the United Kingdom or by any other body of persons not resident in the United Kingdom; and

(b) quoted Eurobonds held in a recognised clearing system, within the meaning of section 124;

• “overseas tax” means tax under the law of a territory outside the United Kingdom;

• “overseas tax credit” means any such credit under the law of a territory outside the United Kingdom in respect of overseas tax as corresponds to a tax credit;

• “prescribed” means prescribed in dividend manufacturing regulations;

• “recognised clearing house” means a recognised clearing house within the meaning of the Financial Services Act 1986;

• “recognised investment exchange” means a recognised investment exchange within the meaning of that Act;

• “securities” includes any loan stock or similar security;

• “transfer” includes any sale or other disposal;

• “unapproved manufactured payment”, subject to any regulations under sub-paragraph (2) below, means—

(a) any manufactured dividend, manufactured interest or manufactured overseas dividend paid in connection with an unapproved stock lending arrangement, and

(b) any manufactured dividend or manufactured interest not falling within paragraph (a) above which is paid in respect of United Kingdom securities or United Kingdom equities by a person other than one who is—

(i) a market maker in relation to United Kingdom securities or United Kingdom equities of the kind in question, or

(ii) in such circumstances as may be prescribed, a member, of a prescribed class or description, of a prescribed recognised investment exchange, or

(iii) in such circumstances as may be prescribed, a prescribed recognised clearing house,and which is so paid otherwise than in connection with an approved stock lending arrangement;

• “unapproved stock lending arrangement” means an arrangement such as is mentioned in subsection (1), (2) or (2A) of section 129, but which, in consequence of regulations under subsection (4) of that section, is not an approved stock lending arrangement;

• “United Kingdom equities” means shares of any company resident in the United Kingdom;

• “United Kingdom securities” means securities of the government of the United Kingdom, of any public or local authority in the United Kingdom or of any company or other body resident in the United Kingdom, but does not include quoted Eurobonds held in a recognised clearing system, within the meaning of section 124, or United Kingdom equities.

(2) Dividend manufacturing regulations may amend sub-paragraph (1) above—

(a) by changing the definition for the time being of “market maker”; or

(b) by changing the definition for the time being of “unapproved manufactured payment”.

Textual Amendments

F321 Sch. 23A inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 58, Sch. 13 para. 1 (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg.2; 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs.2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs.2, 3(b), 4)

F322 Words in Sch. 23A para. 1 substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 10 para. 14(61) (with ss. 60, 101(1), 171, 201(3))

F323 Manufactured dividends on United Kingdom equities U.K.

Textual Amendments

F323 Sch. 23A inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 58, Sch. 13 para.1 (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg.2; 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs.2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs.2, 3(b), 4)

F324 2 (1) This paragraph applies in any case where, under a contract or other arrangements for the transfer of United Kingdom equities, one of the parties (the “dividend manufacturer”) is required to pay to the other (“the recipient”) an amount representative of a dividend on the equities; and in this Schedule the “manufactured dividend” means any payment which the dividend manufacturer makes in discharge of that requirement.

(2) If, in a case where this paragraph applies, the dividend manufacturer is a company resident in the United Kingdom, then, for all purposes of the Tax Acts, the manufactured dividend shall be treated as if it were a dividend of, and paid by, the dividend manufacturer (and shall accordingly be a distribution of the dividend manufacturer for those purposes).

(3) If, in a case where this paragraph applies, the dividend manufacturer is not such a company as is mentioned in sub-paragraph (2) above (so that section 737 applies in relation to the dividend manufacturer) the manufactured dividend shall for all purposes of the Tax Acts be treated in relation to the recipient and all persons claiming title through or under him—

(a) as if the manufactured dividend were a dividend on the United Kingdom equities,

(b) as if any amount required in consequence of section 737 to be deducted by the dividend manufacturer on account of income tax in respect of the gross amount of the manufactured dividend were required to be accounted for by him as advance corporation tax in respect of the dividend, and

(c) as if any certificate of deduction of tax required in consequence of that section to be issued in connection with the manufactured dividend were the tax credit certificate that would have been issued had the manufactured dividend in fact been a dividend on the United Kingdom equities.

(4) For the purposes of sub-paragraph (3)(b) above, the gross amount of a manufactured dividend is the aggregate of the amount of the manufactured dividend and the amount of the tax credit that would have been issued in respect thereof had the manufactured dividend in fact been a dividend on the United Kingdom equities.

[F325 (5) Sub-paragraph (3)(c) above shall be without prejudice to the operation of subsection (3) of section 78 of the Finance Act 1993, where that subsection has effect by virtue of sub-paragraph (3)(a) above for determining the amount of any tax credit to which any person is entitled in respect of any manufactured dividend.]

Textual Amendments

F324 Sch. 23A inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 58, Sch. 13 para. 1 (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg. 2; 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs. 2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs. 2, 3(b), 4)

F325 Sch. 23A para. 2(5) inserted (27.7.1993 with effect in relation to any payment of a manufactured dividend made on or after 6th April 1993) by 1993 c. 34, s.79, Sch. 6 paras.19, 25(4)

Modifications etc. (not altering text)

C109 Sch. 23A para. 2(3)(b) modified (22.3.1992) by S.I. 1992/569, reg. 23

F326 Manufactured interest on United Kingdom securities U.K.

Textual Amendments

F326 Sch. 23A inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 58, Sch. 13 para.1 (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg.2; 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs.2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs.2, 3(b), 4)

F327 3 (1) This paragraph applies in any case where, under a contract or other arrangements for the transfer of United Kingdom securities, one of the parties (the “interest manufacturer”) is required to pay to the other (“the recipient”) an amount representative of a periodical payment of interest on the securities; and in this Schedule the “manufactured interest” means any payment which the interest manufacturer makes in discharge of that requirement.

(2) If, in a case where this paragraph applies, the interest manufacturer is a company resident in the United Kingdom, then, for all purposes of the Tax Acts, the gross amount of the manufactured interest shall be treated as if it were the gross amount of a periodical payment of interest on the securities, but made by the interest manufacturer.

(3) If, in a case where this paragraph applies, the interest manufacturer is not such a company as is mentioned in sub-paragraph (2) above (so that section 737 applies in relation to the interest manufacturer) the gross amount of the manufactured interest shall for all purposes of the Tax Acts be treated in relation to the recipient, and all persons claiming title through or under him, as if it were the gross amount of a periodical payment of interest on the securities, but made by the interest manufacturer.

(4) For the purposes of this paragraph the gross amount of any manufactured interest is an amount equal to the gross amount of that periodical payment of interest of which the manufactured interest is representative, as mentioned in sub-paragraph (1) above.

Textual Amendments

F327 Sch. 23A inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 58, Sch. 13 para. 1 (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purpose by S.I. 1992/173, reg.2; 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs.2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs.2, 3(b), 4)

Modifications etc. (not altering text)

C110 Sch. 23A para. 3(2) modified (24.9.1992) by S.I. 1992/2074, reg. 5(1)

Valid from 01/05/1995

3A (1) This paragraph applies, except in so far as dividend manufacturing regulations otherwise provide, in any case where paragraph 3 above applies and the United Kingdom securities in question are gilt-edged securities.

(2) In a case where this paragraph applies, sub-paragraphs (2) and (3) of paragraph 3 above shall not have effect, but the gross amount of the manufactured interest shall be treated—

(a) in relation to the interest manufacturer, for all the purposes of the Tax Acts except the determination of whether a deduction of tax is liable to be made on the making of the manufactured payment, and

(b) in relation to the recipient and all persons claiming title through or under him, for all the purposes of those Acts,

as if it were the gross amount of a periodical payment of interest on those gilt-edged securities, but made by the interest manufacturer.

(3) Sub-paragraph (4) of paragraph 3 above shall apply for the purposes of this paragraph as it applies for the purposes of that paragraph.

(4) In this paragraph “gilt-edged securities” has the same meaning as in section 51A.

Valid from 19/03/1997

Deductibility of manufactured payment in the case of the manufacturer U.K.

2A (1) Where, in the case of a manufactured dividend, the dividend manufacturer—

(a) is resident in the United Kingdom, but

(b) is not a company,

the amount of the manufactured dividend actually paid (so far as is it is not otherwise deductible), together with an amount equal to the notional ACT, shall be allowable for the purposes of income tax as a deduction against the total income of the dividend manufacturer.

(2) Where, in the case of a manufactured dividend, the dividend manufacturer is a company which is not resident in the United Kingdom, no amount at all shall be deductible, in the case of that company, in respect of the payment of that manufactured dividend.

(3) The reference in sub-paragraph (1) above to an amount equal to the notional ACT is a reference to the amount equal to the advance corporation tax that would be payable in respect of the manufactured dividend if—

(a) the dividend manufacturer were a company resident in the United Kingdom, and

(b) the manufactured dividend were a distribution by that company.

(4) The references in this paragraph to an amount being deductible are references to its being either—

(a) deductible in computing the amount of any of the dividend manufacturer’s profits or gains for the purposes of income tax or corporation tax; or

(b) deductible for those purposes from the total income or, as the case may be, total profits of the dividend manufacturer.

Valid from 19/03/1997

Manufactured dividends representative of foreign income dividends U.K.

2B (1) Where a manufactured dividend to which paragraph 2(2) above applies is representative of a foreign income dividend, the Tax Acts shall have effect for all purposes as if—

(a) the deemed dividend of the dividend manufacturer were itself a foreign income dividend; and

(b) that foreign income dividend were one in respect of which the dividend manufacturer is not liable to make any payment of advance corporation tax.

(2) Where a manufactured dividend to which paragraph 2(3) above applies is representative of a foreign income dividend—

(a) the Tax Acts shall have effect, in relation to the recipient and any persons claiming title through or under him, as if the dividend on the United Kingdom equities which the recipient is treated as having received were a foreign income dividend;

(b) there shall be no requirement for any person to account for tax in respect of that manufactured dividend by virtue of paragraph 2(3)(a) above;

(c) any deduction made in respect of the manufactured dividend under paragraph 2A(1) above shall be made without including an amount equal to the notional ACT in the deduction; and

(d) the dividend manufacturer, on paying the manufactured dividend in any case falling within sub-paragraph (3) below, shall provide the recipient with a statement in writing setting out the matters specified in sub-paragraph (4) below.

(3) A case falls within this sub-paragraph where, were it not for sub-paragraph (2)(a) and (b) above, the dividend manufacturer would be required to provide such a statement as is mentioned in paragraph 2(6) above.

(4) Those matters are—

(a) the amount of the manufactured dividend;

(b) the date on which it is paid;

(c) the fact that the dividend carries no entitlement to a tax credit; and

(d) in the case of a manufactured dividend which is representative of a qualifying distribution to which Schedule 7 to the Finance Act 1997 applies, the fact that the distribution is a foreign income dividend by virtue of paragraph 2(1) of that Schedule.

(5) The Board may give directions as to the form that must be taken by a statement provided for the purposes of sub-paragraph (2)(d) above.

(6) The duty imposed by sub-paragraph (2)(d) above shall be enforceable at the suit or instance of the recipient.

F328 Manufactured overseas dividends U.K.

Textual Amendments

F328 Sch. 23A inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 58, Sch. 13 para.1 (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg.2; 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs.2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs.2, 3(b), 4)

F329 4 (1) This paragraph applies in any case where, under a contract or other arrangements for the transfer of overseas securities, one of the parties (the “overseas dividend manufacturer”) is required to pay to the other (“the recipient”) an amount representative of an overseas dividend on the overseas securities; and in this Schedule the “manufactured overseas dividend” means any payment which the overseas dividend manufacturer makes in discharge of that requirement.

(2) Subject to sub-paragraph (3) below, where this paragraph applies the gross amount of the manufactured overseas dividend shall be treated for all purposes of the Tax Acts as an annual payment, within section 349, but—

(a) the amount which is to be deducted from that gross amount on account of income tax shall be an amount equal to the relevant withholding tax on that gross amount; and

(b) in the application of sections 338(4)(a) and 350(4) in relation to manufactured overseas dividends the references to Schedule 16 shall be taken as references to dividend manufacturing regulations;

and paragraph (a) above is without prejudice to any further amount required to be deducted under dividend manufacturing regulations by virtue of sub-paragraph (8) below.

(3) If, in a case where this paragraph applies, the overseas dividend manufacturer is not resident in the United Kingdom and the manufactured overseas dividend is paid by him otherwise than in the course of a trade which he carries on through a branch or agency in the United Kingdom, sub-paragraph (2) above shall not apply; but if the manufactured overseas dividend is received by a person resident in the United Kingdom (the “United Kingdom recipient”), then unless the United Kingdom recipient shows either—

(a) that the overseas dividend manufacturer was entitled to payment of the overseas dividend as the registered holder of the overseas securities, or

(b) that the overseas dividend manufacturer was entitled to payment of the overseas dividend directly or indirectly from a person from whom he acquired the overseas securities, or to whom he transferred them, and who was so entitled to the payment,

the United Kingdom recipient shall account for and pay an amount of tax in respect of the manufactured overseas dividend equal to that which the overseas dividend manufacturer would have been required to account for and pay had he been resident in the United Kingdom; and any reference in this Schedule to an amount deducted under sub-paragraph (2) above includes a reference to an amount of tax accounted for and paid under this sub-paragraph.

(4) Where a manufactured overseas dividend is paid after deduction of the amount required by sub-paragraph (2) above, or where the amount of tax required under sub-paragraph (3) above in respect of such a dividend has been accounted for and paid, then for all purposes of the Tax Acts as they apply in relation to persons resident in the United Kingdom or to persons not so resident but carrying on business through a branch or agency in the United Kingdom—

(a) the manufactured overseas dividend shall be treated in relation to the recipient, and all persons claiming title through or under him, as if it were an overseas dividend of an amount equal to the gross amount of the manufactured overseas dividend, but paid after the withholding therefrom, on account of overseas tax, of the amount deducted under sub-paragraph (2) above; and

(b) the amount so deducted shall accordingly be treated in relation to the recipient, and all persons claiming title through or under him, as an amount so withheld instead of as an amount on account of income tax.

(5) For the purposes of this paragraph—

(a) “relevant withholding tax”, in relation to the gross amount of a manufactured overseas dividend, means an amount of tax representative of—

(i) the amount (if any) that would have been deducted by way of overseas tax from an overseas dividend on the overseas securities of the same gross amount as the manufactured overseas dividend; and

(ii) the amount of the overseas tax credit (if any) in respect of such an overseas dividend;

(b) the gross amount of a manufactured overseas dividend is an amount equal to the gross amount of that overseas dividend of which the manufactured overseas dividend is representative, as mentioned in sub-paragraph (1) above; and

(c) the gross amount of an overseas dividend is an amount equal to the aggregate of—

(i) so much of the overseas dividend as remains after the deduction of the overseas tax (if any) chargeable on it;

(ii) the amount of the overseas tax (if any) so deducted; and

(iii) the amount of the overseas tax credit (if any) in respect of the overseas dividend.

(6) Dividend manufacturing regulations may make provision with respect to the rates of relevant withholding tax which are to apply in relation to manufactured overseas dividends in relation to different overseas territories, but in prescribing those rates the Treasury shall have regard to—

(a) the rates at which overseas tax would have fallen to be deducted, and

(b) the rates of overseas tax credits,

in overseas territories, or in the particular overseas territory, in respect of payments of overseas dividends on overseas securities.

(7) Dividend manufacturing regulations may make provision for a person who, in any chargeable period, is an overseas dividend manufacturer to be entitled in prescribed circumstances to set off against each other, in accordance with the regulations—

(a) overseas tax in respect of any overseas dividends, or amounts deducted under sub-paragraph (2) above from any manufactured overseas dividends, received by him in that chargeable period, and

(b) the sums due from him on account of the amounts deducted by him under sub-paragraph (2) above from the manufactured overseas dividends paid by him in that chargeable period,

and account to the Board for, or as the case may be, claim credit in respect of, the balance.

(8) Dividend manufacturing regulations may also make provision for cases where a manufactured overseas dividend is paid or otherwise dealt with in circumstances such that, had it been an overseas dividend in respect of the overseas securities, it would have been—

(a) a relevant foreign dividend, within the meaning of section 123,

(b) a foreign dividend, within the meaning of that section,

(c) interest on a quoted Eurobond held in a recognised clearing system, within the meaning of section 124, or

(d) an overseas public revenue dividend, within the meaning of Part III,

and, notwithstanding anything in sub-paragraph (2) or (3) above, any such regulations may provide for deductions of an amount determined by reference to the gross amount of the manufactured overseas dividend to be made from the manufactured overseas dividend on account of income tax similar to the deductions that would, in the case of an overseas dividend, be made under subsection (2) or (3) of section 123 or under Part III, as the case may be, and for Parts III and IV of Schedule 3 to apply with prescribed modifications in relation thereto.

Textual Amendments

F329 Sch. 23A inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 58, Sch. 13 para.1 (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg.2; 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs.2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs.2, 3(b), 4)

Modifications etc. (not altering text)

C111 Sch. 23A para. 4(1) applied (1.10.1993) by S.I. 1993/2004, reg.2

C112 Sch. 23A para. 4(2) restricted (1.10.1993) by S.I. 1993/2004, reg.5(1)

C113 Sch. 23A para. 4(3) restricted (1.10.1993) by S.I. 1993/2004, reg.7(1) (as amended by S.I. 2011/1787, regs. 1, 7)

Valid from 21/07/2009

4A (1) A reference in paragraph 4(4)(a) or (b) to the relevant amount in relation to an amount deducted under section 922(2) of ITA 2007 is—

(a) where the deduction is made in respect of a manufactured overseas dividend that is treated as paid under paragraph 13(1) of Schedule 13 to FA 2007 (sale and repurchase of securities), to amount A, and

(b) otherwise, to the amount deducted under section 922(2) of ITA 2007.

(2) Amount A is—

(a) in a case to which sub-paragraph (3) applies, the amount deducted under section 922(2) of ITA 2007,

(b) in a case to which sub-paragraph (4) applies—

(i) the amount deducted under section 922(2) of ITA 2007, less

(ii) the excess mentioned in that sub-paragraph, and

(c) in any other case, nil.

(3) This sub-paragraph applies to a case in which—

(a) an amount is actually paid by way of manufactured overseas dividend,

(b) the amount so paid equals the relevant net amount, and

(c) it is reasonable to assume that, in deciding the repurchase price of the securities, no account was taken of the fact that the amount would be so paid.

(4) This sub-paragraph applies to a case in which—

(a) an amount is actually paid by way of manufactured overseas dividend,

(b) the amount so paid exceeds the relevant net amount, and

(c) it is reasonable to assume that, in deciding the repurchase price of the securities, no account was taken of the fact that the amount would be so paid.

(5) In this paragraph “the repurchase price” of the securities means the price at which the payer of the manufactured overseas dividend is entitled or obliged to sell the securities, or similar securities, to the recipient of the manufactured overseas dividend.

(6) In this paragraph “the securities” means the securities in respect of which the overseas dividend of which the manufactured overseas dividend is representative is paid.

(7) In this paragraph “the relevant net amount” means—

(a) the gross amount of the overseas dividend of which the manufactured overseas dividend is representative, less

(b) the amount deducted under section 922(2) of ITA 2007.

F330 Dividends and interest passing through the market U.K.

Textual Amendments

F330 Sch. 23A inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 58, Sch. 13 para.1 (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg.2; 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs.2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs. 2, 3(b),4)

F331 5 (1) Sub-paragraph (2) below applies in any case where, under a contract or other arrangements for the transfer of securities, a party (“the payment manufacturer”) who satisfies the following condition, that is to say, that he is entitled either—

(a) to a dividend or a periodical payment of interest as the registered holder of the securities, or

(b) to payment, whether directly or indirectly, of any such dividend or interest from a person from whom he acquired the securities or to whom he transferred them,

is required to pay to the other party (“the recipient”) an amount representative of that dividend or interest; and in this paragraph the “manufactured payment” means any payment which the payment manufacturer makes in discharge of that requirement.

(2) Where this sub-paragraph applies—

(a) paragraphs 2, 3 and 4 above and section 737 shall not apply in relation to the manufactured payment,

(b) the dividend or interest shall be treated for all purposes of the Tax Acts as the income of the recipient and not as the income of the payment manufacturer, and

(c) the manufactured payment shall not be regarded as the income of the recipient,

but this sub-paragraph is subject to sub-paragraphs (3) and (4) below.

(3) In any case where—

(a) any dividend or interest would, apart from the application or, as the case may be, the subsequent application of this sub-paragraph, be treated by virtue of any provision of this paragraph as the income of a person (the “subsequent manufacturer”) who is a party to a further contract or other arrangements for the transfer of securities, and

(b) under that contract or those arrangements, the subsequent manufacturer is required to pay to the other party (the “subsequent recipient”) an amount representative of the dividend or interest (the “subsequent manufactured payment”),

sub-paragraph (4) below shall apply instead of sub-paragraph (2) above (and, on any second or subsequent application of this sub-paragraph, instead of sub-paragraph (4) below as it last applied).

(4) Where this sub-paragraph applies—

(a) paragraphs 2, 3 and 4 above and section 737 shall not apply in relation to the manufactured payment or any subsequent manufactured payment;

(b) the dividend or interest shall be treated for all purposes of the Tax Acts as the income of the subsequent recipient (or, on a second or subsequent application of sub-paragraph (3) above, the last of them) and not as the income of any other person; and

(c) neither the manufactured payment nor any subsequent manufactured payment shall be regarded as the income of the recipient or of any subsequent recipient;

but this sub-paragraph is subject to any subsequent application of sub-paragraph (3) above.

(5) Notwithstanding anything in sub-paragraphs (1) to (4) above, in any case where—

(a) the dividend or interest is an overseas dividend,

(b) the payment manufacturer or a subsequent manufacturer is resident in the United Kingdom but the recipient or a subsequent recipient is not so resident, and

(c) the rates of overseas tax or overseas tax credit applicable to the overseas dividend in relation to the payment manufacturer or subsequent manufacturer falling within paragraph (b) above are different from what they would have been in relation to the recipient or subsequent recipient falling within that paragraph, had the overseas dividend been paid directly to him,

dividend manufacturing regulations may, in such cases as may be prescribed, make provision for tax to be charged on, or for credit in respect of tax to be given to, such one of the manufacturers falling within paragraph (b) above as may be determined in accordance with the regulations, at such rates as may be so determined.

(6) Any reference in this paragraph to securities is a reference to United Kingdom equities, United Kingdom securities or overseas securities.

Textual Amendments

F331 Sch. 23A inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 58, Sch. 13 para. 1 (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg.2; 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs.2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs.2, 3(b), 4)

F332 Unapproved manufactured payments U.K.

Textual Amendments

F332 Sch. 23A inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 58, Sch. 13 para.1 (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg.2; 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs.2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs.2, 3(b), 4)

F333 6 (1) This paragraph applies where a person makes an unapproved manufactured payment.

(2) Where the unapproved manufactured payment is a manufactured dividend paid by a company, any advance corporation tax paid by the company in respect of the manufactured dividend—

(a) shall not be set against any liability of the company to corporation tax as mentioned in section 239;

(b) shall not be surrendered under, or otherwise treated as mentioned in, section 240; and

(c) shall not be utilised in any other way for the purposes of the Tax Acts;

and no franked investment income of a company shall be used to frank (within the meaning of section 241(5)) the manufactured dividend.

(3) Where the unapproved manufactured payment is manufactured interest paid by a company—

(a) relief shall not be given to the company under any provision of the Tax Acts in respect of any amount which the company is required to deduct from the payment on account of income tax; and

(b) the company shall not be entitled under paragraph 5(1) of Schedule 16 to claim to set income tax borne by deduction from payments received by it against the income tax which it is liable to pay in respect of the payment of manufactured interest.

(4) Where the unapproved manufactured payment is a manufactured overseas dividend—

(a) relief shall not be given to any person under any provision of the Tax Acts in respect of any amount which he is required to deduct from the payment on account of income tax; and

(b) a person shall not be entitled under or by virtue of this Schedule to set—

(i) overseas tax in respect of overseas dividends received by him, or

(ii) an amount deducted under paragraph 4(2) above in respect of manufactured overseas dividends received by him,

against any income tax which he is liable to pay in respect of the payment of the manufactured overseas dividend.

(5) If it appears to an inspector that, notwithstanding the foregoing provisions of this paragraph, franked investment income of a company has been used to frank a manufactured dividend which is an unapproved manufactured payment, he may make an assessment on the dividend manufacturer under sub-paragraph (3) of paragraph 3 of Schedule 13 and that sub-paragraph shall accordingly apply in relation to the amount of advance corporation tax in question.

(6) If it appears to an inspector that, notwithstanding the foregoing provisions of this paragraph, income tax on income received by an interest manufacturer has been set against an amount deducted by the interest manufacturer on account of income tax on a payment of manufactured interest which is an unapproved manufactured payment, the inspector may make an assessment on the interest manufacturer under paragraph 4 of Schedule 16 and that paragraph shall accordingly apply in relation to the amount of income tax in question.

(7) In this paragraph “relief” means relief by way of—

(a) deduction in computing profits or gains; or

(b) deduction or set off against income or total profits.

Textual Amendments

F333 Sch. 23A inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 58, Sch. 13 para. 1 (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg.2; 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs.2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs.2, 3(b), 4)

F334 Irregular manufactured payments U.K.

Textual Amendments

F334 Sch. 23A inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 58, Sch. 13 para.1 (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg.2; 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs.2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs.2, 3(b), 4)

F335 7 (1) Except where paragraph 5(2) or (4) above applies, in any case where (apart from this paragraph)—

(a) an amount paid by way of manufactured dividend would exceed the amount of the dividend of which it is representative, or

(b) the aggregate of—

(i) an amount paid by way of manufactured interest or manufactured overseas dividend, and

(ii) the tax required to be accounted for in connection with the making of that payment,

would exceed the gross amount (as determined in accordance with paragraph 3 or 4 above) of the interest or overseas dividend of which it is representative, as the case may be,

the payment shall, to the extent of an amount equal to the excess, not be regarded for the purposes of this Schedule as made in discharge of the requirement referred to in paragraph 2(1), 3(1) or 4(1) above, as the case may be, but shall instead to that extent be taken for all purposes of the Tax Acts to constitute a separate fee for entering into the contract or other arrangements under which it was made, notwithstanding anything in paragraphs 2 to 4 above.

(2) Dividend manufacturing regulations may make provision in such circumstances and for such purposes of the Tax Acts as may be prescribed for such a fee as is mentioned in sub-paragraph (1) above to be treated as paid in any case that would fall within that sub-paragraph, apart from paragraph 5 above; and, without prejudice to the generality of the foregoing, any such regulations may in particular provide—

(a) for the amount of the fee to be determined in accordance with the regulations, and

(b) for such of the persons mentioned in that paragraph as may be prescribed to be treated as paying or, as the case may be, as receiving the fee,

and it is immaterial for the purposes of paragraph (b) above whether or not the person prescribed would, apart from paragraph 5 above, have been regarded by virtue of sub-paragraph (1) above as paying or receiving a fee, or as paying it to, or receiving it from, any other person prescribed under paragraph (b) above.

(3) For the purpose of giving relief under any provision of the Tax Acts in a case falling within paragraph 3(1) or 4(1) above where (apart from this paragraph) the aggregate referred to in sub-paragraph (1)(b) above would be less than the gross amount there mentioned—

(a) the gross amount of the manufactured interest or manufactured overseas dividend shall be taken to be an amount equal to the aggregate referred to in sub-paragraph (1)(b) above, except where paragraph 6 above applies, and

(b) where paragraph 6 above applies, the gross amount of the manufactured interest or manufactured overseas dividend shall be taken to be only the amount referred to in sub-paragraph (1)(b)(i) above,

notwithstanding anything in paragraph 3, 4 or 6 above.

(4) In this paragraph “relief” means relief by way of—

(a) deduction in computing profits or gains; or

(b) deduction or set off against income or total profits.

Textual Amendments

F335 Sch. 23A inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 58, Sch. 13 para.1 (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg.2; 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs.2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs.2, 3(b), 4)

Valid from 22/07/2004

Manufactured payments under arrangements having an unallowable purpose U.K.

7A (1) This paragraph applies in any case where—

(a) a manufactured payment falls to be made by a company in an accounting period in pursuance of any arrangements (see sub-paragraphs (9) and (10) for definitions), and

(b) the arrangements have an unallowable purpose at any time (see sub-paragraphs (3) to (5)).

But this is subject to sub-paragraph (8) below (cases where tax relief is denied apart from this paragraph).

(2) The company is not entitled, by virtue of anything in this Schedule or any provision of regulations under it, or otherwise, to any relevant tax relief (see sub-paragraph (10)), to the extent that the relief is in respect of, or referable to, the whole or any part of so much of the manufactured payment as, on a just and reasonable apportionment, is attributable to the unallowable purpose.

(3) Arrangements have an unallowable purpose at any time if at that time the purposes for which the company is a party to—

(a) the arrangements,

(b) any related transaction (see sub-paragraphs (6) and (7)), or

(c) any transaction in pursuance of the arrangements,

include a purpose (“the unallowable purpose”) which is not among the business or other commercial purposes of the company.

(4) The business and other commercial purposes of a company do not include the purposes of any part of its activities in respect of which it is not within the charge to corporation tax.

(5) Where one of the purposes for which a company is at any time a party to—

(a) any arrangements,

(b) any related transaction in the case of any arrangements, or

(c) any transaction in pursuance of any arrangements,

is a tax avoidance purpose, that purpose shall be taken to be a business or other commercial purpose of the company only where it is not the main purpose, or one of the main purposes, for which the company is party to the arrangements or transaction at that time.

(6) One or more transactions are to be regarded as related transactions, in the case of any arrangements, if 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 effected,

that none of the transactions would have been entered into or effected independently of the arrangements.

(7) Transactions are not prevented from being related transactions, in the case of any arrangements, just because the transactions—

(a) are not between the same parties, or

(b) are not between the parties to the arrangements.

(8) This paragraph does not apply if, as a result of any of the following provisions—

(a) section 75(4)(b) (expenses of management of companies with investment business: unallowable purposes),

(b) section 76(4)(d) (expenses of insurance companies: unallowable purposes),

(c) paragraph 13 of Schedule 9 to the Finance Act 1996 (loan relationships with unallowable purposes),

the company in question is not entitled to a relevant tax relief in respect of, or referable to, the whole or any part of the manufactured payment.

The references to sections 75 and 76 are references to those provisions as they have effect in relation to accounting periods beginning on or after 1st April 2004.

(9) Any reference in this paragraph to a manufactured payment falling to be made by a company includes a reference to a manufactured payment which is deemed by or under any provision of the Tax Acts to be made by a company (and references to a transaction, or to a company being party to a transaction, are to be construed accordingly).

(10) In this paragraph—

• “arrangements” includes schemes, arrangements and understandings of any kind, whether or not legally enforceable, and shall be taken to include any related transactions;

• “manufactured payment” means any of the following—

  (a)

  any manufactured dividend;

  (b)

  any manufactured interest;

  (c)

  any manufactured overseas dividend;

• “related transaction” shall be construed in accordance with sub-paragraphs (6) and (7) above;

• “relevant tax relief” means any of the following—

  (a)

  any deduction in computing profits or gains for the purposes of corporation tax;

  (b)

  any deduction against total profits;

  (c)

  the bringing into account of any debit for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 (loan relationships);

  (d)

  the surrender of an amount by way of group relief;

• “tax advantage” has the same meaning as in Chapter 1 of Part 17 (tax avoidance);

• “tax avoidance purpose” means any purpose that consists in securing a tax advantage (whether for the company in question or any other person);

• and sub-paragraphs (3) to (7) above have effect for the purposes of this paragraph.

F336 Dividend manufacturing regulations: general U.K.

Textual Amendments

F336 Sch. 23A inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 58, Sch. 13 para.1 (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg.2; 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs.2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs.2, 3(b), 4)

F337 8 (1) Dividend manufacturing regulations may make provision for—

(a) such manufactured dividends, manufactured interest or manufactured overseas dividends as may be prescribed, or

(b) such dividend manufacturers, interest manufacturers or overseas dividend manufacturers as may be prescribed,

to be treated in prescribed circumstances otherwise than as mentioned in paragraph 2, 3 or 4 above for the purposes of such provisions of the Tax Acts as may be prescribed.

(2) Dividend manufacturing regulations may make provision with respect to—

(a) the accounts and other records which are to be kept,

(b) the vouchers which are to be issued or produced,

(c) the returns which are to be made,

(d) the manner in which amounts required to be deducted or accounted for under or by virtue of this Schedule on account of tax are to be accounted for and paid,

by dividend manufacturers, interest manufacturers or overseas dividend manufacturers in connection with the manufacturing of dividends, interest or overseas dividends.

(3) Dividend manufacturing regulations may—

(a) make provision for prescribed provisions of the Management Act to apply in relation to manufactured dividends, manufactured interest or manufactured overseas dividends with such modifications, specified in the regulations, as the Treasury think fit;

(b) make such further provision with respect to the administration, assessment, collection and recovery of amounts required to be deducted or accounted for under or by virtue of this Schedule on account of tax as the Treasury think fit.

(4) Dividend manufacturing regulations may make different provision for different cases.

Textual Amendments

F337 Sch. 23A inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 58, Sch. 13 para. 1 (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg.2; 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs.2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs.2, 3(b), 4)

Section 747(6).

SCHEDULE 24 U.K. M258 ASSUMPTIONS FOR CALCULATING CHARGEABLE PROFITS, CREDITABLE TAX AND CORRESPONDING UNITED KINGDOM TAX OF FOREIGN COMPANIES

Marginal Citations

M258 Source-1984 Sch. 16, 1985 Sch. 14 16

General U.K.

1 (1) The company shall be assumed to be resident in the United Kingdom.

(2) Nothing in sub-paragraph (1) above requires it to be assumed that there is any change in the place or places at which the company carries on its activities.

(3) For the avoidance of doubt, it is hereby declared that, if any sums forming part of the company’s profits for an accounting period have been received by the company without any deduction of or charge to tax by virtue of section 47 or 48 the effect of the assumption in sub-paragraph (1) above is that those sums are to be brought within the charge to tax for the purposes of calculating the company’s chargeable profits or corresponding United Kingdom tax.

(4) In any case where—

(a) it is at any time necessary for any purpose of Chapter IV of Part XVII to determine the chargeable profits of the company for an accounting period, and

(b) at that time no direction has been given under section 747(1) with respect to that or any earlier accounting period of the company,

[F338 in determining the chargeable profits of the company for the accounting period mentioned in paragraph (a) above] it shall be assumed, for the purpose of any of the following provisions of this Schedule which refer to the first accounting period in respect of which a direction is given under that section, that such a direction has been given for that period (but not for any earlier period).

(5) Nothing in this Schedule affects any liability for, or the computation of, corporation tax in respect of a trade which is carried on by a company resident outside the United Kingdom through a branch or agency in the United Kingdom.

Textual Amendments

F338 Words in Sch. 24 para. 1(4) inserted (retrospectively) by Finance Act 1995 (c. 4), Sch. 25 para. 6(1)(2)

2 (1) The company shall be assumed to have become resident in the United Kingdom (and, accordingly, within the charge to corporation tax) at the beginning of the first accounting period in respect of which a direction is given under section 747(1) and that United Kingdom residence shall be assumed to continue throughout subsequent accounting periods of the company (whether or not a direction is given in respect of all or any of them) until the company ceases to be controlled by persons resident in the United Kingdom.

(2) Except in so far as the following provisions of this Schedule otherwise provide, for the purposes of calculating a company’s chargeable profits or corresponding United Kingdom tax for any accounting period which is not the first such period referred to in sub-paragraph (1) above (and, in particular, for the purpose of applying any relief which is relevant to two or more accounting periods), it shall be assumed that a calculation of chargeable profits or, as the case may be, corresponding United Kingdom tax has been made for every previous accounting period throughout which the company was, by virtue of sub-paragraph (1) above, assumed to have been resident in the United Kingdom.

3 U.K. The company shall be assumed not to be a close company.

4 (1) Subject to sub-paragraph (2) below, where any relief under the Corporation Tax Acts is dependent upon the making of a claim or election, the company shall be assumed to have made that claim or election which would give the maximum amount of relief and to have made that claim or election within any time limit applicable to it.

(2) If, by notice given to the Board at any time not later than the expiry of the time for the making of an appeal under section 753 or within such longer period as the Board may in any particular case allow, the United Kingdom resident company which has or, as the case may be, any two or more United Kingdom resident companies which together have, a majority interest in the company so request, the company shall be assumed—

(a) not to have made any claim or election specified in the notice; or

(b) to have made a claim or election so specified, being different from one assumed by sub-paragraph (1) above but being one which (subject to compliance with any time limit) could have been made in the case of a company within the charge to corporation tax; or

(c) to have disclaimed or required the postponement, in whole or in part, of an allowance if (subject to compliance with any time limit) a company within the charge to corporation tax could have disclaimed the allowance or, as the case may be, required such a postponement.

(3) For the purposes of this paragraph, a United Kingdom resident company has, or two or more United Kingdom resident companies together have, a majority interest in the company if on the apportionment of the company’s chargeable profits for the relevant accounting period under section 747(3) more than half of the amount of those profits—

(a) which are apportioned to all United Kingdom resident companies, and

(b) which give rise to an assessment on any such companies under subsection (4)(a) of that section,

are apportioned to the United Kingdom resident company or companies concerned.

(4) In sub-paragraph (3) above “the relevant accounting period” means the accounting period or, as the case may be, the first accounting period in which the relief in question is or would be available in accordance with sub-paragraph (1) above.

Modifications etc. (not altering text)

C114 Sch. 24 para. 4(3)(4) applied (with modifications) (23.3.1995) by The Exchange Gains and Losses (Alternative Method of Calculation of Gain or Loss) Regulations 1994 (S.I. 1994/3227), regs. 1(2), 6

[F339 4A U.K. F340 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

Textual Amendments

F339 Sch. 24 para. 4A inserted (27.7.1993 with effect as mentioned in s. 96(2) of the amending act in relation to any accounting period on or after such day as may be appointed under s. 165(7)(b) of the amending Act) by 1993 c. 34, ss. 96(1)(2), 165(7)(b)

F340 Sch. 24 para. 4A deemed never to have been inserted, by virtue of Finance Act 1995 (c. 4), Sch. 25 para. 6(3), Sch. 29 Pt. 8(18), Note

Group relief etc. U.K.

5 The company shall be assumed to be neither a member of a group of companies nor a member of a consortium for the purposes of any provision of the Tax Acts.

6 (1) In relation to section 247 it shall be assumed—

(a) that the conditions for the making of an election under subsection (1) are not fulfilled with respect to dividends paid or received by the company; and

(b) that the conditions for the making of an election under subsection (4) are not fulfilled with respect to payments made or received by the company.

(2) References in sub-paragraph (1) above to dividends or payments received by the company apply to any received by another person on behalf of or in trust for the company, but not to any received by the company on behalf of or in trust for another person.

7 The company shall be assumed not to be a subsidiary to which the benefit of any advance corporation tax may be surrendered under section 240.

Company reconstructions U.K.

8 Without prejudice to the operation of section 343 in a case where the company is the predecessor, within the meaning of that section, and a company resident in the United Kingdom is the successor, within the meaning of that section—

(a) the assumption that the company is resident in the United Kingdom shall not be regarded as requiring it also to be assumed that the company is within the charge to tax in respect of a trade for the purposes of that section, and

(b) except in so far as the company is actually within that charge (by carrying on the trade through a branch or agency in the United Kingdom), it shall accordingly be assumed that the company can never be the successor, within the meaning of that section, to another company (whether resident in the United Kingdom or not).

Losses in pre-direction accounting periods U.K.

9 (1) Subject to sub-paragraph (2) below, this paragraph applies in any case where the company incurred a loss in a trade in an accounting period—

(a) which precedes the first accounting period in respect of which a direction is given under section 747(1) (“the starting period”); and

(b) which ended less than six years before the beginning of the starting period; and

(c) in which the company was not resident in the United Kingdom;

and in this paragraph any such accounting period is referred to as a “pre-direction period”.

(2) This paragraph does not apply in any case where a declaration is made under paragraph 11(3) below specifying an accounting period of the company which begins before, or is the same as, the first pre-direction period in which the company incurred a loss as mentioned in sub-paragraph (1) above.

(3) If a claim is made for the purpose by the United Kingdom resident company or companies referred to in paragraph 4(2) above, the chargeable profits (if any) of the company for accounting periods beginning with that pre-direction period which is specified in the claim and in which a loss is incurred as mentioned in sub-paragraph (1) above shall be determined (in accordance with the provisions of this Schedule other than this paragraph) on the assumption that that pre-direction period was the first accounting period in respect of which a direction was given under section 747(1).

(4) A claim under sub-paragraph (3) above shall be made by notice given to the Board within 60 days of the date of the notice under subsection (1) or subsection (3) of section 753 relating to the starting period or within such longer period as the Board may in any particular case allow.

(5) For the purposes of a claim under sub-paragraph (3) above, it shall be assumed that Chapter IV of Part XVII was in force before the beginning of the first of the pre-direction periods.

(6) In determining for the purposes of this paragraph which accounting period of the company is the starting period, no account should be taken of the effect of any declaration under paragraph 11(3) below.

Capital allowances U.K.

10 (1) Subject to paragraphs 11 and 12 below, if, in an accounting period falling before the beginning of the first accounting period in respect of which a direction is given under section 747(1), the company incurred any capital expenditure on the provision of machinery or plant for the purposes of its trade, that machinery or plant shall be assumed, for the purposes of [F341 Part II of the 1990 Act], to have been provided for purposes wholly other than those of the trade and not to have been brought into use for the purposes of that trade until the beginning of that first accounting period, and [F341 section 81 of] that Act (expenditure treated as equivalent to market value at the time the machinery or plant is brought into use) shall apply accordingly.

(2) This paragraph shall be construed as one with [F342 Part II of the 1990 Act].

Textual Amendments

F341 Words in Sch. 24 para. 10(1) substituted (with effect in accordance with s. 164(1)(2) of the amending Act) by Capital Allowances Act 1990 (c. 1), Sch. 1 para. 8(42)(a) (with s. 164(3))

F342 Words in Sch. 24 para. 10(2) substituted (with effect in accordance with s. 164(1)(2) of the amending Act) by Capital Allowances Act 1990 (c. 1), Sch. 1 para. 8(42)(b) (with s. 164(3))

11 (1) This paragraph applies in any case where it appears to the Board that the reason why no direction was given under section 747(1) in respect of an accounting period which precedes the starting period was that the effect of any allowance which would be assumed for that preceding period by virtue of this Schedule would be such that—

(a) the company would not have been considered to be subject in that accounting period to a lower level of taxation in the territory in which it was resident; or

(b) the company would have had no chargeable profits for that accounting period; or

(c) the chargeable profits of the company for that accounting period would not have exceeded £20,000 or such smaller amount as was appropriate in accordance with section 748(1)(d).

(2) In this paragraph “the starting period” means the first accounting period in respect of which a direction is given under section 747(1) and, in a case where a claim is made under sub-paragraph (3) of paragraph 9 above, no account shall be taken of the effect of that sub-paragraph in determining which accounting period is the starting period for the purposes of this paragraph.

(3) If, in a case where this paragraph applies, the Board so declare by notice given to every company to which, in accordance with section 753(1), notice of the making of the direction relating to the starting period is required to be given, the chargeable profits of that period and every subsequent accounting period and the corresponding United Kingdom tax for every subsequent accounting period shall be determined (in accordance with the provisions of this Schedule other than this paragraph) on the assumption that the accounting period specified in the declaration was the first accounting period in respect of which a direction was given and, accordingly, as if allowances had been assumed in respect of that accounting period and any subsequent accounting period which precedes the starting period.

(4) Nothing in sub-paragraph (3) above affects the operation of paragraph 9(3) above in a case where the accounting period specified in a claim under paragraph 9(3) above begins before the period specified in a declaration under sub-paragraph (3) above.

(5) Subject to sub-paragraph (6) below, the Board shall not make a declaration under sub-paragraph (3) above with respect to an accounting period which precedes the starting period unless the facts are such that—

(a) assuming the company to have been subject in that period to a lower level of taxation in the territory in which it was resident, and

(b) assuming the company to have had in that period chargeable profits of such an amount that the condition in section 748(1)(d) would not be fulfilled,

correction could have been given in respect of that period under section (1).

(6) In its application to a company falling within section 749(3), sub-paragraph (5) above shall have effect with the omission of paragraph (a).

(7) In this paragraph “allowance” means an allowance under [F343 Part I or II of the 1990 Act].

Textual Amendments

F343 Words in Sch. 24 para. 11(7) substituted (with effect in accordance with s. 164(1)(2) of the amending Act) by Capital Allowances Act 1990 (c. 1), Sch. 1 para. 8(42)(c) (with s. 164(3))

Valid from 01/05/1995

11A (1) This paragraph applies where by virtue of section 747A the company’s chargeable profits for an accounting period (the period in question) are to be computed and expressed in a currency (the relevant foreign currency) other than sterling.

(2) For the purposes of making in relation to the period in question any calculation which—

(a) falls to be made under the enactments relating to capital allowances, and

(b) takes account of amounts arrived at under those enactments in relation to accounting periods falling before the company’s commencement day (within the meaning given by section 747A(9)),

it shall be assumed that any such amount is the equivalent, expressed in the relevant foreign currency, of the amount expressed in sterling.

(3) For the purposes of the application in relation to the period in question of paragraph 11(1)(c) above, it shall be assumed that the company’s chargeable profits for the period are the sterling equivalent of its chargeable profits found in the relevant foreign currency.

(4) For the purposes of the application of section 34, 35 or 96 of the 1990 Act (motor cars and dwelling-houses) in relation to expenditure incurred in the period in question, it shall be assumed that any sterling sum mentioned in any of those sections is the equivalent, expressed in the relevant foreign currency, of the amount expressed in sterling.

(5) The translation required by sub-paragraph (2) above shall be made by reference to the London closing exchange rate for the two currencies concerned for the first day of the period in question.

(6) The translation required by sub-paragraph (3) above shall be made by reference to the London closing exchange rate for the two currencies concerned for the last day of the period in question.

(7) The translation required by sub-paragraph (4) above shall be made by reference to the London closing exchange rate for the two currencies concerned for the day on which the expenditure concerned was incurred.

Unremittable overseas income U.K.

12 For the purposes of the application of section 584 to the company’s income it shall be assumed—

(a) that any reference in paragraph (a) or paragraph (b) of subsection (1) of that section to the United Kingdom is a reference to both the United Kingdom and the territory in which the company is in fact resident; and

(b) that a notice under subsection (2) of that section (expressing a wish to be assessed in accordance with that subsection) may be given on behalf of the company by the United Kingdom resident company or companies referred to in paragraph 4(2) above.

Valid from 01/05/1995

[F344 Exchange gains and losses U.K.

Textual Amendments

F344 Sch. 24 paras. 13-19 and cross-heading inserted (1.5.1995) by Finance Act 1995 (c. 4), Sch. 25 para. 6(5)

13 Paragraphs 14 to 19 below apply for the purposes of the application of Chapter II of Part II of the M259 Finance Act 1993.

Marginal Citations

M259 1993 c. 34.

14 (1) This paragraph applies where—

(a) by virtue of section 747A the company’s chargeable profits for an accounting period are to be computed and expressed in a particular currency (the relevant currency),

(b) in an accrual period an asset or contract was held, or a liability was owed, by the company, and

(c) the accrual period falls within or constitutes the accounting period concerned.

(2) It shall be assumed that—

(a) the local currency for the purposes of sections 125 to 127 of the M260 Finance Act 1993 is the relevant currency, and

(b) section 149 of that Act (local currency to be used) does not apply as regards the accrual period concerned.

Marginal Citations

M260 1993 c. 34.

15 Where the accounting period mentioned in section 139(1) of the M261 Finance Act 1993 is one for which, by virtue of section 747A, the company’s chargeable profits are to be computed and expressed in a currency other than sterling—

(a) section 142(1) to (4) of that Act shall be assumed not to apply as regards that period;

(b) section 142(5) and (6) of that Act shall be assumed not to apply as regards the next accounting period of the company.

Marginal Citations

M261 1993 c. 34.

16 (1) This paragraph applies where the last relevant accounting period for the purposes of section 146 of the M262 Finance Act 1993 is one for which by virtue of section 747A the company’s chargeable profits are to be computed and expressed in a particular currency (the relevant currency).

(2) Subsections (10), (11) and (14) of section 146 of the M263 Finance Act 1993 shall be assumed not to apply.

Marginal Citations

M262 1993 c. 34.

M263 1993 c. 34.

17 Where by virtue of section 747A the company’s chargeable profits for an accounting period are to be computed and expressed in a particular currency, the references in section 148(9) of the M264 Finance Act 1993 to sterling shall be assumed to be references to that particular currency.

Marginal Citations

M264 1993 c. 34.

18 (1) This paragraph applies where the accounting period mentioned in paragraph (b) of subsection (11) of section 153 of the M265 Finance Act 1993 is one for which, by virtue of section 747A, the company’s chargeable profits are to be computed and expressed in a particular currency (the relevant currency).

(2) That subsection shall have effect as if the reference to the local currency of the trade for the accounting period were a reference to the relevant currency.

Marginal Citations

M265 1993 c. 34.

19 (1) This paragraph applies where—

(a) Chapter II of Part II of the M266 Finance Act 1993 falls to be applied as regards an accounting period of the company;

(b) under that Chapter, an exchange gain or an exchange loss accrued to the company for an accrual period constituting or falling within an earlier accounting period of the company, and

(c) the accounting period mentioned in paragraph (b) above falls before the company’s first relevant accounting period.

(2) It shall be assumed, for the purposes of applying Chapter II of Part II of the M267 Finance Act 1993 as respects the accounting period mentioned in sub-paragraph (1)(a) above, that the exchange gain or loss mentioned in sub-paragraph (1)(b) above never existed.

(3) In sub-paragraph (1) above—

(a) references to an exchange gain are to an exchange gain of a trade or an exchange gain of part of a trade or a non-trading exchange gain;

(b) references to an exchange loss are to an exchange loss of a trade or an exchange loss of part of a trade or a non-trading exchange loss;

(c) the reference in sub-paragraph (1)(b) to an exchange gain or an exchange loss accruing is to the gain or loss accruing before the application of any of sections 131, 136, 137 and 140 of the M268 Finance Act 1993 in relation to the accounting period mentioned in sub-paragraph (1)(b);

(d) references to the first relevant accounting period of the company shall be construed in accordance with section 747A.]

Marginal Citations

M266 1993 c. 34.

M267 1993 c. 34.

M268 1993 c. 34.

Valid from 31/07/1998

[F345 Transfer pricing U.K.

Textual Amendments

F345 Sch. 24 para. 20 and cross-heading inserted (with effect in accordance with Sch. 17 para. 37 of the amending Act) by Finance Act 1998 (c. 36), Sch. 17 para. 24; S.I. 1998/3173, art. 2

20 (1) Sub-paragraph (2) of paragraph 5 of Schedule 28AA (no potential UK tax advantage where both parties are within charge to income or corporation tax etc) shall be assumed not to apply in any case where, apart from that sub-paragraph (and on the assumption in paragraph 1(1) above),—

(a) paragraph 6 of that Schedule would apply; and

(b) the company would be the disadvantaged person for the purposes of that paragraph.

(2) Schedule 28AA (transfer pricing etc: provision not at arm’s length) shall be assumed not to apply in any case where, apart from this sub-paragraph,—

(a) the actual provision would (on the assumption in paragraph 1(1) above) confer a potential advantage in relation to United Kingdom taxation on the company;

(b) the other affected person would be a company resident outside the United Kingdom; and

(c) each accounting period of that company which falls wholly or partly within the accounting period in question is one as regards which—

(i) an apportionment under section 747(3) falls to be made; or

(ii) no such apportionment falls to be made by virtue of the period being an ADP exempt period.

(3) In any case where—

(a) by virtue of sub-paragraph (2) above, Schedule 28AA is assumed not to apply, and

(b) the actual provision mentioned in paragraph (a) of that sub-paragraph involves (on the assumption in paragraph 1(1) above) any such interest or other distribution out of assets as would constitute a distribution for the purposes of the Corporation Tax Acts by virtue of paragraph (da) of section 209(2),

that interest or distribution out of assets shall be assumed not to constitute such a distribution by virtue of that paragraph.]

Section 748.

SCHEDULE 25 U.K. M269 CASES EXCLUDED FROM DIRECTION-MAKING POWERS

Marginal Citations

M269 Source-1984 Sch.17; 1987 (No.2) s.65

PART I U.K. ACCEPTABLE DISTRIBUTION POLICY

1 The provisions of this Part of this Schedule have effect for the purposes of paragraph (a) of subsection (1) of section 748.

2 (1) Subject to sub-paragraph (2) below, a controlled foreign company pursues an acceptable distribution policy in respect of a particular accounting period if, and only if—

(a) a dividend which is not paid out of specified profits is paid for that accounting period or for some other period which, in whole or in part, falls within that accounting period; and

(b) the dividend is paid during, or not more than eighteen months after the expiry of, the period for which it is paid or at such later time as the Board may, in any particular case, allow; and

(c) the dividend is paid at a time when the company is not resident in the United Kingdom (whether or not it is at that time a controlled foreign company); and

F346 (d) the proportion of the dividend or, if there is more than one, of the aggregate of those dividends which is paid to persons resident in the United Kingdom represents at least 50 per cent. of the company’s available profits for the accounting period referred to in paragraph (a) above or, where sub-paragraph (4) or (5) below applies, of the appropriate portion of those profits;

and for the purposes of this sub-paragraph a dividend which is not paid for a specified period shall be treated as paid for the period or periods the profits of which are, in relation to the dividend, the relevant profits for the purposes of section 799.

[F347 (1A) A payment of dividend to a company shall not fall within sub-paragraph (1)(d) above unless it is taken into account in computing the company’s income for corporation tax.]

(2) In the case of a controlled foreign company which is not a trading company, sub-paragraph (1) above shall have effect with the substitution of 90 per cent. for 50 per cent.

(3) For the purposes of this Part of this Schedule, a dividend represents those profits of the controlled foreign company in question which in relation to that dividend are the relevant profits for the purposes of section 799 and, accordingly, where those profits are the profits of a period which falls partly within and partly outside an accounting period of that company, the necessary apportionment shall be made to determine what proportion of those profits is attributable to that accounting period.

(4) This sub-paragraph applies where—

(a) throughout the accounting period in question all the issued shares of the controlled foreign company are of a single class, and

(b) at the end of that accounting period some of those shares are held by persons resident outside the United Kingdom, and

(c) at no time during that accounting period does any person have an interest in the company other than an interest derived from the issued shares of the company;

and in a case where this sub-paragraph applies the appropriate portion for the purposes of sub-paragraph (1)(d) above is the fraction of which the denominator is the total number of the issued shares of the company at the end of the accounting period in question and, subject to sub-paragraph (8) below, the numerator is the number of those issued shares by virtue of which persons resident in the United Kingdom have interests in the company at that time.

(5) This sub-paragraph applies where—

(a) throughout the accounting period in question there are only two classes of issued shares of the controlled foreign company and, of those classes, one (“non-voting shares”) consists of non-voting fixed-rate preference shares and the other (“voting shares”) consists of shares which carry the right to vote in all circumstances at general meetings of the company; and

(b) at the end of that accounting period some of the issued shares of the company are held by persons resident outside the United Kingdom; and

(c) at no time during that accounting period does any person have an interest in the company other than an interest derived from non-voting or voting shares;

and in a case where this sub-paragraph applies the appropriate portion of the profits referred to in sub-paragraph (1)(d) above is the amount determined in accordance with sub-paragraph (6) below.

(6) The amount referred to in sub-paragraph (5) above is that given by the formula—

• where—

• P is the amount of any dividend falling within (a) and (b) of sub-paragraph (1) above which is paid in respect of the non-voting shares or, if there is more than one such dividend, of the aggregate of them;

• Q is, subject to sub-paragraph (8) below, the number of the non-voting shares by virtue of which persons resident in the United Kingdom have interests in the company at the end of the accounting period in question;

• R is the total number at that time of the issued non-voting shares;

• X is the available profits for the accounting period in question;

• Y is, subject to sub-paragraph (8) below, the number of voting shares by virtue of which persons resident in the United Kingdom have interests in the company at the end of that accounting period; and

• Z is the total number at that time of the issued voting shares.

(7) For the purposes of sub-paragraph (5)(a) above, non-voting fixed-rate preference shares are shares—

(a) which are fixed-rate preference shares as defined in paragraph 1 of Schedule 18; and

(b) which either carry no right to vote at a general meeting of the company or carry such a right which is contingent upon the non-payment of a dividend on the shares and which has not in fact become exercisable at any time prior to the payment of a dividend for the accounting period in question.

(8) In any case where the immediate interests held by persons resident in the United Kingdom who have indirect interests in a controlled foreign company at the end of a particular accounting period do not reflect the proportion of the shares or, as the case may be, shares of a particular class in the company by virtue of which they have those interests (as in the case where they hold, directly or indirectly, part of the shares in a company which itself holds, directly or indirectly, some or all of the shares in the controlled foreign company) the number of those shares shall be treated as reduced for the purposes of sub-paragraph (4) or (6) above, as the case may be, to such number as may be appropriate having regard to—

(a) the immediate interests held by the persons resident in the United Kingdom; and

(b) any intermediate shareholdings between those interests and the shares in the controlled foreign company.

(9) The definition of “profits” in section 747(6)(b) does not apply to any reference in this paragraph to specified profits or to relevant profits for the purposes of section 799.

Textual Amendments

F346 Repealed by 1990 s.67(3)(a)and s.132and Sch.19 Part IVin relation to dividends paid on or after 20March 1990.

F347 1990 s.67(3)(b)in relation to dividends paid on or after 20March 1990.

Valid from 03/05/1994

2A (1) Paragraph 2 above shall have effect in accordance with this paragraph to determine whether a controlled foreign company which is not a trading company pursues an acceptable distribution policy in respect of a particular accounting period (“the relevant accounting period”).

(2) Subject to sub-paragraph (4) below, where the distribution condition is satisfied in relation to the relevant accounting period, then, in addition to any dividend which falls within paragraph 2(1)(a) above apart from this paragraph—

(a) any dividend which is paid for the accounting period (“the preceding period”) which immediately precedes the relevant accounting period and is not an excluded period shall be treated as falling within that paragraph, and

(b) if the distribution condition is satisfied in relation to the preceding period, any dividend which is paid for the accounting period which immediately precedes the preceding period and is not an excluded period shall be treated as falling within that paragraph,

and so on; and in this sub-paragraph “dividend” means a dividend not paid out of specified profits.

(3) For the purposes of this paragraph, the distribution condition is satisfied in relation to any accounting period if—

(a) a dividend or dividends are paid for the period to persons resident in the United Kingdom,

(b) the amount or, as the case may be, aggregate amount of any dividends falling within paragraph (a) above is not less than—

(i) the relevant profits for that period, or

(ii) where paragraph 2(4) or (5) above applies (with the modifications of paragraph 2 made by sub-paragraph (5) below), the appropriate portion of those profits, and

(c) any dividends falling within that paragraph are paid not later than the time by which any dividend paid for the relevant accounting period is required by paragraph 2(1)(b) above to be paid;

or if there are no relevant profits for the period.

(4) Where, by reason only of the fact that a company pursued an acceptable distribution policy in respect of any accounting period (“the earlier period”) earlier than the relevant accounting period, no direction could be given in respect of the earlier period under section 747(1), sub-paragraph (2) above shall apply to any dividend required to be taken into account for the purpose of showing that the company pursued an acceptable distribution policy in respect of the earlier period only to the extent (if any) to which that dividend was not required to be taken into account for that purpose.

(5) The modifications of paragraph 2 above referred to in sub-paragraph (3)(b) above are that—

(a) the references in sub-paragraphs (4) and (5) to the accounting period in question are to be read as references to the accounting period for which the dividend or dividends are paid,

(b) the references in those sub-paragraphs to sub-paragraph (1)(d) are to be read as references to sub-paragraph (3)(b) above, and

(c) the reference in the definition of “X” in sub-paragraph (6) to available profits is to be read as a reference to relevant profits.

(6) Paragraph 2(1)(d) above shall have effect as if for “50 per cent. of the company’s available profits” there were substituted “90 per cent. of the company’s net chargeable profits”.

(7) In paragraph 2(6) above, the definition of “X” shall have effect as if the reference to available profits were a reference to net chargeable profits.

(8) For the purposes of this paragraph—

(a) a period is an excluded period if it is an accounting period in respect of which a direction is given under section 747(1), and

(b) relevant profits for any accounting period are the profits which would be the relevant profits of that period for the purposes of section 799 if a dividend were actually paid for that period.

Valid from 11/05/2001

2B (1) This paragraph has effect for the purposes of paragraph 2(1A)(b) above.

(2) No payment of dividend by a controlled foreign company for an accounting period shall be regarded as involved in a UK tax avoidance scheme by reason only that there is no charge to tax under section 747(4)(a) if the controlled foreign company pursues an acceptable distribution policy for that accounting period.

(3) “UK tax avoidance scheme” means a scheme or arrangement the purpose, or one of the main purposes, of which is to achieve a reduction in United Kingdom tax.

(4) A scheme or arrangement achieves a reduction in United Kingdom tax if, apart from the scheme or arrangement, any company—

(a) would have been liable for any such tax or for a greater amount of any such tax; or

(b) would not have been entitled to a relief from or repayment of any such tax or would have been entitled to a smaller relief from or repayment of any such tax.

(5) In this paragraph—

• “arrangement” means an arrangement of any kind, whether in writing or not;

• “United Kingdom tax” means corporation tax or any tax chargeable as if it were corporation tax.

3 (1) Subject to sub-paragraphs (2) and (5) below, for the purposes of this Part of this Schedule, the available profits of a controlled foreign company for any accounting period shall be ascertained by—

(a) determining what would be the relevant profits of that period for the purposes of section 799 if a dividend were paid for that period; and

(b) deducting so much of those relevant profits as consists of an excess of capital profits over capital losses.

(2) If, for any accounting period of the controlled foreign company which is of less than 12 months duration, the available profits, as ascertained under sub-paragraph (1) above, are less than the chargeable profits (determined on the additional assumptions in section 750(3)(a)) then, if the Board so declare, for the purposes of this Part of this Schedule the available profits for the accounting period shall be those chargeable profits.

(3) The definition of “profits” in section 747(6)(b) does not apply to the reference in sub-paragraph (1)(a) above to relevant profits for the purposes of section 799.

(4) In sub-paragraph (1)(b) above “capital profits” means gains—

(a) which accrue on the disposal of assets; and

(b) which, if the company were within the charge to corporation tax in respect of the activities giving rise to those disposals, would not be taken into account as receipts in computing the company’s income or profits or gains or losses for the purposes of the Income Tax Acts;

and the expression “capital losses” shall be construed accordingly.

(5) In any case where—

(a) a controlled foreign company pays a dividend for any period out of specified profits, and

(b) those profits represent dividends received by the company, directly or indirectly, from another controlled foreign company,

so much of those specified profits as is equal to the dividend referred to in paragraph (a) above shall be left out of account in determining, for the purposes of this Part of this Schedule, the available profits of the controlled foreign company referred to in that paragraph for any accounting period.

4 (1) For the purposes of this Part of this Schedule, where—

(a) a controlled foreign company pays a dividend (“the initial dividend”) to another company which is also not resident in the United Kingdom, and

(b) that other company or another company which is related to it pays a dividend (“the subsequent dividend”) to a United Kingdom resident, and

(c) the subsequent dividend is paid at a time when the company paying it is not resident in the United Kingdom; and

F348 (d) the subsequent dividend is paid out of profits which are derived, directly or indirectly, from the whole or part of the initial dividend,

so much of the initial dividend as is represented by the subsequent dividend shall be regarded as paid to the United Kingdom resident.

[F349 (1A) A payment to a company shall not be a subsequent dividend within the meaning of sub-paragraph (1)(b) above unless it is taken into account in computing the company’s income for corporation tax.]

(2) For the purposes of this paragraph, one company is related to another if the other—

(a) controls directly or indirectly, or

(b) is a subsidiary of a company which controls directly or indirectly,

at least 10 per cent. of the voting power in the first-mentioned company; and where one company is so related to another and that other is so related to a third company, the first company is for the purposes of this paragraph related to the third, and so on where there is a chain of companies, each of which is related to the next.

Textual Amendments

F348 Repealed by 1990 s.67(3)(a)and s.132and Sch.19 Part IVin relation to dividends paid on or after 20March 1990.

F349 1990 s.67(3)(c)in relation to dividends paid on or after 20March 1990.

Valid from 11/05/2001

4A (1) This paragraph has effect for the purposes of paragraph 4(1A)(b) above.

(2) No payment to a company resident in the United Kingdom which represents the whole or part of a dividend paid by a controlled foreign company for an accounting period shall be regarded as involved in a UK tax avoidance scheme by reason only that—

(a) there is no charge to tax under section 747(4)(a) if the controlled foreign company pursues an acceptable distribution policy for that accounting period, and

(b) so much of the dividend as is represented by that payment will (if paragraph 4(1) above has effect) fall to be brought into account in determining whether the controlled foreign company has done so.

(3) “UK tax avoidance scheme” means a scheme or arrangement the purpose, or one of the main purposes, of which is to achieve a reduction in United Kingdom tax.

(4) A scheme or arrangement achieves a reduction in United Kingdom tax if, apart from the scheme or arrangement, any company—

(a) would have been liable for any such tax or for a greater amount of any such tax; or

(b) would not have been entitled to a relief from or repayment of any such tax or would have been entitled to a smaller relief from or repayment of any such tax.

(5) In this paragraph—

• “arrangement” means an arrangement of any kind, whether in writing or not;

• “United Kingdom tax” means corporation tax or any tax chargeable as if it were corporation tax.

PART II U.K. EXEMPT ACTIVITIES

5 (1) The provisions of this Part of this Schedule have effect for the purposes of paragraph (b) of subsection (1) of section 748.

(2) In the case of a controlled foreign company—

(a) which is, by virtue of section 749(3), presumed to be resident in a territory in which it is subject to a lower level of taxation, and

(b) the business affairs of which are, throughout the accounting period in question, effectively managed in a territory outside the United Kingdom other than one in which companies are liable to tax by reason of domicile, residence or place of management,

references in the following provisions of this Part of this Schedule to the territory in which that company is resident shall be construed as references to the territory falling within paragraph (b) above, or, if there is more than one, to that one of them which may be notified to the Board by the United Kingdom resident company or companies referred to in paragraph 4(2) of Schedule 24.

6 (1) Throughout an accounting period a controlled foreign company is engaged in exempt activities if, and only if, each of the following conditions is fulfilled—

(a) that, throughout that accounting period, the company has a business establishment in the territory in which it is resident; and

(b) that, throughout that accounting period, its business affairs in that territory are effectively managed there; and

(c) that any of sub-paragraphs (2) to (4) below applies to the company.

(2) This sub-paragraph applies to a company if—

(a) at no time during the accounting period in question does the main business of the company consist of either—

(i) investment business, or

(ii) dealing in goods for delivery to or from the United Kingdom or to or from connected or associated persons; and

(b) in the case of a company which is mainly engaged in wholesale, distributive or financial business in that accounting period, less than 50 per cent. of its gross trading receipts from that business is derived directly or indirectly from connected or associated persons.

(3) This sub-paragraph applies to a company which is a holding company if at least 90 per cent. of its gross income during the accounting period in question is derived directly from companies which it controls and which, throughout that period—

(a) are resident in the territory in which the holding company is resident; and

(b) are not themselves holding companies, but otherwise are, in terms of this Schedule, engaged in exempt activities;

and a holding company to which this sub-paragraph applies is in this Part of this Schedule referred to as a “local holding company”.

(4) This sub-paragraph applies to a company which is a holding company, but not a local holding company, if at least 90 per cent. of its gross income during the accounting period in question is derived directly from companies which it controls and which, throughout that period—

(a) are local holding companies; or

(b) are not themselves holding companies (whether local or not), but otherwise are, in terms of this Schedule, engaged in exempt activities.

(5) Any reference in sub-paragraph (3) or (4) above to a company which a holding company controls includes a reference to a trading company in which the holding company holds the maximum amount of ordinary share capital which is permitted under the law of the territory—

(a) in which the trading company is resident; and

(b) from whose laws the trading company derives its status as a company.

(6) The following provisions of this Part of this Schedule have effect in relation to sub-paragraphs (1) to (4) above.

7 (1) For the purposes of paragraph 6(1)(a) above, a “business establishment”, in relation to a controlled foreign company, means premises— U.K.

(a) which are, or are intended to be, occupied and used with a reasonable degree of permanence; and

(b) from which the company’s business in the territory in which it is resident is wholly or mainly carried on.

(2) For the purposes of sub-paragraph (1) above the following shall be regarded as premises—

(a) an office, shop, factory or other building or part of a building; or

(b) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources; or

(c) a building site or the site of a construction or installation project;

but such a site as is referred to in paragraph (c) above shall not be regarded as premises unless the building work or the project, as the case may be, has a duration of at least twelve months.

8 (1) Subject to sub-paragraph (4) below, the condition in paragraph 6(1)(b) above shall not be regarded as fulfilled unless—

(a) the number of persons employed by the company in the territory in which it is resident is adequate to deal with the volume of the company’s business; and

(b) any services provided by the company for persons resident outside that territory are not in fact performed in the United Kingdom.

(2) For the purposes of sub-paragraph (1)(a) above, persons who are engaged wholly or mainly in the business of the company and whose remuneration is paid by a person connected with, and resident in the same territory as, the company shall be treated as employed by the company.

(3) In the case of a holding company, sub-paragraph (2) above shall apply with the omission of the words “wholly or mainly”.

(4) For the purposes of sub-paragraph (1)(b) above, no account shall be taken of services—

(a) provided through a branch or agency of the controlled foreign company if the profits or gains of the business carried on through the branch or agency are within the charge to tax in the United Kingdom; or

(b) provided through any other person whose profits or gains from the provision of the services are within the charge to tax in the United Kingdom and who provides the services for a consideration which is, or which is not dissimilar from what might reasonably be expected to be, determined under a contract entered into at arm’s length; or

(c) which are no more than incidental to services provided outside the United Kingdom.

9 (1) Subject to sub-paragraph (3) below, for the purposes of paragraph 6(2)(a)(i) above, each of the following activities constitutes investment business—

(a) the holding of securities, [F350 or intellectual property];

(b) dealing in securities, other than in the capacity of a broker;

(c) the leasing of any description of property or rights; and

(d) the investment in any manner of funds which would otherwise be available, directly or indirectly, for investment by or on behalf of any person (whether resident in the United Kingdom or not) who has, or is connected or associated with a person who has, control, either alone or together with other persons, of the controlled foreign company in question.

[F351 (1A) In sub-paragraph (1)(a) above “intellectual property” means patents, registered designs, copyright and design right (or any similar rights under the law of a country outside the United Kingdom)].

(2) In sub-paragraph (1)(b) above “broker” includes any person offering to sell securities to, or purchase securities from, members of the public generally.

(3) For the purposes of paragraph 6(2) above, in the case of a company which is mainly engaged in banking or any similar business falling within paragraph 11(1)(c) below, nothing in sub-paragraph (1) above shall require the main business of the company to be regarded as investment business.

Textual Amendments

F350 Words in Sch. 25 para. 9(1)(a) substituted (1.8.1989) by Copyright, Designs and Patents Act 1988 (c. 48), s. 305(3), Sch. 7 para. 36(9); S.I. 1989/816, art. 2

F351 Sch. 25 para. 9(1A) inserted (1.8.1989) by Copyright, Designs and Patents Act 1988 (c. 48), s. 305(3), Sch. 7 para. 36(9); S.I. 1989/816, art. 2

10 U.K. Goods which are actually delivered into the territory in which the controlled foreign company is resident shall not be taken into account for the purposes of paragraph 6(2)(a)(ii) above.

11 (1) For the purposes of paragraph 6(2)(b) above, each of the following activities constitutes wholesale, distributive or financial business—

(a) dealing in any description of goods wholesale rather than retail;

(b) the business of shipping or air transport, that is to say, the business carried on by an owner of ships or the business carried on by an owner of aircraft (“owner” including, for this purpose, any charterer);

(c) banking or any similar business involving the receipt of deposits, loans or both and the making of loans or investments;

(d) the administration of trusts;

(e) dealing in securities in the capacity of a broker, as defined in paragraph 9(2) above;

(f) dealing in commodity or financial futures; and

(g) insurance business which is long-term business or general business, as defined in section 1 of the M270 Insurance Companies Act 1982.

(2) In a case where the gross trading receipts of a company include an amount in respect of the proceeds of sale of any description of property or rights, the cost to the company of the purchase of that property or those rights shall be a deduction in calculating the company’s gross trading receipts for the purposes of paragraph 6(2)(b) above.

(3) In the case of a controlled foreign company engaged in a banking or other business falling within sub-paragraph (1)(c) above—

(a) no payment of interest received from a company resident in the United Kingdom shall be regarded for the purposes of paragraph 6(2)(b) above as a receipt derived directly or indirectly from connected or associated persons, but

(b) it shall be conclusively presumed that the condition in paragraph 6(2)(b) above is not fulfilled if, at any time during the accounting period in question, the amount by which the aggregate value of the capital interests in the company held directly or indirectly by—

(i) the persons who have control of the company, and

(ii) any person connected or associated with those persons,

exceeds the value of the company’s fixed assets is 15 per cent. or more of the amount by which the company’s outstanding capital exceeds that value.

(4) For the purposes of this paragraph, in relation to a controlled foreign company—

(a) “capital interest” means an interest in the issued share capital or reserves of the company or in a loan to or deposit with the company or the liability of a guarantor under a guarantee given to or for the benefit of the company;

(b) except in the case of the liability of a guarantor, the value of a capital interest is its value as shown in the company’s accounts;

(c) in the case of the liability of a guarantor, the value shall be taken to be the market value of the benefit which the controlled foreign company derives from the provision of the guarantee;

(d) the value of the company’s fixed assets means the value, as shown in the company’s accounts, of the plant, premises and trade investments employed in the company’s business; and

(e) “outstanding capital” means the total value of all the capital interests in the company, less the value, as shown in the company’s accounts, of any advances made by the company to persons resident outside the United Kingdom and falling within paragraph (i) or paragraph (ii) of sub-paragraph (3)(b) above.

(5) For the purposes of sub-paragraph (4) above—

(a) “trade investments”, in relation to a controlled foreign company, means securities any profit on the sale of which would not be brought into account as a trading receipt in computing the chargeable profits of an accounting period in which that profit arose; and

(b) the reference in paragraph (e) to advances made to a person by the controlled foreign company includes, in the case of a company which is a person resident outside the United Kingdom and falling within paragraph (i) or paragraph (ii) of sub-paragraph (3)(b) above, any securities of that company which are held by the controlled foreign company but are not trade investments, as defined in paragraph (a) above;

and in this sub-paragraph “securities” includes stocks and shares.

(6) In the application of paragraph 6(2)(b) above in the case of a controlled foreign company engaged in insurance business of any kind—

(a) the reference to gross trading receipts which are derived directly or indirectly from connected or associated persons is a reference to those which, subject to sub-paragraph (7) below, are attributable, directly or indirectly, to liabilities undertaken in relation to any of those persons or their property;

(b) the only receipts to be taken into account are commissions and premiums received under insurance contracts;

(c) so much of any such commission or premium as is returned is not to be taken into account; and

(d) when a liability under an insurance contract is reinsured, in whole or in part, the amount of the premium which is attributable, directly or indirectly, to that liability shall be treated as reduced by so much of the premium under the reinsurance contract as is attributable to that liability.

(7) In determining, in relation to a controlled foreign company to which sub-paragraph (6) above applies, the gross trading receipts referred to in paragraph (a) of that sub-paragraph, there shall be left out of account any receipts under a local reinsurance contract which are attributable to liabilities which—

(a) are undertaken under an insurance contract made in the territory in which the company is resident; and

(b) are not reinsured under any contract other than a local reinsurance contract; and

(c) relate either to persons who are resident in that territory and are neither connected nor associated with the company or to property which is situated there and belongs to persons who are not so connected or associated;

and in paragraph (a) above “insurance contract” does not include a reinsurance contract.

(8) In sub-paragraph (7) above “local reinsurance contract” means a reinsurance contract—

(a) which is made in the territory in which the controlled foreign company is resident; and

(b) the parties to which are companies which are resident in that territory.

(9) For the purposes of sub-paragraphs (7) and (8) above, any question as to the territory in which a company is resident shall be determined in accordance with section 749 and, where appropriate, paragraph 5(2) above; and, for the purpose of the application of those provisions in accordance with this sub-paragraph, the company shall be assumed to be a controlled foreign company.

Marginal Citations

M270 1982 c. 50.

Valid from 27/11/2002

11A (1) This paragraph has effect for the interpretation of paragraph 6(2B) above.

(2) “Contract of long-term insurance” means any contract falling within Part II of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.

(3) “Protection business” means contracts of long-term insurance where—

(a) either—

(i) the contract has no surrender value; or

(ii) the consideration consists of a single premium and the surrender value does not exceed the amount of that premium; and

(b) the contract makes no provision for its conversion or extension in a manner which would result in its ceasing to fall within paragraph (a) above;

and references to protection business include a reference to reinsurance of protection business.

(4) “Insurance group” shall be construed in accordance with section 255A(5) of the Companies Act 1985 (meaning of “insurance group” in Part 7) but reading Part 7 of that Act—

(a) as if it extended to Northern Ireland, and

(b) as if any reference to a company (within the meaning of that Act) included a reference to a company as defined in Article 3 of the Companies (Northern Ireland) Order 1986,

but does not include such an insurance group if it falls within sub-paragraph (5) below.

(5) Such an insurance group falls within this sub-paragraph if (within the meaning of that Part as so read) the parent company is a subsidiary undertaking of a parent company which is neither—

(a) the parent company of an insurance group; nor

(b) a subsidiary undertaking of the parent company of an insurance group.

(6) A controlled foreign company is, in accordance with sub-paragraphs (4) and (5) above, a “member of an insurance group” if (within the meaning of that Part as so read) it is the parent company, or a subsidiary undertaking of the parent company, of an insurance group which is by virtue of sub-paragraph (4) above an insurance group for the purposes of paragraph 6(2B) above.

(7) A company’s main business is “insuring or reinsuring large risks” if (and only if)—

(a) the company’s main business is the effecting or carrying out of contracts of insurance; and

(b) 50% or more of its gross trading receipts from that business are derived from insuring or reinsuring large risks.

• “Large risks” is defined in paragraph 11B below.

(8) In this paragraph—

• “contract of insurance” has the meaning given by article 3(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;

• “contract of long-term insurance” has the meaning given by sub-paragraph (2) above.

Valid from 27/11/2002

11B (1) In paragraph 11A above “large risks” means—

(a) risks falling within classes 4, 5, 6, 7, 11 and 12 of Part I of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;

(b) risks falling within classes 14 and 15 of that Part which relate to a business carried on by the policy holder;

(c) risks falling within classes 3, 8, 9, 10, 13 and 16 of that Part where the policy holder carries on a business in respect of which the condition specified in sub-paragraph (2) below is satisfied.

(2) The condition referred to in sub-paragraph (1)(c) above is that, in the case of that business of the policy holder, at least two of the three following criteria were exceeded in the most recent financial year beginning on or after 1st January 1999 for which the information is available—

(a) balance sheet total: 6.2 million euros;

(b) net turnover: 12.8 million euros;

(c) number of employees: 250.

(3) For the purposes of sub-paragraph (2) above as it applies where the policy holder is a company, within the meaning of section 735(1) of the Companies Act 1985 or Article 3 of the Companies (Northern Ireland) Order 1986,—

(a) “balance sheet total” has the meaning given by section 247(5) of that Act or Article 255(5) of that Order;

(b) “net turnover” has the meaning given to “turnover” by section 262(1) of that Act or Article 270(1) of that Order; and

(c) “number of employees” has the meaning given by section 247(6) of that Act or Article 255(6) of that Order;

and for a financial year which is a company’s financial year but not in fact a year, the net turnover of the company shall be proportionately reduced.

(4) Where the policy holder is a member of a group for which consolidated accounts (within the meaning of Directive 83/349/EEC) are drawn up, the question whether the condition in sub-paragraph (2) above is met shall be determined by reference to those accounts.

(5) For the purposes of sub-paragraph (1)(c) above as it applies where the policy holder is a professional association, joint venture or temporary grouping, the question whether the condition in sub-paragraph (2) above is met shall be determined by reference to the aggregate of the figures of the description in question for all the members of the professional association, joint venture or temporary grouping.

(6) In sub-paragraphs (1) to (5) above “business” includes a trade or profession and, for the purposes of sub-paragraph (1)(c) above, any activity of a professional association, joint venture or temporary grouping.

(7) For the purposes of this paragraph, where an amount is denominated in any accounts in a currency other than the euro, it shall be converted into its equivalent in euros using the London closing exchange rate for that currency and the euro for the last day of the period to which the accounts relate.

(8) In this paragraph—

• “euro” means the single currency adopted or proposed to be adopted as its currency by a member State in accordance with the Treaty establishing the European Community;

• “financial year”, in relation to any person, means the period (not exceeding 12 months) for which that person makes up accounts.

12 (1) Subject to sub-paragraph (2) below, in paragraphs 6 and 8(3) above and sub-paragraphs (4) and (5) below “holding company” means—

(a) a company the business of which consists wholly or mainly in the holding of shares or securities of companies which are either local holding companies and its 90 per cent. subsidiaries or trading companies and either its 51 per cent. subsidiaries or companies falling within paragraph 6(5) above; or

(b) a company which would fall within paragraph (a) above if there were disregarded so much of its business as consists in the holding of property or rights of any description for use wholly or mainly by companies which it controls and which are resident in the territory in which it is resident.

(2) In determining whether a company is a holding company for the purposes of paragraph 6(3) above (and, accordingly, whether the company is or may be a local holding company), sub-paragraph (1) above shall have effect with the omission from paragraph (a) thereof of the words “either local holding companies and its 90 per cent. subsidiaries or”.

(3) In its application for the purposes of this paragraph, section 838 shall have effect with the omission of—

(a) in subsection (1)(a), the words “or indirectly”; and

(b) subsection (2).

(4) For the purposes of sub-paragraph (3) or (4), as the case may be, of paragraph 6 above, as it applies in relation to a holding company part of whose business consists of activities other than the holding of shares or securities or the holding of property or rights as mentioned in paragraph (a) or (b) of sub-paragraph (1) above, the company’s gross income during any accounting period shall be determined as follows—

(a) there shall be left out of account so much of what would otherwise be the company’s gross income as is derived from any activity which, if it were the business in which the company is mainly engaged, would be such that paragraph 6(2) above would apply to the company; and

(b) to the extent that the receipts of the company from any other activity include receipts from the proceeds of sale of any description of property or rights, the cost to the company of the purchase of that property or those rights shall (to the extent that the cost does not exceed the receipts) be a deduction in calculating the company’s gross income, and no other deduction shall be made in respect of that activity.

(5) For the purposes of sub-paragraphs (3) and (4) of paragraph 6 above, so much of the income of a holding company as—

(a) is derived directly from another company which it controls and which is not a holding company but otherwise is, in terms of this Schedule, engaged in exempt activities, and

(b) was or could have been paid out of any non-trading income of that other company which is derived directly or indirectly from a third company connected or associated with it,

shall be treated, in relation to the holding company, as if it were not derived directly from companies which it controls.

(6) The reference in sub-paragraph (5) above to the non-trading income of a company is a reference to so much of its income as, if the company were carrying on its trade in the United Kingdom, would not be within the charge to corporation tax under Case I of Schedule D.

Valid from 31/07/1998

12A (1) In paragraphs 6, 8(3) and 12(5) above and this paragraph, “superior holding company” means—

(a) a company whose business consists wholly or mainly in the holding of shares or securities of companies which—

(i) are holding companies or local holding companies; or

(ii) are themselves superior holding companies; or

(b) a company which would fall within paragraph (a) above if there were disregarded so much of its business as consists in the holding of property or rights of any description for use wholly or mainly by companies which it controls and which are resident in the territory in which it is resident.

(2) For the purposes of sub-paragraphs (4A) and (4B) of paragraph 6 above, the income of a company during any period which “represents qualifying exempt activity income of its subsidiaries” is any income of the company during that period which is directly or indirectly derived from companies—

(a) which it controls, and

(b) which, throughout that period, fall within sub-paragraph (4B)(a) of that paragraph, but

(c) which are not holding companies other than local holding companies.

(3) In determining for the purposes of sub-paragraph (4A) or (4B) of paragraph 6 above the companies from which, and the proportions in which, different descriptions of income of a company are derived (whether directly or indirectly), any dividend shall be taken to be paid out of the appropriate profits.

(4) Subsections (3) and (4) of section 799 (which provide rules for determining the profits out of which a dividend is to be regarded as paid for the purpose of subsection (1) of that section) shall apply for determining the appropriate profits for the purposes of subsection (3) above as they apply for determining the relevant profits for the purposes of subsection (1) of that section.

(5) Sub-paragraphs (4) to (6) of paragraph 12 above shall apply in relation to sub-paragraph (4A) or (4B) of paragraph 6 above and a superior holding company as they apply in relation to sub-paragraph (3) or (4) of paragraph 6 above and a holding company, but taking the reference in sub-paragraph (4) of paragraph 12 above to paragraph (a) or (b) of sub-paragraph (1) of that paragraph as a reference to paragraph (a) or (b) of sub-paragraph (1) above.

Valid from 19/07/2011

[F352 Part 2A U.K. Trading Companies with Limited UK Connection

Textual Amendments

F352 Sch. 25 Pts. 2A, 2B (paras. 12B-12N) inserted (with effect in accordance with Sch. 12 para. 14(2) of the amending Act) by Finance Act 2011 (c. 11), Sch. 12 para. 3

Introductory U.K.

12B (1) For the purposes of section 748(1)(ba), a controlled foreign company (“C”) is exempt for an accounting period if the requirements of this Part of this Schedule are satisfied. U.K.

(2) The requirements are those imposed as to C's—

(a) business establishment (see paragraph 12C),

(b) business activities (see paragraph 12D),

(c) UK connection (see paragraph 12E), and

(d) finance income and relevant IP income (see paragraph 12F).

Business establishment U.K.

12C (1) The requirement of this paragraph is that throughout the accounting period C has a business establishment in the territory in which it is resident. U.K.

(2) For the purposes of sub-paragraph (1)—

(a) paragraph 5(2) to (5) (special rules about residence of the company) applies as it applies for the purposes of Part 2 of this Schedule, and

(b) paragraph 7 (meaning of “business establishment”) applies as it applies for the purposes of paragraph 6(1)(a).

Business activities U.K.

12D (1) The requirement of this paragraph is that— U.K.

(a) C's business does not, at any time during the accounting period, include to a substantial extent non-exempt activities, or

(b) if C is wholly engaged in business falling within paragraph 11(1)(c) (banking etc), C's business does not, at any time during the accounting period, include to a substantial extent non-exempt activities which do not constitute investment business.

(2) For this purpose—

• “non-exempt activities” means—

  (a)

  the holding or managing of shares or securities,

  (b)

  the holding of intellectual property,

  (c)

  dealing in securities, other than in the capacity of a broker,

  (d)

  the leasing of any description of property or rights,

  (e)

  the investment in any manner of funds which would otherwise be available, directly or indirectly, for investment by or on behalf of any person (whether resident in the United Kingdom or not) who has, or is connected or associated with a person who has, control, either alone or together with other persons, of C, and

  (f)

  if C is not a member of an insurance group throughout the accounting period, the effecting or carrying out of contracts of insurance between C and persons related to C;

• “investment business” means activities within paragraphs (a) to (d) of paragraph 9(1).

(3) For the purposes of sub-paragraph (2)(f), a person is “related” to C if—

(a) the person is connected or associated with C,

(b) the person has a 25 per cent assessable interest in C in the case of the accounting period in question (within the meaning of paragraph 6(4C)), or

(c) if C is a controlled foreign company in that accounting period by virtue of subsection (1A) of section 747, the person is connected or associated with either or both of the two persons mentioned in that subsection.

(4) In sub-paragraph (2)—

• “broker” includes any person offering to sell securities to, or purchase securities from, members of the public generally;

• “contract of insurance” has the meaning given by Article 3(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;

• “insurance group” has the meaning given by paragraph 11A(4);

• “intellectual property” is to be construed in accordance with paragraph 9(1A);

• “member of an insurance group” has the meaning given by paragraph 11A(6).

UK connection U.K.

12E (1) The requirement of this paragraph is that C does not have a significant connection with the United Kingdom during the accounting period. U.K.

(2) C has a significant connection with the United Kingdom during the accounting period if Condition A or B is met.

(3) Condition A is that—

(a) the UK-connected gross income of C's business for that period exceeds 10% of the gross income of that business for that period, and

(b) sub-paragraph (4) does not apply.

(4) This sub-paragraph applies if—

(a) at all times in the accounting period there are sufficient individuals working for C in the territory in which it is resident, or in any other territory outside of the United Kingdom, who have the competence and authority to undertake all, or substantially all, of C's business,

(b) C's relevant profits for the accounting period do not exceed 10% of C's relevant operating expenses for that period, and

(c) the UK-connected gross income of C's business for that period does not exceed 50% of the gross income of that business for that period.

(5) Condition B is that—

(a) the UK-connected related-party business expenditure of C's business for that period exceeds 50% of the total related-party business expenditure of C's business for that period, and

(b) during the accounting period C has been involved in a scheme where the main purpose, or one of the main purposes, of any party to the scheme in entering into the scheme is to achieve a reduction in corporation tax or any tax chargeable as if it were corporation tax.

(6) For the purposes of sub-paragraph (4)(a), individuals are not to be regarded as working for C in any territory unless—

(a) they are employed by C in the territory, or

(b) they are otherwise directed by C to perform duties on its behalf in the territory.

(7) In this paragraph—

• “related-party business expenditure” means any expenditure, other than capital expenditure, which gives rise, directly or indirectly, to income of a person related to C;

• “relevant profits”, for an accounting period, means the total profits of C for that period calculated in accordance with generally accepted accounting practice (disregarding any capital gains or losses), but before any deduction for interest or tax;

• “relevant operating expenses” of C means operating expenses of C other than—

  (a)

  the cost of goods sold, and

  (b)

  related-party business expenditure;

• “scheme” means any scheme, arrangements or understanding of any kind whatever, whether or not legally enforceable, involving one or more transactions;

• “UK-connected gross income” means the gross income derived, directly or indirectly, from persons who are within the charge to United Kingdom tax for all or part of the accounting period;

• “UK-connected related-party business expenditure” means related-party business expenditure which gives rise, directly or indirectly, to income of a person within the charge to United Kingdom tax in respect of that income;

• “United Kingdom tax” means income tax or corporation tax;

and paragraph 12D(3) (persons “related” to C) applies for the purposes of this paragraph as it applies for the purposes of paragraph 12D(2)(f).

(8) In the case of a company which is within the charge to United Kingdom tax only because it carries on a trade in the United Kingdom through a permanent establishment there, for the purposes of sub-paragraph (7)—

(a) the gross income derived from that company is so much of the gross income as is attributable to that establishment, and

(b) the income received by that company is such of its income as is attributable to that establishment.

Finance income and relevant IP income U.K.

12F (1) The requirement of this paragraph is that not more than 5% of C's gross income for the accounting period falls within sub-paragraph (2). U.K.

(2) Gross income falls within this sub-paragraph to the extent that it is—

(a) finance income, or

(b) relevant IP income.

(3) “Finance income” means—

(a) any amount which in accordance with UK generally accepted accounting practice falls to be recognised as arising from a financial asset, and

(b) any return, in relation to an amount, which—

(i) is produced for C by an arrangement to which C is party, and

(ii) is economically equivalent to interest,

except to the extent that the return is taken into account in determining an amount within paragraph (a).

(4) “Relevant IP income” means royalties and receipts of a similar nature arising from intellectual property.

(5) For the purposes of sub-paragraph (3)(b), the amount of a return is the amount which by virtue of the return would, in calculating C's chargeable profits, be treated under section 486B of CTA 2009 (disguised interest to be regarded as profit from loan relationship) as a profit arising to C from a loan relationship.

(6) But, in calculating that profit for the purposes of sub-paragraph (5), sections 486B(7) and 486C to 486E of CTA 2009 are to be ignored.

(7) In this paragraph—

• “economically equivalent to interest” is to be construed in accordance with section 486B(2) and (3) of CTA 2009;

• “financial asset” means a financial asset as defined for the purposes of UK generally accepted accounting practice or international accounting standards;

• “intellectual property” is to be construed in accordance with paragraph 9(1A).

Gross income U.K.

12G (1) References in this Part of this Schedule to C's gross income are to be construed in accordance with this paragraph. U.K.

(2) C's gross income for an accounting period does not include—

(a) any distribution that would not be included in C's chargeable profits by reason of it being exempt for the purposes of Part 9A of CTA 2009 (see section 931A of that Act), or

(b) any amount that would be taken into account in computing chargeable gains if C were within the charge to corporation tax.

(3) C's gross income for an accounting period includes—

(a) any income which accrues during that period to the trustees of a settlement in relation to which C is a settlor or a beneficiary, and

(b) any income which accrues during that period to a partnership of which C is a partner, apportioned between C and the other partners on a just and reasonable basis.

(4) Where there is more than one settlor or beneficiary in relation to the settlement mentioned in sub-paragraph (3)(a), the income is to be apportioned between C and the other settlors or beneficiaries on a just and reasonable basis.

(5) In this paragraph—

• “distribution” has the same meaning as in the Corporation Tax Acts (see Part 23 of CTA 2010);

• “partnership” includes an entity established under the law of a country or territory outside the United Kingdom of a similar character to a partnership; and “partner” is to be read accordingly.

Valid from 19/07/2011

Part 2B U.K. Companies Exploiting Intellectual Property with Limited UK Connection

Introductory U.K.

12H (1) For the purposes of section 748(1)(bb), a company (“C”) is exempt for an accounting period if the requirements of this Part of this Schedule are satisfied. U.K.

(2) The requirements are those imposed as to C's—

(a) business establishment (see paragraph 12I),

(b) intellectual property business (see paragraph 12J),

(c) other business activities (see paragraph 12K),

(d) UK connection (see paragraph 12L), and

(e) finance income (see paragraph 12M).

Business establishment U.K.

12I (1) The requirement of this paragraph is that throughout the accounting period C has a business establishment in the territory in which it is resident. U.K.

(2) For the purposes of sub-paragraph (1)—

(a) paragraph 5(2) to (5) (special rules about residence of the company) applies as it applies for the purposes of Part 2 of this Schedule, and

(b) paragraph 7 (meaning of “business establishment”) applies as it applies for the purposes of paragraph 6(1)(a).

Intellectual property business U.K.

12J (1) The requirement of this paragraph is that C's main business, throughout the accounting period, consists of the exploitation of intellectual property which does not have a relevant UK connection. U.K.

(2) For the purposes of sub-paragraph (1), if any part of C's main business consists of the exploitation of intellectual property which has a relevant UK connection, that part is to be ignored if it is an insignificant part of C's main business.

(3) Intellectual property has a relevant UK connection if—

(a) at any time during the accounting period or the 6 years immediately preceding that period, it has been held by a person resident in the United Kingdom, or

(b) activities relating to the creation, maintenance or enhancement of the intellectual property (other than activities of an incidental or insignificant nature) have been carried on by a person who for some or all of the period—

(i) beginning when the activities were first carried on by the person, and

(ii) ending at the end of the accounting period,

was related to C and within the charge to United Kingdom tax.

Other business activities U.K.

12K (1) The requirement of this paragraph is that— U.K.

(a) C does not, at any time during the accounting period, carry on any activities otherwise than in the course of its main business, or

(b) if it carries on any such activities (“secondary activities”), the secondary activities condition is met.

(2) The secondary activities condition is that either—

(a) the secondary activities do not, at any time during the accounting period, constitute a substantial part of the activities of C's business taken as a whole, or

(b) section 748(1)(b) or (ba) would apply to prevent an apportionment under section 747(3) falling to be made as regards that period, if C's business consisted only of the secondary activities carried on by it during the accounting period.

UK connection U.K.

12L (1) The requirement of this paragraph is that C does not have a significant connection with the United Kingdom during the accounting period. U.K.

(2) C has a significant connection with the United Kingdom during the accounting period if—

(a) all or a substantial proportion of C's gross income for that period consists of income from the exploitation of intellectual property which derives from persons within the charge to United Kingdom tax, or

(b) during that period C incurs expenditure (other than expenditure of an incidental or insignificant nature) on—

(i) R&D sub-contractor payments, or

(ii) the creation, development or maintenance of relevant intellectual property,

and that expenditure forms part of the income of a person who for some or all of that period is related to C and within the charge to United Kingdom tax.

(3) In this paragraph—

• “R&D sub-contractor payment” means a payment made by C to another person in respect of research and development contracted out by C to that person;

• “relevant intellectual property” means intellectual property which does not have a relevant UK connection (see paragraph 12J(3)) and which C exploits in the course of its main business.

Finance income U.K.

12M U.K. The requirement of this paragraph is that not more than 5% of C's gross income for the accounting period consists of finance income (within the meaning of paragraph 12F(3)).

Interpretation of Part 2B U.K.

12N (1) For the purpose of this Part of this Schedule— U.K.

• “intellectual property” is to be construed in accordance with paragraph 9(1A);

• “United Kingdom tax” means corporation tax or income tax;

and paragraph 12G (meaning of “gross income”) applies as it applies for the purposes of Part 2A of this Schedule.

(2) For the purposes of this Part of this Schedule a person is “related” to C at a particular time if at that time—

(a) the person is connected or associated with C,

(b) the person has a 25 per cent assessable interest in C in the case of the accounting period of C in which that time falls (within the meaning of paragraph 6(4C)), or

(c) if C is a controlled foreign company in the accounting period in which that time falls by virtue of subsection (1A) of section 747, the person is connected or associated with either or both of the two persons mentioned in that subsection.

(3) In the case of a company which is within the charge to United Kingdom tax only because it carries on a trade in the United Kingdom through a permanent establishment there—

(a) for the purposes of paragraph 12J(3)(b), the activities carried on by the company are such of the activities as are carried on through that establishment,

(b) for the purposes of paragraph 12L(2)(a), the income derived from that company is such of the income so derived as is attributable to that establishment, and

(c) for the purposes of paragraph 12L(2)(b), the income of that company is such of its income as is attributable to that establishment.]

PART III U.K. THE PUBLIC QUOTATION CONDITION

13 (1) The provisions of this Part of this Schedule have effect for the purposes of section 748(1)(c).

(2) Subject to paragraph 14 below, a controlled foreign company fulfils the public quotation condition with respect to a particular accounting period if—

(a) shares in the company carrying not less than 35 per cent. of the voting power in the company (and not being shares entitled to a fixed rate of dividend, whether with or without a further right to participate in profits) have been allotted unconditionally to, or acquired unconditionally by, the public and, throughout that accounting period, are beneficially held by the public; and

(b) within the period of 12 months ending at the end of the accounting period, any such shares have been the subject of dealings on a recognised stock exchange situated in the territory in which the company is resident; and

(c) within that period of 12 months the shares have been quoted in the official list of such a recognised stock exchange.

14 (1) The condition in paragraph 13(2) above is not fulfilled with respect to an accounting period of a controlled foreign company if at any time in that period the total percentage of the voting power in the company possessed by all of the company’s principal members exceeds 85 per cent.

(2) For the purposes of paragraph 13(2) above shares in a controlled foreign company shall be deemed to be beneficially held by the public if they are held by any person other than—

(a) a person connected or associated with the company; or

(b) a principal member of the company;

and a corresponding construction shall be given to the reference to shares which have been allotted unconditionally to, or acquired unconditionally by, the public.

15 (1) References in this Part of this Schedule to shares held by any person include references to any shares the rights or powers attached to which could, for the purposes of section 416, be attributed to that person under subsection (5) of that section.

(2) For the purposes of this Part of this Schedule—

(a) a person is a principal member of a controlled foreign company if he possesses a percentage of the voting power in the company of more than 5 per cent. and—

(i) where there are more than five such persons, if he is one of the five persons who possess the greatest percentages, or

(ii) if, because two or more persons possess equal percentage of the voting power in the company, there are no such five persons, he is one of six or more persons (so as to include those two or more who possess the equal percentages) who possess the greatest percentages; and

(b) a principal member’s holding consists of the shares which carry the voting power possessed by him.

(3) In arriving at the voting power which a person possesses, there shall be attributed to him any voting power which, for the purposes of section 416, would be attributed to him under subsection (5) or (6) of that section.

(4) In this Part of this Schedule “shares” include “stock”.

Valid from 19/07/2011

[F353 Part 3A U.K. Exempt Periods

Textual Amendments

F353 Sch. 25 Pt. 3A (paras. 15A-15G) inserted (with effect in accordance with Sch. 12 para. 14(2) of the amending Act) by Finance Act 2011 (c. 11), Sch. 12 para. 8

Introductory U.K.

15A U.K. The provisions of this Part of this Schedule have effect for the purposes of section 748(1)(f).

Beginning of exempt period U.K.

15B (1) An exempt period begins in relation to a company (“X”) at a time (“the relevant time”) when— U.K.

(a) X is resident outside the United Kingdom,

(b) X is controlled by persons resident in the United Kingdom,

(c) there is at least one relevant UK corporate investor in X, and

(d) the requirements of paragraph 15C or 15D are met.

(2) There is a “relevant UK corporate investor in X” at a particular time if, at that time, there is a company which—

(a) is resident in the United Kingdom, and

(b) would, on the assumptions set out in sub-paragraph (3), be a company to which an apportionment of X's chargeable profits for the relevant accounting period would fall to be made in circumstances where section 747(5) would not prevent tax being chargeable on the company under section 747(4).

(3) The assumptions are—

(a) X has chargeable profits for the relevant accounting period,

(b) an apportionment of those profits falls to be made under section 747(3) for that period, and

(c) no reduction of those profits arises under section 751A, 751AA or 751AB.

(4) “The relevant accounting period” means the accounting period of X in which the time mentioned in sub-paragraph (2) falls.

15C (1) The requirements of this paragraph are that— U.K.

(a) no company was, at any time before the relevant time, a relevant UK corporate investor in X,

(b) no asset owned by X, or part of the business carried on by X, at the relevant time was previously owned, or carried on, by a company which—

(i) was under the control of persons resident in the United Kingdom at any time it owned the asset or carried on the part of the business, and

(ii) is or has been related to X,

(c) condition A, B, C or D is met, and

(d) no disqualifying relevant transaction occurs (see paragraph 15E).

(2) Condition A is that, immediately before the relevant time, X—

(a) was in existence, but

(b) was not a member of the same group of companies as any person who, at the relevant time, was a controlling UK person.

(3) Condition B is that—

(a) at the relevant time X is controlled by a company which is resident in the United Kingdom, and

(b) immediately before that time, X was controlled by that same company but that company was not then resident in the United Kingdom.

(4) Condition C is that—

(a) at the relevant time—

(i) X is controlled by a company which is resident in the United Kingdom (“the intermediate parent”), and

(ii) the intermediate parent is controlled by a company which is not resident in the United Kingdom (“the parent”), and

(b) immediately before that time X was controlled by the parent but not the intermediate parent.

(5) Condition D is that X—

(a) is a controlled foreign company at the time it is formed, and

(b) is formed by one or more persons for the purpose of controlling one or more companies in circumstances where it is expected that an exempt period will begin in relation to one or more of those companies at the time when X begins to control the company or companies.

(6) In this paragraph “controlling UK person” means a person resident in the United Kingdom who alone, or together with other such persons, controls X.

15D (1) The requirements of this paragraph are that— U.K.

(a) the relevant time falls after 23 March 2011,

(b) X has an accounting period during which 23 March 2011 falls,

(c) no company was, at any time during that accounting period, a relevant UK corporate investor in X,

(d) no company was, immediately before the relevant time, a relevant UK corporate investor in X,

(e) at the relevant time X is controlled by a company which—

(i) is resident in the United Kingdom, and

(ii) is not under the control of another body corporate, or two or more other bodies corporate taken together, and

(f) no disqualifying relevant transaction occurs (see paragraph 15E).

(2) In determining for the purposes of sub-paragraph (1)(e)(ii) whether a company is under the control of two or more bodies corporate taken together, a body corporate which holds less than 10% of the issued ordinary shares of that company is to be disregarded.

(3) For the purposes of sub-paragraph (2), a body corporate is treated as holding any shares held by persons who are connected or associated with the body corporate.

Disqualifying relevant transactions U.K.

15E (1) This paragraph applies for the purposes of paragraph 15C and 15D. U.K.

(2) A disqualifying relevant transaction occurs if—

(a) a relevant transaction occurs at the relevant time (whether or not the transaction occurs pursuant to an agreement entered into by X before that time), or

(b) a relevant transaction occurs on or after 9 December 2010 but before the relevant time and that transaction forms part of an avoidance scheme.

(3) “Relevant transaction” means—

(a) the making by X of a loan or advance of an amount (other than a negligible amount) to a person who, at the time it is made, is related to X and subject to United Kingdom tax,

(b) an increase (other than an increase of a negligible amount) in the amount of an existing loan or advance made by X to a person who, at the time of the increase, is related to X and subject to United Kingdom tax,

(c) a change in the terms or conditions of an existing loan or advance made by X where—

(i) the loan or advance is to a person who, at the time the change is made, is related to X and subject to United Kingdom tax, and

(ii) the change has an effect (other than a negligible effect) on the amount of interest payable, or

(d) a transaction to which sub-paragraph (4) applies.

(4) This sub-paragraph applies to a transaction if—

(a) it is referable to an activity carried on by X as part, or the whole, of any non-exempt activities carried on by X,

(b) the results of the transaction are reflected in the profits arising in an accounting period of X and are not negligible in value, and

(c) the results of the transaction alone, or together with the results of one or more other transactions, achieves a reduction in United Kingdom tax.

(5) A transaction achieves, or two or more transactions together achieve, a reduction in United Kingdom tax if, had the transaction or transactions not been effected, any person—

(a) would have been liable for any such tax or for a greater amount of any such tax, or

(b) would not have been entitled to a relief from or repayment of any such tax or would have been entitled to a smaller relief from or repayment of any such tax.

(6) In this paragraph—

• “avoidance scheme” means a scheme the main purpose, or one of the main purposes, of any party to which in entering into the scheme is to secure that section 748(1)(f) prevents an apportionment falling to be made under section 747(3) as regards an accounting period, or accounting periods, of X;

• “non-exempt activities” has the meaning given by paragraph 12D(2);

• “scheme” means any scheme, arrangements or understanding of any kind whatever, whether or not legally enforceable, involving one or more transactions;

• “United Kingdom tax” means corporation tax (or any tax chargeable as if it were corporation tax) or income tax.

Ending of exempt period U.K.

15F (1) An exempt period ends on the expiry of the period of 24 months which begins immediately after the first accounting period of X to end after the relevant time, unless sub-paragraph (2) applies. U.K.

(2) If an early termination event occurs after the relevant time but before the time the exempt period would end under sub-paragraph (1), the exempt period ends immediately before that event.

(3) An early termination event occurs if and when—

(a) a relevant transaction occurs, whether or not the transaction occurs pursuant to an agreement entered into by X before that time, or

(b) where the exempt period began because Condition D was met, X's business does not consist wholly in the holding of shares of companies which X controls, together with activities incidental to the holding of such shares.

Interpretation of Part 3A U.K.

15G (1) In this Part of this Schedule— U.K.

• “group” means a company and any other companies it controls;

• “the relevant time” has the meaning given by paragraph 15B;

• “relevant transaction” has the meaning given by paragraph 15E;

• “relevant UK corporate investor in X” has the meaning given by paragraph 15B(2);

• “X” is to be construed in accordance with paragraph 15B.

(2) For the purposes of this Part of this Schedule a person is “related” to X at a particular time if—

(a) the person is connected or associated with X at that time,

(b) the person has a 25 per cent assessable interest in X in the case of the accounting period in which that time falls (within the meaning of paragraph 6(4C)), or

(c) if X is a controlled foreign company in the accounting period in which that time falls by virtue of subsection (1A) of section 747, the person is connected or associated with either or both of the two persons mentioned in that subsection.]

PART IV U.K. REDUCTIONS IN UNITED KINGDOM TAX AND DIVERSION OF PROFITS

16 (1) The provisions of this Part of this Schedule have effect for the purposes of section 748(3).

(2) Any reference in paragraphs 17 and 18 below to a transaction—

(a) is a reference to a transaction reflected in the profits arising in an accounting period of a controlled foreign company; and

(b) includes a reference to two or more such transactions taken together.

17 (1) A transaction achieves a reduction in United Kingdom tax if, had the transaction not been effected, any person— U.K.

(a) would have been liable for any such tax or for a greater amount of any such tax; or

(b) would not have been entitled to a relief from or repayment of any such tax or would have been entitled to a smaller relief from or repayment of any such tax.

(2) In this Part of this Schedule and section 748(3) “United Kingdom tax” means income tax, corporation tax or capital gains tax.

18 U.K. It is the main purpose or one of the main purposes of a transaction to achieve a reduction in United Kingdom tax if this is the purpose or one of the main purposes—

(a) of the controlled foreign company concerned; or

(b) of a person who has an interest in that company at any time during the accounting period concerned.

19 (1) The existence of a controlled foreign company achieves a reduction in United Kingdom tax by a diversion of profits from the United Kingdom in an accounting period if it is reasonable to suppose that, had neither the company nor any company related to it been in existence— U.K.

(a) the whole or a substantial part of the receipts which are reflected in the controlled foreign company’s profits in that accounting period would have been received by a company or individual resident in the United Kingdom; and

(b) that company or individual or any other person resident in the United Kingdom either—

(i) would have been liable for any United Kingdom tax or for a greater amount of any such tax; or

(ii) would not have been entitled to a relief from or repayment of any such tax or would have been entitled to a smaller relief from or repayment of any such tax.

(2) For the purposes of sub-paragraph (1) above, a company is related to a controlled foreign company if—

(a) it is resident outside the United Kingdom; and

(b) it is connected or associated with the controlled foreign company; and

(c) in relation to any company or companies resident in the United Kingdom, it fulfils or could fulfil, directly or indirectly, substantially the same functions as the controlled foreign company.

(3) Any reference in sub-paragraph (1) above to a company resident in the United Kingdom includes a reference to such a company which, if the controlled foreign company in question were not in existence, it is reasonable to suppose would have been established.

Section 754(5).

SCHEDULE 26 U.K. RELIEFS AGAINST LIABILITY FOR TAX IN RESPECT OF CHARGEABLE PROFITS

Trading losses and group relief etc. M271 U.K.

Marginal Citations

M271 Source—1984 Sch.18.

1 (1) In any case where—

(a) an amount of chargeable profits is apportioned to a company resident in the United Kingdom, and

(b) the company is entitled, or would on the making of a claim be entitled, in computing its profits for the appropriate accounting period, to a deduction in respect of any relevant allowance, and

(c) for the appropriate accounting period the company has no profits against which a deduction could be made in respect of that allowance or, as the case may be, the amount of that allowance exceeds the profits against which a deduction falls to be made in respect of it,

then, on the making of a claim, a sum equal to corporation tax at the appropriate rate on so much of the relevant allowance or, as the case may be, of the excess of it referred to in paragraph (c) above as is specified in the claim shall be set off against the company’s liability to tax under section 747(4)(a) in respect of the chargeable profits apportioned to it.

(2) In this paragraph—

(a) “the appropriate accounting period” means the accounting period for which, by virtue of section 754(2), the company is regarded as assessed to corporation tax in respect of the chargeable profits concerned; and

(b) “the appropriate rate” means the rate of corporation tax applicable to profits of the appropriate accounting period or, if there is more than one such rate, the average rate over the whole accounting period.

(3) In this paragraph “relevant allowance” means—

(a) any loss to which section [F354 393A(1)] applies;

(b) any charge on income to which section 338(1) applies;

(c) any expenses of management to which section 75(1) applies;

(d) so much of any allowance to which section 74 of the 1968 Act applies as falls within subsection (3) of that section; and

(e) any amount available to the company by way of group relief.

(4) In any case where, for the appropriate accounting period, an amount would have been available to the company by way of group relief if a claim had been made under section 412, such a claim may be made for the purposes of this paragraph at any time before the end of the accounting period following that in which the assessment under section 747(4)(a) is made, notwithstanding that the period of two years referred to in section 412(1)(c) has expired.

(5) Where, by virtue of sub-paragraph (1) above, a sum is set off against a liability to tax, so much of the relevant allowance as gives rise to the amount set off shall be regarded for the purposes of the Tax Acts as having been allowed as a deduction against the company’s profits in accordance with the appropriate provisions of those Acts.

(6) In its application to a claim under this paragraph, section 43 of the Management Act (time limit for making claims) shall have effect as if, in subsection (2)—

(a) any reference to an assessment to income tax were a reference to an assessment under section 747(4)(a); and

(b) any reference to a year of assessment were a reference to an accounting period.

Textual Amendments

F354 Words in Sch. 26 para. 1(3)(a) substituted by Finance Act 1991 (c. 31, SIF 63:1), s. 73(3)-(5), Sch. 15 para.26

Advance corporation tax U.K.

2 (1) In any case where—

(a) an amount of chargeable profits is apportioned to a company resident in the United Kingdom, and

(b) the company has an amount of advance corporation tax which, apart from this paragraph, would, in relation to the appropriate accounting period, be surplus advance corporation tax for the purposes of section 239(3),

then, on the making of a claim, so much of that advance corporation tax as is specified in the claim and does not exceed the relevant maximum shall be set against the company’s liability to tax under section 747(4)(a) in respect of the chargeable profits apportioned to it, to the extent that that liability has not or could not have been relieved by virtue of paragraph 1 above.

(2) So much of any advance corporation tax as, by virtue of this paragraph, is set against the company’s liability to tax under section 747(4)(a) in respect of chargeable profits shall be regarded for the purposes of the Tax Acts as not being surplus advance corporation tax within the meaning of section 239.

(3) In this paragraph “the appropriate accounting period” has the same meaning as in paragraph 1 above and “the relevant maximum”, in relation to the liability to tax referred to in sub-paragraph (1) above, is the amount of advance corporation tax that would have been payable (apart from section 241) in respect of a distribution made at the end of the appropriate accounting period of an amount which, together with the advance corporation tax in respect of it, is equal to—

(a) that amount of the chargeable profits apportioned to the company on which it is chargeable to corporation tax for that accounting period, less

(b) any amount which, for that accounting period, is to be regarded, by virtue of paragraph 1(5) above, as having been allowed as a deduction against the company’s profits.

Gains on disposal of shares in controlled foreign companies U.K.

3 (1) This paragraph applies in any case where—

(a) a direction has been given under subsection (1) of section 747 in respect of an accounting period of a controlled foreign company (“the direction period”); and

(b) the company’s chargeable profits for the direction period have been apportioned among the persons in subsection (3) of that section; and

(c) a company resident in the United Kingdom (“the claimant company”) disposes of—

(i) shares in the controlled foreign company, or

(ii) shares in another company which, in whole or in part, give rise to the claimant company’s interest in the controlled foreign company,

being, in either case, shares acquired before the end of the direction period; and

(d) by virtue of the apportionment referred to in paragraph (b) above, a sum is, under section 747(4)(a), assessed on and recoverable from the claimant company as if it were an amount of corporation tax; and

(e) the claimant company makes a claim for relief under this paragraph;

and in this paragraph the disposal mentioned in paragraph (c) above is referred to as “the relevant disposal”.

(2) Subject to the following provisions of this paragraph, in the computation under Chapter [F355 III of Part II of the 1992] Act of the gain accruing on the relevant disposal, the appropriate fraction of the sum referred to in sub-paragraph (1)(d) above shall be allowable as a deduction; but to the extent that any sum has been allowed as a deduction under this sub-paragraph it shall not again be allowed as a deduction on any claim under this paragraph (whether made by the claimant company or another company).

(3) In relation to the relevant disposal, the appropriate fraction is—

where—

• A is the average market value in the direction period of the shares disposed of, and

• B is the average market value in that period of the interest in the controlled foreign company which, in the case of the claimant company, was taken into account in the apportionment referred to in sub-paragraph (1)(b) above.

(4) Where, before the relevant disposal—

(a) a dividend is paid by the controlled foreign company, and

(b) the profits out of which the dividend is paid are those from which the chargeable profits referred to in sub-paragraph (1)(b) above are derived, and

(c) at least one of the two conditions in sub-paragraph (5) below is fulfilled,

this paragraph does not apply in relation to a sum assessed and recoverable in respect of so much of the chargeable profits as corresponds to the profits which the dividend represents.

(5) The conditions referred to in sub-paragraph (4) above are—

(a) that the effect of the payment of the dividend is such that the value of the shares disposed of by the relevant disposal is less after the payment than it was before it; and

(b) that, in respect of a dividend paid or payable on the shares disposed of by the relevant disposal, the claimant company is, by virtue of paragraph 4(2) below, entitled under Part XVIII to relief (by way of underlying tax) by reference to sums which include the sum referred to in sub-paragraph (1)(d) above.

(6) A claim for relief under this paragraph shall be made before the expiry of the period of three months beginning—

(a) at the end of the accounting period in which the relevant disposal occurs; or

(b) if it is later, on the date on which the assessment to tax for which the claimant company is liable by virtue of section 747(4)(a) becomes final and conclusive.

(7) In identifying for the purposes of this paragraph shares in a company with shares of the same class which are disposed of by the relevant disposal, shares acquired at an earlier time shall be deemed to be disposed of before shares acquired at a later time.

Textual Amendments

F355 Words in Sch. 26 para. 3 substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 10 para. 14(62) (with ss. 60, 101(1), 171, 201(3))

Dividends from the controlled foreign company U.K.

4 (1) This paragraph applies in any case where—

(a) a direction has been given under subsection (1) of section 747 in respect of an accounting period of a controlled foreign company, and

(b) the company’s chargeable profits for that period have been apportioned among the persons referred to in subsection (3) of that section, and

(c) the controlled foreign company pays a dividend in whole or in part out of the total profits from which (in accordance with subsection (6)(a) of that section) those chargeable profits are derived.

(2) Subject to paragraphs 5 and 6 below, where this paragraph applies, the aggregate of the sums assessed on and recoverable from companies resident in the United Kingdom in accordance with section 747(4)(a) in respect of the chargeable profits referred to in sub-paragraph (1)(b) above shall be treated for the purposes of Part XVIII as if it were an amount of tax paid in respect of the profits concerned under the law of the territory in which the controlled foreign company was resident and, accordingly, as underlying tax for the purposes of Chapter II of that Part.

(3) In the following provisions of this paragraph and in paragraphs 5 and 6 below, the aggregate of the sums which, under sub-paragraph (2) above, fall to be treated as underlying tax is referred to as the “gross attributed tax”.

(4) If, in the case of a person who receives the dividend, section 796 or section 797 has the effect of reducing the amount which (apart from that section) would have been the amount of the credit for foreign tax which is to be allowed to that person, then, for the purposes of sub-paragraph (5) below, the amount of that reduction shall be determined and so much of it as does not exceed the amount of the foreign tax, exclusive of underlying tax, for which credit is to be allowed in respect of the dividend is in that sub-paragraph referred to as “the wasted relief”.

(5) Except for the purpose of determining the amount of the wasted relief, the gross attributed tax shall be treated as reduced by the aggregate of the wasted relief arising in the case of all the persons falling within sub-paragraph (4) above and, on the making of a claim by any of the companies referred to in sub-paragraph (2) above—

(a) the amount of tax assessed on and recoverable from the company in accordance with section 747(4)(a) in respect of the chargeable profits referred to in sub-paragraph (1) (b) above shall, where appropriate, be reduced; and

(b) all such adjustments (whether by repayment of tax or otherwise) shall be made as are appropriate to give effect to any reduction under paragraph (a) above.

5 (1) In so far as any provision of—

(a) arrangements having effect by virtue of section 788, or

(b) section 790,

makes relief which is related to foreign dividends received by a company resident in the United Kingdom conditional upon that company either having a particular degree of control of the company paying the dividend or being a subsidiary of another company which has that degree of control, that condition shall be treated as fulfilled in considering whether any such company is by virtue of paragraph 4(2) above entitled to relief under Part XVIII in respect of any of the gross attributed tax.

(2) Notwithstanding anything in paragraph 4(2) above, in section 795(2)(b) the expression “underlying tax” does not include gross attributed tax.

(3) In a case where the controlled foreign company pays a dividend otherwise than out of specified profits and, on the apportionment referred to in paragraph 4(1) above, less than the whole of the chargeable profits of the controlled foreign company concerned is apportioned to companies which are resident in the United Kingdom and liable for tax thereon as mentioned in section 747(4)(a)—

(a) the gross attributed tax shall be regarded as attributable to a corresponding proportion of the profits in question, and in this sub-paragraph the profits making up that proportion are referred to as “taxed profits”;

(b) so much of the dividend as is received by, or by a successor in title of, any such company shall be regarded as paid primarily out of taxed profits; and

(c) so much of the dividend as is received by any other person shall be regarded as paid primarily out of profits which are not taxed profits.

(4) The reference in sub-paragraph (3)(b) above to a successor in title of a company resident in the United Kingdom is a reference to a person who is such a successor in respect of the whole or any part of that interest in the controlled foreign company by virtue of which an amount of its chargeable profits was apportioned to that company.

6 (1) In any case where—

(a) on a claim for relief under paragraph 3 above, the whole or any part of any sum has been allowed as a deduction on a disposal of shares in any company; and

(b) that sum forms part of the gross attributed tax in relation to a dividend paid by that company; and

(c) a person receiving the dividend in respect of the shares referred to in paragraph (a) above (“the primary dividend”) or any other relevant dividend is, by virtue of paragraph 4(2) above, entitled under Part XVIII to relief (by way of underlying tax) by reference to the whole or any part of the gross attributed tax;

the amount which, apart from this paragraph, would be available by way of any such relief to the person referred to in paragraph (c) above shall be reduced or, as the case may be, extinguished by deducting therefrom the amount allowed by way of relief as mentioned in paragraph (a) above.

(2) For the purposes of sub-paragraph (1)(c) above, in relation to the primary dividend, another dividend is a relevant dividend if—

(a) it is a dividend in respect of shares in a company which is resident outside the United Kingdom; and

(b) it represents profits which, directly or indirectly, consist of or include the primary dividend.

Section 760.

SCHEDULE 27 U.K. DISTRIBUTING FUNDS M272

Modifications etc. (not altering text)

C115 Sch. 27 applied (with modifications) (22.10.2004 with effect in accordance with reg. 1(2) of the affecting S.I.) by The Offshore Funds Regulations 2004 (S.I. 2004/2572), regs. 1(1), 4

Marginal Citations

M272 Source—[1984 Sch.19; 1986 s.50; 1987 (No.2) s.66]

PART I U.K. THE DISTRIBUTION TEST

Requirements as to distributions U.K.

1 (1) For the purposes of this Chapter, an offshore fund pursues a full distribution policy with respect to an account period if—

(a) a distribution is made for that account period or for some other period which, in whole or in part, falls within that account period; and

(b) subject to Part II of this Schedule, the amount of the distribution which is paid to the holders of material and other interests in the fund—

(i) represents at least 85 per cent. of the income of the fund for that period, and

(ii) is not less than 85 per cent. of the fund’s United Kingdom equivalent profits for that period; and

(c) the distribution is made during that account period or not more than six months, or such longer period as the Board may in any particular case allow, after the expiry of it; and

(d) the form of the distribution is such that, if any sum forming part of it were received in the United Kingdom by a person resident there and did not form part of the profits of a trade, profession or vocation, that sum would fall to be chargeable to tax under Case IV or V of Schedule D;

and any reference in this sub-paragraph to a distribution made for an account period includes a reference to any two or more distributions so made or, in the case of paragraph (b), the aggregate of them.

(2) Subject to sub-paragraph (3) below, with respect to any account period for which—

(a) there is no income of the fund, and

(b) there are no United Kingdom equivalent profits of the fund,

the fund shall be treated as pursuing a full distribution policy notwithstanding that no distribution is made as mentioned in sub-paragraph (1) above.

(3) For the purposes of this Chapter, an offshore fund shall be regarded as not pursuing a full distribution policy with respect to an account period for which the fund does not make up accounts.

(4) For the purposes of this paragraph—

(a) where a period for which an offshore fund makes up accounts includes the whole or part of two or more account periods of the fund, then, subject to paragraph (c) below, income shown in those accounts shall be apportioned between those account periods on a time basis according to the number of days in each period which are comprised in the period for which the accounts are made up;

(b) where a distribution is made for a period which includes the whole or part of two or more account periods of the fund, then, subject to sub-paragraph (5) below, the distribution shall be apportioned between those account periods on a time basis according to the number of days in each period which are comprised in the period for which the distribution is made;

(c) where a distribution is made out of specified income but is not made for a specified period, that income shall be attributed to the account period of the fund in which it in fact arose and the distribution shall be treated as made for that account period; and

(d) where a distribution is made neither for a specified period nor out of specified income, then, subject to sub-paragraph (5) below, it shall be treated as made for the last account period of the fund which ended before the distribution was made.

(5) If, apart from this sub-paragraph, the amount of a distribution made, or treated by virtue of sub-paragraph (4) above as made, for an account period would exceed the income of that period, then, for the purposes of this paragraph—

(a) if the amount of the distribution was determined by apportionment under sub-paragraph (4)(b) above, the excess shall be re-apportioned, as may be just and reasonable, to any other account period which, in whole or in part, falls within the period for which the distribution was made or, if there is more than one such period, between those periods; and

(b) subject to paragraph (a) above, the excess shall be treated as an additional distribution or series of additional distributions made for preceding account periods in respect of which the distribution or, as the case may be, the aggregate distributions would otherwise be less than the income of the period, applying the excess to later account periods before earlier ones, until it is exhausted.

(6) In any case where—

(a) for a period which is or includes an account period, an offshore fund is subject to any restriction as regards the making of distributions, being a restriction imposed by the law of any territory outside the United Kingdom; and

(b) the fund is subject to that restriction by reason of an excess of losses over profits (applying the concepts of “profits” and “losses” in the sense in which and to the extent to which they are relevant for the purposes of the law in question);

then in determining for the purposes of the preceding provisions of this paragraph the amount of the fund’s income for that account period, there shall be allowed as a deduction any amount which, apart from this sub-paragraph, would form part of the income of the fund for that account period and which cannot be distributed by virtue of the restriction.

Funds operating equalisation arrangements U.K.

2 (1) In the case of an offshore fund which throughout any account period operates equalisation arrangements, on any occasion in that period when there is a disposal to which this sub-paragraph applies, the fund shall be treated for the purposes of this Part of this Schedule as making a distribution of an amount equal to so much of the consideration for the disposal as, in accordance with this paragraph, represents income accrued to the date of the disposal.

(2) Sub-paragraph (1) above applies to a disposal—

(a) which is a disposal of a material interest in the offshore fund concerned; and

(b) which is a disposal to which this Chapter applies (whether by virtue of section 758(3) or otherwise) or is one to which this Chapter would apply if subsections (5) and (6) of that section applied generally and not only for the purpose of determining whether, by virtue of subsection (3) of that section, there is a disposal to which this Chapter applies; and

(c) which is not a disposal with respect to which the conditions in subsection (4) of that section are fulfilled; and

(d) which is a disposal to the fund itself or to the persons concerned in the management of the fund (“the managers”) in their capacity as such.

(3) On a disposal to which sub-paragraph (1) above applies, the part of the consideration which represents income accrued to the date of the disposal is, subject to sub-paragraph (4) and paragraph 4(4) below, the amount which would be credited to the equalisation account of the offshore fund concerned in respect of accrued income if, on the date of the disposal, the material interest which is disposed of were acquired by another person by way of initial purchase.

(4) If, after the beginning of the period by reference to which the accrued income referred to in sub-paragraph (3) above is calculated, the material interest disposed of by a disposal to which sub-paragraph (1) above applies was acquired by way of initial purchase (whether or not by the person making the disposal)—

(a) there shall be deducted from the amount which, in accordance with sub-paragraph (3) above, would represent income accrued to the date of the disposal, the amount which on that acquisition was credited to the equalisation account of the fund in respect of accrued income; and

(b) if in that period there has been more than one such acquisition of that material interest by way of initial purchase, the deduction to be made under this sub-paragraph shall be the amount so credited to the equalisation account on the latest such acquisition prior to the disposal in question.

(5) Where, by virtue of this paragraph, an offshore fund is treated for the purposes of this Part of this Schedule as making a distribution on the occasion of a disposal, the distribution shall be treated for those purposes—

(a) as complying with paragraph 1(1)(d) above; and

(b) as made out of the income of the fund for the account period in which the disposal occurs; and

(c) as paid, immediately before the disposal, to the person who was then the holder of the interest disposed of.

(6) In any case where—

(a) a distribution in respect of an interest in an offshore fund is made to the managers of the fund, and

(b) their holding of that interest is in their capacity as such, and

(c) at the time of the distribution, the fund is operating equalisation arrangements,

the distribution shall not be taken into account for the purposes of paragraph 1(1) above except to the extent that the distribution is properly referable to that part of the period for which the distribution is made during which that interest has been held by the managers of the fund in their capacity as such.

(7) Subsection (2) of section 758 applies for the purposes of this paragraph as it applies for the purposes of that section.

Income taxable under Case IV or Case V of Schedule D U.K.

3 (1) Sub-paragraph (2) below applies if any sums which form part of the income of an offshore fund falling within section 759(1)(b) or (c) are of such a nature that—

(a) the holders of interests in the fund who are either companies resident in the United Kingdom or individuals domiciled and resident there—

(i) are chargeable to tax under Case IV or Case V of Schedule D in respect of such of those sums as are referable to their interests; or

(ii) if any of that income is derived from assets within the United Kingdom, would be so chargeable had the assets been outside the United Kingdom; and

(b) the holders of interests who are not such companies or individuals would be chargeable as mentioned in sub-paragraph (i) or (ii) above if they were resident in the United Kingdom or, in the case of individuals, if they were domiciled and both resident and ordinarily resident there.

(2) To the extent that sums falling within sub-paragraph (1) above do not actually form part of a distribution complying with paragraphs 1(1)(c) and (d) above, they shall be treated for the purposes of this Part of this Schedule—

(a) as a distribution complying with those paragraphs and made out of the income of which they form part; and

(b) as paid to the holders of the interests to which they are referable.

Commodity income U.K.

4 (1) To the extent that the income of an offshore fund for any account period includes profits from dealing in commodities, one half of those profits shall be left out of account in determining for the purposes of paragraphs 1(1)(b) and 5 below—

(a) the income of the fund for that period; and

(b) the fund’s United Kingdom equivalent profits for that period;

but in any account period in which an offshore fund incurs a loss in dealing in commodities the amount of that loss shall not be varied by virtue of this paragraph.

(2) In this paragraph “dealing in commodities” shall be construed as follows—

(a) “commodities” does not include currency, securities, debts or other assets of a financial nature but, subject to that, means tangible assets which are dealt with on a commodity exchange in any part of the world; and

(b) “dealing” includes dealing by way of futures contracts and traded options.

(3) Where the income of an offshore fund for any account period consists of profits from dealing in commodities and other income, then—

(a) in determining whether the condition in paragraph 1(1)(b) above is fulfilled with respect to that account period, the expenditure of the fund shall be apportioned in such manner as is just and reasonable between the profits from dealing in commodities and the other income; and

(b) in determining whether, and to what extent, any expenditure is deductible under section [75 F356 ] in computing the fund’s United Kingdom equivalent profits for that period, so much of the business of the fund as does not consist of dealing in commodities shall be treated as a business carried on by a separate company.

(4) Where there is a disposal to which paragraph 2(1) above applies, then, to the extent that any amount which was or would be credited to the equalisation account in respect of accrued income, as mentioned in sub-paragraph (3) or (4) of that paragraph, represents profits from dealing in commodities, one half of that accrued income shall be left out of account in determining under those sub-paragraphs the part of the consideration for the disposal which represents income accrued to the date of the disposal.

Textual Amendments

F356 1988(F) s.146and Sch.13 para.12 (deemed always to have had effect).

United Kingdom equivalent profits U.K.

5 (1) Any reference in this Schedule to the United Kingdom equivalent profits of an offshore fund for an account period is a reference to the amount which, on the assumptions in sub-paragraph (3) below, would be the total profits of the fund for that period on which, after allowing for any deductions available against those profits, corporation tax would be chargeable.

(2) In this paragraph the expression “profits” does not include chargeable gains.

[F357 (2A) In applying sub-paragraph (1) above the effect of sections 125 to 133 of the Finance Act 1993 (exchange gains and losses) shall be ignored.]

(3) The assumptions referred to in sub-paragraph (1) above are—

(a) that the offshore fund is a company which, in the account period in question, but not in any other account period, is resident in the United Kingdom; and

(b) that the account period is an accounting period of that company; and

(c) that any dividends or distributions which, by virtue of section 208, should be left out of account in computing income for corporation tax purposes are nevertheless to be brought into account in that computation in like manner as if they were dividends or distributions of a company resident outside the United Kingdom.

(4) Without prejudice to any deductions available apart from this sub-paragraph, the deductions referred to in sub-paragraph (1) above include—

(a) a deduction equal to any amount which, by virtue of paragraph 1(6) above, is allowed as a deduction in determining the income of the fund for the account period in question; and

(b) a deduction equal to any amount of tax (paid under the law of a territory outside the United Kingdom) which was taken into account as a deduction in determining the income of the fund for the account period in question but which, because it is referable to capital rather than income, does not fall to be taken into account by virtue of section 811.

(5) For the avoidance of doubt it is hereby declared that, if any sums forming part of the offshore fund’s income for any period have been received by the fund without any deduction of or charge to tax by virtue of section 47 or 48, the effect of the assumption in sub-paragraph (3)(a) above is that those sums are to be brought into account in determining the total profits referred to in sub-paragraph (1) above.

Textual Amendments

F357 Sch. 27 para. 5(2A) inserted (27.7.1993) by Finance Act 1993 (c. 34), s. 170, Sch. 18 para.6

PART II U.K. MODIFICATIONS OF CONDITIONS FOR CERTIFICATION IN CERTAIN CASES

Exclusion of investments in distributing offshore funds U.K.

6 (1) In any case where—

(a) in an account period of an offshore fund (in this Part of this Schedule referred to as the “primary fund”), the assets of the fund consist of or include interests in another offshore fund; and

(b) those interests (together with other interests which the primary fund may have) are such that, by virtue of subsection (3)(a) or, if the other fund concerned is a company, subsection (3)(b) or (c) of section 760, the primary fund could not, apart from this paragraph, be certified as a distributing fund in respect of that account period; and

(c) without regard to the provisions of this paragraph, that other fund could be certified as a distributing fund in respect of its account period or, as the case may be, each of its account periods which comprises the whole or any part of the account period of the primary fund;

then, in determining whether anything in section 760(3)(a) to (c) prevents the primary fund being certified as mentioned in paragraph (b) above, the interests of the primary fund in that other fund shall be left out of account except for the purposes of determining the total value of the assets of the primary fund.

(2) In this Part of this Schedule an offshore fund falling within sub-paragraph (1)(c) above is referred to as a “qualifying fund”.

(3) In a case falling within sub-paragraph (1) above—

(a) section 760(3)(a) to (c) shall have effect in relation to the primary fund with the modification in paragraph 7 below (in addition to that provided for by sub-paragraph (1) above); and

(b) Part I of this Schedule shall have effect in relation to the primary fund with the modification in paragraph 8 below.

7 The modification referred to in paragraph 6(3)(a) above is that, in any case where—

(a) at any time in the account period referred to in paragraph 6(1) above, the assets of the primary fund include an interest in an offshore fund or in any company (whether an offshore fund or not); and

(b) that interest falls to be taken into account in determining whether anything in section 760(3)(a) to (c) prevents the primary fund being certified as a distributing fund in respect of that account period; and

(c) at any time in that account period the assets of the qualifying fund include an interest in the offshore fund or company referred to in paragraph (a) above;

for the purposes of the application in relation to the primary fund of section 760(3)(a) to (c), at any time when the assets of the qualifying fund include the interest referred to in paragraph (c) above, the primary fund’s share of that interest shall be treated as an additional asset of the primary fund.

8 (1) The modification referred to in paragraph 6(3)(b) above is that, in determining whether the condition in paragraph 1(1)(b)(ii) above is fulfilled with respect to the account period of the primary fund referred to in paragraph 6(1) above, the United Kingdom equivalent profits of the primary fund for that period shall be treated as increased by the primary fund’s share of the excess income (if any) of the qualifying fund which is attributable to that period.

(2) For the purposes of this paragraph, the excess income of the qualifying fund for any account period of that fund is the amount (if any) by which its United Kingdom equivalent profits for that account period exceed the amount of the distributions made for that period, as determined for the purposes of the application of paragraph 1(1) above to the qualifying fund.

(3) If an account period of the qualifying fund coincides with an account period of the primary fund, then the excess income (if any) of the qualifying fund for that period is the excess income which is attributable to that period of the primary fund.

(4) In a case where sub-paragraph (3) above does not apply, the excess income of the qualifying fund which is attributable to an account period of the primary fund is the appropriate fraction of the excess income (if any) of the qualifying fund for any of its account periods which comprises the whole or any part of the account period of the primary fund and, if there is more than one such account period of the qualifying fund, the aggregate of the excess income (if any) of each of them.

(5) For the purposes of sub-paragraph (4) above, the appropriate fraction is—

• where—

• A is the number of days in the account period of the primary fund which are also days in an account period of the qualifying fund; and

• B is the number of days in that account period of the qualifying fund or, as the case may be, in each of those account periods of that fund which comprises the whole or any part of the account period of the primary fund.

9 (1) The references in paragraphs 7 and 8(1) above to the primary fund’s share of—

(a) an interest forming part of the assets of the qualifying fund, or

(b) the excess income (as defined in paragraph 8 above) of the qualifying fund,

shall be construed as references to the fraction specified in sub-paragraph (2) below of that interest or excess income.

(2) In relation to any account period of the primary fund, the fraction referred to in sub-paragraph (1) above is—

• where—

• C is the average value of the primary fund’s holding of interests in the qualifying fund during that period; and

• D is the average value of all the interests in the qualifying fund held by any persons during that period.

Offshore funds investing in trading companies U.K.

10 (1) In any case where the assets of an offshore fund for the time being include an interest in a trading company, as defined in sub-paragraph (2) below, the provisions of section 760(3) have effect subject to the modifications in sub-paragraphs (3) and (4) below.

(2) In this paragraph “trading company” means a company whose business consists wholly of the carrying on of a trade or trades and does not to any extent consist of—

(a) dealing in commodities, as defined in paragraph 4(2) above, or dealing, as so defined, in currency, securities, debts or other assets of a financial nature; or

(b) banking or money-lending.

(3) In the application of section 760(3)(b) to so much of the assets of an offshore fund as for the time being consists of interests in a single trading company, for the words “10 per cent.” there shall be substituted the words “ 20 per cent. ”.

(4) In the application of section 760(3)(c) to an offshore fund the assets of which for the time being include any issued share capital of a trading company or any class of that share capital, for the words “more than 10 per cent.” there shall be substituted the words “ 50 per cent. or more ”.

Offshore funds with wholly-owned subsidiaries U.K.

11 (1) In relation to an offshore fund which has a wholly-owned subsidiary which is a company the provisions of section 760(3) and Part I of this Schedule shall have effect subject to the modifications in sub-paragraph (3) below.

(2) Subject to sub-paragraph (3) below, for the purposes of this paragraph, a company is a wholly-owned subsidiary of an offshore fund if and so long as the whole of the issued share capital of the company is—

(a) in the case of an offshore fund falling within section 759(1)(a), directly and beneficially owned by the fund; and

(b) in the case of an offshore fund falling within section 759(1)(b), directly owned by the trustees of the fund for the benefit of the fund; and

(c) in the case of an offshore fund falling within section 759(1)(c), owned in a manner which, as near as may be, corresponds either to paragraph (a) or paragraph (b) above.

(3) In the case of a company which has only one class of issued share capital, the reference in sub-paragraph (2) above to the whole of the issued share capital shall be construed as a reference to at least 95 per cent. of that share capital.

(4) The modifications referred to in sub-paragraph (1) above are that, for the purposes of section 760(3) and Part I of this Schedule—

(a) that percentage of the receipts, expenditure, assets and liabilities of the subsidiary which is equal to the percentage of the issued share capital of the company concerned which is owned as mentioned in sub-paragraph (2) above shall be regarded as the receipts, expenditure, assets and liabilities of the fund; and

(b) there shall be left out of account the interest of the fund in the subsidiary and any distributions or other payments made by the subsidiary to the fund or by the fund to the subsidiary.

Offshore funds with interests in dealing and management companies U.K.

12 (1) Section 760(3)(c) shall not apply to so much of the assets of an offshore fund as consists of issued share capital of a company which is either—

(a) a wholly-owned subsidiary of the fund which falls within sub-paragraph (2) below; or

(b) a subsidiary management company of the fund, as defined in sub-paragraph (3) below.

(2) A company which is a wholly-owned subsidiary of an offshore fund is one to which sub-paragraph (1)(a) above applies if—

(a) the business of the company consists wholly of dealing in material interests in the offshore fund for the purposes of and in connection with the management and administration of the business of the fund; and

(b) the company is not entitled to any distribution in respect of any material interest for the time being held by it;

and paragraph 11(2) above shall apply to determine whether a company is, for the purposes of this paragraph, a wholly-owned subsidiary of an offshore fund.

(3) A company in which an offshore fund has an interest is for the purposes of sub-paragraph (1)(b) above a subsidiary management company of the fund if—

(a) the company carries on no business other than providing services falling within sub-paragraph (4) below either for the fund alone or for the fund and for any other offshore fund which has an interest in the company; and

(b) the company’s remuneration for the services which it provides to the fund is not greater than it would be if it were determined at arm’s length between the fund and a company in which the fund has no interest.

(4) The services referred to in sub-paragraph (3) above are—

(a) holding property (of any description) which is occupied or used in connection with the management or administration of the fund; and

(b) providing administrative, management and advisory services to the fund.

(5) In determining, in accordance with sub-paragraph (3) above, whether a company in which an offshore fund has an interest is a subsidiary management company of that fund—

(a) every business carried on by a wholly-owned subsidiary of the company shall be treated as carried on by the company; and

(b) no account shall be taken of so much of the company’s business as consists of holding its interests in a wholly-owned subsidiary; and

(c) any reference in sub-paragraph (3)(b) above to the company shall be taken to include a reference to a wholly-owned subsidiary of the company.

(6) Any reference in sub-paragraph (5) above to a wholly-owned subsidiary of a company is a reference to another company the whole of the issued share capital of which is for the time being directly and beneficially owned by the first company.

Disregard of certain investments forming less than 5 per cent. of a fund U.K.

13 (1) In any case where—

(a) in any account period of an offshore fund, the assets of the fund include a holding of issued share capital (or any class of issued share capital) of a company; and

(b) that holding is such that by virtue of section 760(3)(c) the fund could not (apart from this paragraph) be certified as a distributing fund in respect of that account period;

then, if the condition in sub-paragraph (3) below is fulfilled, that holding shall be disregarded for the purposes of section 760(3)(c).

(2) In this paragraph any holding falling within sub-paragraph (1) above is referred to as an “excess holding”.

(3) The condition referred to in sub-paragraph (1) above is that at no time in the account period in question does that portion of the fund which consists of—

(a) excess holdings, and

(b) interests in other offshore funds which are not qualifying funds,

exceed 5 per cent. by value of all the assets of the fund.

Power of Board to disregard certain breaches of conditions U.K.

14 If, in the case of any account period of an offshore fund ending after the passing of the M273 Finance (No. 2) Act 1987 (23rd July 1987), it appears to the Board that there has been a failure to comply with any of the conditions in paragraphs (a) to (c) of section 760(3) (as modified, where appropriate, by the preceding provisions of this Part of this Schedule) but the Board are satisfied—

(a) that the failure occurred inadvertently; and

(b) that the failure was remedied without unreasonable delay,

the Board may disregard the failure in determining whether to certify the fund as a distributing fund in respect of that account period.

Marginal Citations

M273 1987 c. 51.

PART III U.K. CERTIFICATION PROCEDURE

Application for certification U.K.

15 (1) The Board shall, in such manner as they think appropriate, certify an offshore fund as a distributing fund in respect of an account period if—

(a) an application in respect of that period is made under this paragraph; and

(b) the application is accompanied by the accounts of the fund for, or for a period which includes, the account period to which the application relates; and

(c) there is furnished to the Board such information as they may reasonably require for the purpose of determining whether the fund should be so certified; and

(d) they are satisfied that nothing in section 760(2) or (3) prevents the fund being so certified.

(2) An application under this paragraph shall be made to the Board by the fund or by a trustee or officer thereof on behalf of the fund and may be so made—

(a) before the expiry of the period of six months beginning at the end of the account period to which the application relates; or

(b) at such later time as the Board may in any particular case allow.

(3) In any case where, on an application under this paragraph, the Board determine that the offshore fund concerned should not be certified as a distributing fund in respect of the account period to which the application relates, they shall give notice of that fact to the fund.

(4) If at any time it appears to the Board that the accounts accompanying an application under this paragraph in respect of any account period of an offshore fund or any information furnished to the Board in connection with such an application is or are not such as to make full and accurate disclosure of all facts and considerations relevant to the application, they shall give notice to the fund accordingly, specifying the period concerned.

(5) Where a notice is given by the Board under sub-paragraph (4) above, any certification by them in respect of the account period in question shall be void.

Appeals U.K.

16 (1) An appeal to the Special Commissioners—

(a) against such a determination as is referred to in paragraph 15(3) above, or

(b) against a notification under paragraph 15(4) above,

may be made by the offshore fund or by a trustee or officer thereof on behalf of the fund, and shall be so made by notice specifying the grounds of appeal and given to the Board within 90 days of the date of the notice under paragraph 15(3) or (4), as the case may be.

(2) The jurisdiction of the Special Commissioners on an appeal under this paragraph shall include jurisdiction to review any decision of the Board which is relevant to a ground of the appeal.

PART IV U.K. SUPPLEMENTARY

Assessment: effect of non-certification U.K.

17 No appeal may be brought against an assessment to tax on the ground that an offshore fund should have been certified as a distributing fund in respect of an account period of the fund.

18 (1) Without prejudice to paragraph 17 above, in any case where no application has been made under paragraph 15 above in respect of an account period of an offshore fund, any person who is assessed to tax for which he would not be liable if the offshore fund were certified as a distributing fund in respect of that period may by notice in writing require the Board to take action under this paragraph with a view to determining whether the fund should be so certified.

(2) Subject to sub-paragraphs (3) and (5) below, if the Board receive a notice under sub-paragraph (1) above, they shall by notice invite the offshore fund concerned to make an application under paragraph 15 above in respect of the period in question.

(3) Where sub-paragraph (2) above applies, the Board shall not be required to give notice under that sub-paragraph before the expiry of the account period to which the notice is to relate nor if an application under paragraph 15 above has already been made; but where notice is given under that sub-paragraph, an application under paragraph 15 above shall not be out of time under paragraph 15(2)(a) above if it is made within 90 days of the date of that notice.

(4) If an offshore fund to which notice is given under sub-paragraph (2) above does not, within the time allowed by sub-paragraph (3) above or, as the case may be, paragraph 15(2)(a) above, make an application under paragraph 15 above in respect of the account period in question, the Board shall proceed to determine the question of certification in respect of that period as if such an application had been made.

(5) Where the Board receive more than one notice under sub-paragraph (1) above with respect to the same account period of the same offshore fund, their obligations under sub-paragraphs (2) and (4) above shall be taken to be fulfilled with respect to each of those notices if they are fulfilled with respect to any one of them.

(6) Notwithstanding anything in sub-paragraph (5) above, for the purpose of a determination under sub-paragraph (4) above with respect to an account period of an offshore fund, the Board shall have regard to accounts and other information furnished by all persons who have given notice under sub-paragraph (1) above with respect to that account period; and paragraph 15 above shall apply as if accounts and information so furnished had been furnished in compliance with sub-paragraph (1) of that paragraph.

(7) Without prejudice to sub-paragraph (5) above, in any case where—

(a) at a time after the Board have made a determination under sub-paragraph (4) above that an offshore fund should not be certified as a distributing fund in respect of an account period, notice is given under sub-paragraph (1) above with respect to that period; and

(b) the person giving that notice furnishes the Board with accounts or information which had not been furnished to the Board at the time of the earlier determination;

the Board shall reconsider their previous determination in the light of the new accounts or information and, if they consider it appropriate, may determine to certify the fund accordingly.

(8) Where any person has given notice to the Board under sub-paragraph (1) above with respect to an account period of an offshore fund and no application has been made under paragraph 15 above with respect to that period—

(a) the Board shall notify that person of their determination with respect to certification under sub-paragraph (4) above; and

(b) paragraph 16 above shall not apply in relation to that determination.

Postponement of tax pending determination of question as to certification U.K.

19 (1) In any case where—

(a) an application has been made under paragraph 15 above with respect to an account period of an offshore fund and that application has not been finally determined; or

(b) paragraph (a) above does not apply but notice has been given under paragraph 18(1) above in respect of an account period of an offshore fund and the Board have not yet given notice of their decision as to certification under paragraph 18(4) above;

any person who has been assessed to tax and considers that, if the offshore fund were to be certified as a distributing fund in respect of the account period in question, he would be overcharged to tax by the assessment may, by notice given to the inspector within 30 days after the date of the issue of the notice of assessment, apply to the General Commissioners for a determination of the amount of tax the payment of which should be postponed pending the determination of the question whether the fund should be so certified.

(2) A notice of application under sub-paragraph (1) above shall state the amount in which the applicant believes that he is over-charged to tax and his grounds for that belief.

(3) Subsections (3A) onwards of section 55 of the Management Act (recovery of tax not postponed) shall apply with any necessary modifications in relation to an application under sub-paragraph (1) above as if it were an application under subsection (3) of that section and as if the determination of the question as to certification (whether by the Board or on appeal) were the determination of an appeal.

Information as to decisions on certification etc. U.K.

20 No obligation as to secrecy imposed by statute or otherwise shall preclude the Board or an inspector from disclosing to any person appearing to have an interest in the matter—

(a) any determination of the Board or (on appeal) the Special Commissioners whether an offshore fund should or should not be certified as a distributing fund in respect of any account period; or

(b) the content and effect of any notice given by the Board under paragraph 15(4) above.

Valid from 22/07/2004

Application of this Schedule in relation to umbrella funds and funds comprising more than one class of interest U.K.

21 (1) The Treasury may make provision by regulations as to the application of the provisions of this Schedule in relation to—

(a) a part of an umbrella fund which is treated as an offshore fund under section 756B, or

(b) a class of interest in an offshore fund which is treated as an offshore fund under section 756C.

(2) Regulations under this paragraph may—

(a) make different provision for different cases, and

(b) include such supplementary, incidental, consequential or transitional provisions (including provisions modifying the effect of other enactments) as appear to the Treasury to be necessary or expedient.

Section 761(1).

SCHEDULE 28 U.K. COMPUTATION OF OFFSHORE INCOME GAINS M274

Marginal Citations

M274 Source—[1984 Sch.20.]

PART I U.K. DISPOSALS OF INTERESTS IN NON-QUALIFYING FUNDS

Interpretation U.K.

1 In this Part of this Schedule “material disposal” means a disposal to which this Chapter applies, otherwise than by virtue of section 758.

Calculation of unindexed gain U.K.

2 (1) Where there is a material disposal, there shall first be determined for the purposes of this Part of this Schedule the amount (if any) which, in accordance with the provisions of this paragraph, is the unindexed gain accruing to the person making the disposal.

(2) Subject to section 757(3) to (6) and paragraph 3 below, the unindexed gain accruing on a material disposal is the amount which would be the gain on that disposal for the purposes of the [F358 1992] Act if it were computed—

(a) without regard to any charge to income tax or corporation tax by virtue of section 761; and

(b) without regard to any indexation allowance on the disposal under [F358 the 1992 Act].

Textual Amendments

F358 Words in Sch. 28 para. 2 substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 10 para. 14(63)(a) (with ss. 60, 101(1), 171, 201(3))

3 (1) If the amount of any chargeable gain or allowable loss which (apart from section 763) would accrue on the material disposal would fall to be determined in a way which, in whole or in part, would take account of the indexation allowance on an earlier disposal to which [F359 section 56(2) of the 1992 Act] (disposals on a no gain/no loss basis) applies, the unindexed gain on the material disposal shall be computed as if—

(a) no indexation allowance had been available on any such earlier disposal; and

(b) subject to that, neither a gain nor a loss had accrued to the person making such an earlier disposal.

(2) If the material disposal forms part of a transfer to which section [F359 162 of the 1992 Act] (roll-over relief on transfer of business) applies, the unindexed gain accruing on the disposal shall be computed without regard to any deduction which falls to be made under that section in computing a chargeable gain.

(3) If the material disposal is made otherwise than under a bargain at arm’s length and a claim for relief is made in respect of that disposal under [F359 section 165 or 260 of the 1992 Act (relief for gifts) the claim shall] not affect the computation of the unindexed gain accruing on the disposal.

(4) Where, in the case of an insurance company carrying on [life assurance business,—

F360 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) a profit arising from overseas life assurance business and attributable to a material disposal falls to be taken into account in the computation under section 441,

the unindexed gain F361 ,] if any, accruing to the company on the disposal shall be computed as if section [37(1) of the 1992 Act](exclusion of certain sums in computing chargeable gain) did not apply.

(5) Notwithstanding section [F359 16 of the 1992 Act] (losses determined in like manner as gains) if, apart from this sub-paragraph, the effect of any computation under the preceding provisions of this Part of this Schedule would be to produce a loss, the unindexed gain on the material disposal shall be treated as nil; and accordingly for the purposes of this Part of this Schedule no loss shall be treated as accruing on a material disposal.

(6) Section 431 has effect in relation to sub-paragraph (4) above as if it were included in Chapter I of Part XII.

Textual Amendments

F359 Words in Sch. 28 para. 3 substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 10 para. 14(63)(b) (with ss. 60, 101(1), 171, 201(3))

F360 Sch. 28 Pt. I para. 3(4)(a) repealed (1.1.1992) by Finance Act 1991 (c. 31, SIF 63:1), ss. 48, 123, Sch. 7 paras. 10, 18, Sch. 19 Pt. V, Note 3

F361 1990 s.42and Sch.7 para.7for accounting periods beginning on or after 1January 1990 (see para.10).Previously

“life assurance business, a profit arising from general annuity business and attributable to a material disposal falls (or would but for the reference to offshore income gains in section 437(2) fall) to be taken into account in the computation under section 436, the unindexed gain,”.

Gains since 1st January 1984 U.K.

4 (1) This paragraph applies where—

(a) the interest in the offshore fund which is disposed of by the person making a material disposal was acquired by him before 1st January 1984; or

(b) he is treated by virtue of any provision of sub-paragraphs (3) and (4) below as having acquired the interest before that date.

(2) Where this paragraph applies, there shall be determined for the purposes of this Part of this Schedule the amount which would have been the gain on the material disposal—

(a) on the assumption that, on 1st January 1984, the interest was disposed of and immediately reacquired for a consideration equal to its market value at that time; and

(b) subject to that, on the basis that the gain is computed in like manner as, under paragraphs 2 and 3 above, the unindexed gain on the material disposal is determined;

and that amount is in paragraph 5 below referred to as the “post-1983 gain” on the material disposal.

(3) Where the person making the material disposal acquired the interest disposed of—

(a) on or after 1st January 1984, and

(b) in such circumstances that, by virtue of any enactment other than section [F362 56, 57, 131 or 145 of the 1992 Act] (indexation provisions), he and the person from whom he acquired it (“the previous owner”) fell to be treated for the purposes of the [1992] Act as if his acquisition were for a consideration of such an amount as would secure that, on the disposal under which he acquired it, neither a gain nor a loss accrued to the previous owner,

the previous owner’s acquisition of the interest shall be treated as his acquisition of it.

(4) If the previous owner acquired the interest disposed of on or after 1st January 1984 and in circumstances similar to those referred to in sub-paragraph (3) above, his predecessor’s acquisition of the interest shall be treated for the purposes of this paragraph as the previous owner’s acquisition, and so on back through previous acquisitions in similar circumstances until the first such acquisition before 1st January 1984 or, as the case may be, until an acquisition on a material disposal on or after that date.

Textual Amendments

F362 Words in Sch. 28 para. 4(3)(b) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 10 para. 14(63)(c) (with ss. 60, 101(1), 171, 201(3))

The offshore income gain U.K.

5 (1) Subject to sub-paragraph (2) below, a material disposal gives rise to an offshore income gain of an amount equal to the unindexed gain on that disposal.

(2) In any case where—

(a) paragraph 4 above applies, and

(b) the post-1983 gain on the material disposal is less than the unindexed gain on the disposal,

the offshore income gain to which the disposal gives rise is an amount equal to the post-1983 gain.

PART II U.K. DISPOSALS INVOLVING AN EQUALISATION ELEMENT

6 (1) Subject to paragraph 7 below, a disposal to which this Chapter applies by virtue of section 758(3) gives rise to an offshore income gain of an amount equal to the equalisation element relevant to the asset disposed of.

(2) Subject to sub-paragraphs (4) to (6) below, the equalisation element relevant to the asset disposed of by a disposal falling within sub-paragraph (1) above is the amount which would be credited to the equalisation account of the offshore fund concerned in respect of accrued income if, on the date of the disposal, the asset which is disposed of were acquired by another person by way of initial purchase.

(3) In the following provisions of this Part of this Schedule, a disposal falling within sub-paragraph (1) above is referred to as a “disposal involving an equalisation element”.

(4) Where the asset disposed of by a disposal involving an equalisation element was acquired by the person making the disposal after the beginning of the period by reference to which the accrued income referred to in sub-paragraph (2) above is calculated, the amount which, apart from this sub-paragraph, would be the equalisation element relevant to that asset shall be reduced by the following amount, that is to say—

(a) if that acquisition took place on or after 1st January 1984, the amount which, on that acquisition, was credited to the equalisation account of the offshore fund concerned in respect of accrued income or, as the case may be, would have been so credited if that acquisition had been an acquisition by way of initial purchase; and

(b) in any other case, the amount which would have been credited to that account in respect of accrued income if that acquisition had been an acquisition by way of initial purchase taking place on 1st January 1984.

(5) In any case where—

(a) the asset disposed of by a disposal involving an equalisation element was acquired by the person making the disposal at or before the beginning of the period by reference to which the accrued income referred to in sub-paragraph (2) above is calculated, and

(b) that period began before 1st January 1984 and ends after that date,

the amount which, apart from this sub-paragraph, would be the equalisation element relevant to that asset shall be reduced by the amount which would have been credited to the equalisation account of the offshore fund concerned in respect of accrued income if the acquisition referred to in paragraph (a) above had been an acquisition by way of initial purchase taking place on 1st January 1984.

(6) Where there is a disposal involving an equalisation element, then, to the extent that any amount which was or would be credited to the equalisation account of the offshore fund in respect of accrued income, as mentioned in any of sub-paragraphs (2) to (5) above, represents profits from dealing in commodities, within the meaning of paragraph 4 of Schedule 27, one half of that accrued income shall be left out of account in determining under those sub-paragraphs the equalisation element relevant to the asset disposed of by that disposal.

7 (1) For the purposes of this Part of this Schedule, there shall be determined, in accordance with paragraph 8 below, the Part I gain (if any) on any disposal involving an equalisation element.

(2) Notwithstanding anything in paragraph 6 above—

(a) if there is no Part I gain on a disposal involving an equalisation element, that disposal shall not give rise to an offshore income gain; and

(b) if, apart from this paragraph, the offshore income gain on a disposal involving an equalisation element would exceed the Part I gain on that disposal, the offshore income gain to which that disposal gives rise shall be reduced to an amount equal to that Part I gain.

8 (1) On a disposal involving an equalisation element, the Part I gain is the amount (if any) which, by virtue of Part I of this Schedule (as modified by sub-paragraphs (2) to (5) below), would be the offshore income gain on that disposal if it were a material disposal within the meaning of that Part.

(2) For the purposes only of the application of Part I of this Schedule to determine the Part I gain (if any) on a disposal involving an equalisation element, subsections (5) and (6) of section 758 shall have effect as if, in subsection (5), the words “by virtue of subsection (3) above” were omitted.

(3) If a disposal involving an equalisation element is one which, by virtue of any enactment other than section [F363 56, 57, 131 or 145 of the 1992 Act], is treated for the purposes of the [F363 1992] Act as one on which neither a gain nor a loss accrues to the person making the disposal, then, for the purpose only of determining the Part I gain (if any) on the disposal, that enactment shall be deemed not to apply to it (but without prejudice to the application of that enactment to any earlier disposal).

F364 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F364 (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F363 Words in Sch. 28 para. 8(3) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 10 para. 14(63)(c) (with ss. 60, 101(1), 171, 201(3))

F364 Sch. 28 para. 8(4)(5) repealed (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 12 (with ss. 60, 101(1), 171, 201(3), Sch. 11 paras. 22, 26(2), 27)

Valid from 22/07/2004

Part 3 U.K. Supplementary

Application of this Schedule in relation to umbrella funds and funds comprising more than one class of interest U.K.

9 (1) The Treasury may make provision by regulations as to the application of the provisions of this Schedule in relation to—

(a) a part of an umbrella fund which is treated as an offshore fund under section 756B, or

(b) a class of interest in an offshore fund which is treated as an offshore fund under section 756C.

(2) Regulations under this paragraph may—

(a) make different provision for different cases, and

(b) include such supplementary, incidental, consequential or transitional provisions (including provisions modifying the effect of other enactments) as appear to the Treasury to be necessary or expedient.

Valid from 01/05/1995

Schedule 28A U.K. Change in ownership of investment company: deductions

Part I U.K. Significant increase in company capital

General U.K.

1 The provisions referred to in section 768B(2) for determining whether there is a significant increase in the amount of a company’s capital after a change in the ownership of the company are as follows.

The basic rule U.K.

2 There is a significant increase in the amount of a company’s capital if amount B—

(a) exceeds amount A by at least £1 million; or

(b) is at least twice amount A.

Amount A U.K.

3 (1) Amount A is the lower of—

(a) the amount of the company’s capital immediately before the change in the ownership; and

(b) the highest 60 day minimum amount for the pre-change year, found in accordance with sub-paragraphs (2) to (6) below.

(2) Find the daily amounts of the company’s capital over the pre-change year.

(3) Take the highest of the daily amounts.

(4) Find out whether there was in the pre-change year a period of 60 days or more in which there was no daily amount lower than the amount taken.

(5) If there was, the amount taken is the highest 60 day minimum amount for the pre-change year.

(6) If there was not, take the next highest of the daily amounts and repeat the process in sub-paragraph (4) above; and so on, until the highest 60 day minimum amount for the pre-change year is found.

(7) In this Part of this Schedule “the pre-change year” means the period of one year ending immediately before the change in the ownership of the company in question.

Amount B U.K.

4 (1) Amount B is the highest 60 day minimum amount for the post-change period (finding that amount for that period in the same way as the highest 60 day minimum amount for the pre-change year is found).

(2) In this paragraph “the post-change period” means the period of three years beginning with the change in the ownership of the company in question.

Capital and amounts of capital U.K.

5 (1) The capital of a company consists of the aggregate of—

(a) the amount of the paid up share capital of the company;

(b) the amount outstanding of any debts incurred by the company which are of a description mentioned in any of paragraphs (a) to (c) of section 417(7); and

(c) the amount outstanding of any redeemable loan capital issued by the company.

(2) For the purposes of sub-paragraph (1) above—

(a) the amount of the paid up share capital includes any amount in the share premium account of the company (construing “share premium account” in the same way as in section 130 of the M275 Companies Act 1985); and

(b) the amount outstanding of any debts includes any interest due on the debts.

(3) Amounts of capital shall be expressed in sterling and rounded up to the nearest pound.

Marginal Citations

M275 1985 c. 6.

Part II U.K. Amounts in issue for purposes of section 768B

6 The amounts in issue referred to in section 768B(4)(c) are—

(a) the amount of any sums (including commissions) actually disbursed as expenses of management for the accounting period being divided, except any such expenses as would (apart from section 768B) be deductible in computing profits otherwise than under section 75;

(b) the amount of any charges which are paid in that accounting period wholly and exclusively for the purposes of the company’s business;

(c) the amount of any excess carried forward under section 75(3) to the accounting period being divided;

(d) the amount of any allowances falling to be made for that accounting period by virtue of section 28 of the 1990 Act which would (apart from section 768B) be added to the expenses of management for that accounting period by virtue of section 75(4);

(e) any other amounts by reference to which the profits or losses of that accounting period would (apart from section 768B) be calculated.

Valid from 29/04/1996

6A For the purposes of paragraph 6(da) above, the amount for any accounting period of the adjusted Case III profits and gains or non-trading deficit of a company is the amount which, as the case may be, would be—

(a) the amount of the profits and gains chargeable under Case III of Schedule D as profits and gains arising from the company’s loan relationships, or

(b) the amount of the company’s non-trading deficit on those relationships for that period,

if, in computing that amount, amounts for that period falling within paragraph 6(db) to (dd) above were disregarded.

Part III U.K. Apportionment for purposes of section 768B

7 (1) Subject to paragraph 8 below, the apportionment required by section 768B(4)(c) shall be made—

(a) in the case of the sums and charges mentioned in paragraph 6(a) and (b) above, by reference to the time when the sum or charge is due to be paid;

(b) in the case of the excess mentioned in paragraph 6(c) above, by apportioning the whole amount of the excess to the first part of the accounting period being divided;

(c) in the case of the amounts mentioned in paragraph 6(d) and (e) above, by reference to the respective lengths of the parts of the accounting period being divided.

(2) For the purposes of sub-paragraph (1)(a) above, in the case of any charge consisting of interest, the interest shall be assumed to become due on a day to day basis as it arises.

8 If it appears that any method of apportionment given by paragraph 7 above would work unreasonably or unjustly for any case for which it is given, such other method shall be used for that case as appears just and reasonable.

Part IV U.K. Excess overdue interest

Introductory U.K.

9 (1) The provisions referred to in sections 768B(11) and 768C(10) for determining whether a payment of interest made by the company or, as the case may be, the relevant company represents excess overdue interest, and if so to what extent, are set out in paragraphs 10 to 12 below.

(2) In those paragraphs—

(a) “overdue interest” means interest due to be paid by the company or, as the case may be, the relevant company before the change in the ownership and still unpaid at the end of the actual accounting period in which the change occurs;

(b) “amount C” means the amount of all the overdue interest; and

(c) “amount P” means the amount of the profits for the accounting period ending with the change in the ownership.

(3) For the purposes of sub-paragraph (2) above—

(a) interest shall be assumed to become due on a day to day basis as it arises;

(b) the reference to the profits is a reference to the profits after making all deductions and giving all reliefs that for the purposes of corporation tax are made or given against the profits, including deductions and reliefs which under any provision are treated as reducing them for those purposes.

The rules U.K.

10 (1) A payment of interest does not represent excess overdue interest except to the extent that it discharges a liability to pay overdue interest.

(2) For the purposes of this Part of this Schedule, a payment of interest on a debt shall be treated as discharging any liability to pay overdue interest before it is treated to any extent as discharging a liability to pay interest which is not overdue interest.

11 Where amount C does not exceed amount P, no payment of interest represents excess overdue interest.

12 (1) Where amount C exceeds amount P—

(a) find the amount by which amount C exceeds amount P (amount X);

(b) take all the payments and parts of payments which discharge any liability to pay overdue interest;

(c) treat those payments and parts of payments as cancelling out amount X before any other part of amount C.

(2) A payment of interest represents excess overdue interest to the extent that, in accordance with sub-paragraph (1) above, it is treated as cancelling out amount X.

Valid from 29/04/1996

Part IV U.K. Disallowed debits

Valid from 20/07/2005

9A (1) This paragraph has effect in any case to which section 768B applies where the non-trading deficit mentioned in paragraph 6(dc) above is apportioned by paragraph 7(b) above to the first part of the accounting period being divided.

(2) In any such case, none of that non-trading deficit shall be carried forward to—

(a) the accounting period beginning immediately after the change in the ownership of the company, or

(b) any subsequent accounting period.

Valid from 20/07/2005

10A (1) This paragraph has effect in any case to which section 768C applies where the non-trading deficit mentioned in paragraph 13(1)(ec) below is apportioned by paragraph 16(1)(b) below to the first part of the accounting period being divided.

(2) In any such case, none of that non-trading deficit shall be carried forward to—

(a) the accounting period beginning immediately after the change in the ownership of the company, or

(b) any subsequent accounting period.

Part V U.K. Amounts in issue for purposes of section 768C

13 (1) The amounts in issue referred to in section 768C(3)(c) are—

(a) the amount which would in accordance with the relevant provisions of the 1992 Act (and apart from section 768C) be included in respect of chargeable gains in the total profits for the accounting period being divided;

(b) the amount of any sums (including commissions) actually disbursed as expenses of management for the accounting period being divided except any such expenses as would (apart from section 768C) be deductible in computing total profits otherwise than under section 75;

(c) the amount of any charges which are paid in that accounting period wholly and exclusively for the purposes of the company’s business;

(d) the amount of any excess carried forward under section 75(3) to the accounting period being divided;

(e) the amount of any allowances falling to be made for that accounting period by virtue of section 28 of the 1990 Act which would (apart from section 768C) be added to the expenses of management for that accounting period by virtue of section 75(4); and

(f) any other amounts by reference to which the profits or losses of the accounting period being divided would (apart from section 768C) be calculated.

(2) In sub-paragraph (1)(a) above “the relevant provisions of the 1992 Act” means section 8(1) of and Schedule 7A to that Act.

Valid from 29/04/1996

13A Paragraph 6A above shall apply for the purposes of paragraph 13(1)(ea) above as it applies for the purposes of paragraph 6(da) above.

Part VI U.K. Apportionment for purposes of section 768C

14 The apportionment required by section 768C(3)(c) shall be made as follows.

15 In the case of the amount mentioned in paragraph 13(1)(a) above—

(a) if it does not exceed the amount of the relevant gain, the whole of it shall be apportioned to the second part of the accounting period being divided;

(b) if it exceeds the amount of the relevant gain, the excess shall be apportioned to the first part of the accounting period being divided and the relevant gain shall be apportioned to the second part.

16 (1) Subject to paragraph 17 below, the apportionment shall be made—

(a) in the case of the sums and charges mentioned in paragraph 13(1)(b) and (c) above, by reference to the time when the sum or charge is due to be paid;

(b) in the case of the excess mentioned in paragraph 13(1)(d) above, by apportioning the whole amount of the excess to the first part of the accounting period being divided;

(c) in the case of the amounts mentioned in paragraph 13(1)(e) and (f) above, by reference to the respective lengths of the parts of the accounting period being divided.

(2) For the purposes of sub-paragraph (1)(a) above, in the case of any charge consisting of interest, the interest shall be assumed to become due on a day to day basis as it arises.

17 If it appears that any method of apportionment given by paragraph 16 above would work unreasonably or unjustly for any case for which it is given, such other method shall be used for that case as appears just and reasonable.

Valid from 31/07/1998

SCHEDULE 28AA U.K. Provision not at arm’s length

Modifications etc. (not altering text)

C116 Sch. 28AA modified (28.7.2000) by Finance Act 2000 (c. 17), Sch. 22 para. 58(1) (as amended by 2004 c. 12, s. 37, Sch. 5 para. 12) (with Sch. 22 para. 58(3))

C117 Sch. 28AA applied (with modifications) (28.7.2000) by Finance Act 2000 (c. 17), Sch. 22 para. 59(1)(2) (as amended by 2004 c. 12, s. 37, Sch. 5 para. 13) (with Sch. 22 para. 59(4))

C118 Sch. 28AA applied by Finance Act 1996 (c. 8), s. 100 (as substituted (with effect in accordance with s. 79(3) of the 2002 amending Act) by Finance Act 2002 (c. 23), Sch. 23 para. 6 (with s. 81(4)(5), Sch. 23 para. 25))

C119 Sch. 28AA modified by Finance Act 1996 (c. 8), Sch. 9 para. 11A(1) (as inserted (with effect in accordance with s. 79(3) of the 2002 amending Act) by Finance Act 2002 (c. 23), Sch. 23 para. 11 (with s. 81(4)(5), Sch. 23 para. 25))

Basic rule on transfer pricing etc. U.K.

1 (1) This Schedule applies where—

(a) provision (“the actual provision") has been made or imposed as between any two persons (“the affected persons") by means of a transaction or series of transactions, and

(b) at the time of the making or imposition of the actual provision—

(i) one of the affected persons was directly or indirectly participating in the management, control or capital of the other; or

(ii) the same person or persons was or were directly or indirectly participating in the management, control or capital of each of the affected persons.

(2) Subject to paragraphs 8, 10 and 13 below, if the actual provision—

(a) differs from the provision (“the arm"s length provision’) which would have been made as between independent enterprises, and

(b) confers a potential advantage in relation to United Kingdom taxation on one of the affected persons, or (whether or not the same advantage) on each of them,

the profits and losses of the potentially advantaged person or, as the case may be, of each of the potentially advantaged persons shall be computed for tax purposes as if the arm’s length provision had been made or imposed instead of the actual provision.

(3) For the purposes of this Schedule the cases in which provision made or imposed as between any two persons is to be taken to differ from the provision that would have been made as between independent enterprises shall include the case in which provision is made or imposed as between any two persons but no provision would have been made as between independent enterprises; and references in this Schedule to the arm’s length provision shall be construed accordingly.

Valid from 22/07/2004

Provision in relation to securities: determination of arm’s length provision U.K.

1A (1) This paragraph applies where—

(a) both of the affected persons are companies, and

(b) the actual provision is provision in relation to a security issued by one of those companies (“the issuing company”).

(2) Paragraph 1(2)(a) above shall be construed as requiring account to be taken of all factors, including—

(a) the question whether the loan would have been made at all in the absence of the special relationship (see sub-paragraph (6) below),

(b) the amount which the loan would have been in the absence of the special relationship, and

(c) the rate of interest and other terms which would have been agreed in the absence of the special relationship,

but this is subject to the following provisions of this paragraph.

(3) In a case where—

(a) a company makes a loan to another company with which it has a special relationship, and

(b) it is not part of the first company’s business to make loans generally,

the fact that it is not part of the first company’s business to make loans generally shall be disregarded in construing sub-paragraph (2) above.

(4) Paragraph 1(2)(a) above shall be construed as requiring no account to be taken, in the determination of any of the matters mentioned in sub-paragraph (5) below, of (or of any inference capable of being drawn from) any guarantee provided by a company with which the issuing company has a participatory relationship (see sub-paragraphs (7) and (8) below).

(5) The matters are—

(a) the appropriate level or extent of the issuing company’s overall indebtedness;

(b) whether it might be expected that the issuing company and a particular person would have become parties to a transaction involving the issue of a security by the issuing company or the making of a loan, or a loan of a particular amount, to the issuing company;

(c) the rate of interest and other terms that might be expected to be applicable in any particular case to such a transaction.

(6) In this paragraph “special relationship” means any relationship by virtue of which the condition in paragraph 1(1)(b) above is satisfied in the case of the affected persons.

(7) In this paragraph any reference to a guarantee includes a reference to a surety and to any other relationship, arrangements, connection or understanding (whether formal or informal) such that the person making the loan to the issuing company has a reasonable expectation that in the event of a default by the issuing company he will be paid by, or out of the assets of, one or more companies.

(8) For the purposes of this paragraph, the cases where one company has a “participatory relationship”with another are those where—

(a) one of them is directly or indirectly participating in the management, control or capital of the other; or

(b) the same person or persons is or are directly or indirectly participating in the management, control or capital of each of them.

(9) In this paragraph “security” includes securities not creating or evidencing a charge on assets.

(10) For the purposes of this paragraph—

(a) interest payable by a company on money advanced without the issue of a security for the advance, or

(b) other consideration given by a company for the use of money so advanced,

shall be treated as if payable or given in respect of a security issued for the advance by the company, and references in this paragraph to a security shall be construed accordingly.

Valid from 22/07/2004

Guarantees etc U.K.

1B (1) This paragraph applies where the actual provision is made or imposed by means of a series of transactions which include—

(a) the issuing of a security by a company which is one of the affected persons (“the issuing company”), and

(b) the provision of a guarantee by a company which is the other of those persons.

(2) Paragraph 1(2)(a) above shall be construed as requiring account to be taken of all factors, including—

(a) the question whether the guarantee would have been provided at all in the absence of the special relationship,

(b) the amount that would have been guaranteed in the absence of the special relationship, and

(c) the consideration for the guarantee and other terms which would have been agreed in the absence of the special relationship,

but this is subject to the following provisions of this paragraph.

(3) In a case where—

(a) a company provides a guarantee in respect of another company with which it has a special relationship, and

(b) it is not part of the first company’s business to provide guarantees generally,

the fact that it is not part of the first company’s business to provide guarantees generally shall be disregarded in construing sub-paragraph (2) above.

(4) Paragraph 1(2)(a) above shall be construed as requiring no account to be taken, in the determination of any of the matters mentioned in sub-paragraph (5) below, of (or of any inference capable of being drawn from) any guarantee provided by a company with which the issuing company has a participatory relationship.

(5) The matters are—

(a) the appropriate level or extent of the issuing company’s overall indebtedness;

(b) whether it might be expected that the issuing company and a particular person would have become parties to a transaction involving the issue of a security by the issuing company or the making of a loan, or a loan of a particular amount, to the issuing company;

(c) the rate of interest and other terms that might be expected to be applicable in any particular case to such a transaction.

(6) The following provisions of paragraph 1A above also apply for the purposes of this paragraph—

(a) sub-paragraph (6) (meaning of special relationship);

(b) sub-paragraph (7) (construction of references to a guarantee);

(c) sub-paragraph (8) (meaning of participatory relationship);

(d) sub-paragraph (9) (meaning of security);

(e) sub-paragraph (10) (extended meaning of security).

Principles for construing rules in accordance with OECD principles U.K.

2 (1) This Schedule shall be construed (subject to paragraphs 8 to 11 below) in such manner as best secures consistency between—

(a) the effect given to paragraph 1 above; and

(b) the effect which, in accordance with the transfer pricing guidelines, is to be given, in cases where double taxation arrangements incorporate the whole or any part of the OECD model, to so much of the arrangements as does so.

(2) In this paragraph “the OECD model” means—

(a) the rules which, at the passing of this Act, were contained in Article 9 of the Model Tax Convention on Income and on Capital published by the Organisation for Economic Co-operation and Development; or

(b) any rules in the same or equivalent terms.

(3) In this paragraph “the transfer pricing guidelines” means—

(a) all the documents published by the Organisation for Economic Co-operation and Development, at any time before 1st May 1998, as part of their Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations; and

(b) such documents published by that Organisation on or after that date as may for the purposes of this Schedule be designated, by an order made by the Treasury, as comprised in the transfer pricing guidelines.

Meaning of “transaction" and “series of transactions" U.K.

3 (1) In this Schedule “transaction” includes arrangements, understandings and mutual practices (whether or not they are, or are intended to be, legally enforceable).

(2) References in this Schedule to a series of transactions include references to a number of transactions each entered into (whether or not one after the other) in pursuance of, or in relation to, the same arrangement.

(3) A series of transactions shall not be prevented by reason only of one or more of the matters mentioned in sub-paragraph (4) below from being regarded for the purposes of this Schedule as a series of transactions by means of which provision has been made or imposed as between any two persons.

(4) Those matters are—

(a) that there is no transaction in the series to which both those persons are parties;

(b) that the parties to any arrangement in pursuance of which the transactions in the series are entered into do not include one or both of those persons; and

(c) that there is one or more transactions in the series to which neither of those persons is a party.

(5) In this paragraph, “arrangement” means any scheme or arrangement of any kind (whether or not it is, or is intended to be, legally enforceable).

Modifications etc. (not altering text)

C120 Sch. 28AA para. 3 applied (with effect in accordance with Sch. 17 para. 13 of the affecting Act) by Finance Act 2009 (c. 10), Sch. 17 para. 12(5)

Participation in the management, control or capital of a person U.K.

4 (1) For the purposes of this Schedule a person is directly participating in the management, control or capital of another person at a particular time if, and only if, that other person is at that time—

(a) a body corporate or a partnership; and

(b) controlled by the first person.

(2) For the purposes of this Schedule a person (“the potential participant”) is indirectly participating in the management, control or capital of another person at a particular time if, and only if—

(a) he would be taken to be directly so participating at that time if the rights and powers attributed to him included all the rights and powers mentioned in sub-paragraph (3) below that are not already attributed to him for the purposes of sub-paragraph (1) above; or

(b) he is, at that time, one of a number of major participants in that other person’s enterprise.

(3) The rights and powers referred to in sub-paragraph (2)(a) above are—

(a) rights and powers which the potential participant is entitled to acquire at a future date or which he will, at a future date, become entitled to acquire;

(b) rights and powers of persons other than the potential participant to the extent that they are rights or powers falling within sub-paragraph (4) below;

(c) rights and powers of any person with whom the potential participant is connected; and

(d) rights and powers which for the purposes of sub-paragraph (2)(a) above would be attributed to a person with whom the potential participant is connected if that connected person were himself the potential participant.

(4) Rights and powers fall within this sub-paragraph to the extent that they—

(a) are required, or may be required, to be exercised in any one or more of the following ways, that is to say—

(i) on behalf of the potential participant;

(ii) under the direction of the potential participant; or

(iii) for the benefit of the potential participant;

and

(b) are not confined, in a case where a loan has been made by one person to another, to rights and powers conferred in relation to property of the borrower by the terms of any security relating to the loan.

(5) In sub-paragraphs (3)(b) to (d) and (4) above, the references to a person’s rights and powers include references to any rights or powers which he either—

(a) is entitled to acquire at a future date, or

(b) will, at a future date, become entitled to acquire.

(6) In paragraph (d) of sub-paragraph (3) above, the reference to rights and powers which would be attributed to a connected person if he were the potential participant includes a reference to rights and powers which, by applying that paragraph wherever one person is connected with another, would be so attributed to him through a number of persons each of whom is connected with at least one of the others.

(7) For the purposes of this paragraph a person (“the potential major participant”) is a major participant in another person’s enterprise at a particular time if at that time—

(a) that other person (“the subordinate”) is a body corporate or partnership; and

(b) the 40 per cent. test is satisfied in the case of each of two persons who, taken together, control the subordinate and of whom one is the potential major participant.

(8) For the purposes of this paragraph the 40 per cent. test is satisfied in the case of each of two persons wherever each of them has interests, rights and powers representing at least 40 per cent. of the holdings, rights and powers in respect of which the pair of them fall to be taken as controlling the subordinate.

(9) For the purposes of this paragraph—

(a) the question whether a person is controlled by any two or more persons taken together, and

(b) any question whether the 40 per cent. test is satisfied in the case of a person who is one of two persons,

shall be determined after attributing to each of the persons all the rights and powers attributed to a potential participant for the purposes of sub-paragraph (2)(a) above.

(10) References in this paragraph—

(a) to rights and powers of a person, or

(b) to rights and powers which a person is or will become entitled to acquire,

include references to rights or powers which are exercisable by that person, or (when acquired by that person) will be exercisable, only jointly with one or more other persons.

(11) For the purposes of this paragraph two persons are connected with each other if—

(a) one of them is an individual and the other is his spouse, a relative of his or of his spouse, or the spouse of such a relative; or

(b) one of them is a trustee of a settlement and the other is—

(i) a person who in relation to that settlement is a settlor; or

(ii) a person who is connected with a person falling within sub-paragraph (i) above.

(12) In sub-paragraph (11) above—

• “relative” means brother, sister, ancestor or lineal descendant; and

• “settlement” and “settlor” have the same meanings as in Chapter IA of Part XV.

Valid from 20/07/2005

Persons acting together in relation to financing arrangements U.K.

4A (1) A person (“P”) shall be treated for the purposes of paragraph 1(1)(b)(i) above (but subject to sub-paragraph (7) below) as indirectly participating in the management, control or capital of another (“A”) at the time of the making or imposition of the actual provision if—

(a) the actual provision relates, to any extent, to financing arrangements for A;

(b) A is a body corporate or partnership;

(c) P and other persons acted together in relation to the financing arrangements; and

(d) P would be taken to have control of A if, at any relevant time, there were attributed to P the rights and powers of each of the other persons mentioned in paragraph (c) above.

(2) A person (“Q”) shall be treated for the purposes of paragraph 1(1)(b)(ii) above (but subject to sub-paragraph (7) below) as indirectly participating in the management, control or capital of each of the affected persons at the time of the making or imposition of the actual provision if—

(a) the actual provision relates, to any extent, to financing arrangements for one of the affected persons (“B”);

(b) B is a body corporate or partnership;

(c) Q and other persons acted together in relation to the financing arrangements; and

(d) Q would be taken to have control of both B and the other affected person if, at any relevant time, there were attributed to Q the rights and powers of each of the other persons mentioned in paragraph (c) above.

(3) It is immaterial for the purposes of sub-paragraph (1)(c) or (2)(c) above whether P or Q and the other persons acting together in relation to the financing arrangements did so at the time of the making or imposition of the actual provision or at some earlier time.

(4) In sub-paragraph (1)(d) or (2)(d) “relevant time” means—

(a) a time when P or Q and the other persons were acting together in relation to the financing arrangements; or

(b) a time in the period of six months beginning with the day on which they ceased so to act.

(5) In determining for the purposes of sub-paragraph (1)(d) or (2)(d) whether P or Q would be taken to have control of another person, the rights and powers of any person (and not just P or Q) shall be taken to include those that would be attributed to that person in determining under paragraph 4 above whether he is indirectly participating in the management, control or capital of the other person.

(6) In this paragraph “financing arrangements” means arrangements made for providing or guaranteeing, or otherwise in connection with, any debt, capital or other form of finance.

(7) Where the condition in paragraph 1(1)(b) above would not be satisfied but for this paragraph, paragraph 1(2) above applies only to the extent that the actual provision relates to the financing arrangements in question.

Valid from 20/07/2005

Financing arrangements: anticipatory provision U.K.

4B (1) To the extent that it applies to provision relating to financing arrangements, this Schedule has effect as if in paragraph 1(1)(b) above the words “or within the period of six months beginning with the day on which the actual provision was made or imposed” were inserted immediately before sub-paragraph (i).

(2) In this paragraph “financing arrangements” has the same meaning as in paragraph 4A above.

Advantage in relation to United Kingdom taxation U.K.

5 (1) For the purposes of this Schedule (but subject to sub-paragraph (2) below) the actual provision confers a potential advantage on a person in relation to United Kingdom taxation wherever, disregarding this Schedule, the effect of making or imposing the actual provision, instead of the arm’s length provision, would be one or both of the following, that is to say—

(a) that a smaller amount (which may be nil) would be taken for tax purposes to be the amount of that person’s profits for any chargeable period; or

(b) that a larger amount (or, if there would not otherwise have been losses, any amount of more than nil) would be taken for tax purposes to be the amount for any chargeable period of any losses of that person.

(2) Subject to paragraph 11(2) below, the actual provision shall not be taken for the purposes of this Schedule to confer a potential advantage in relation to United Kingdom taxation on either of the persons as between whom it is made or imposed if—

(a) the three conditions set out in sub-paragraphs (3) to (5) below are all satisfied in the case of each of those two persons; and

(b) the further condition set out in sub-paragraph (6) below is satisfied in the case of each of those persons who is an insurance company.

(3) The first condition is satisfied in the case of any person if—

(a) that person is within the charge to income tax or corporation tax in respect of profits arising from the relevant activities;

(b) that person is not entitled to any exemption from income tax or corporation tax in respect of, or of a part of, the income or profits arising from the relevant activities in respect of which he is within that charge; and

(c) where that person is within the charge to income tax in respect of profits arising from those activities, he is resident in the United Kingdom in the chargeable periods in which he is so within that charge.

(4) The second condition is satisfied in the case of any person if he is neither—

(a) a person with an entitlement, in pursuance of any double taxation arrangements or under section 790(1), to be given credit in any chargeable period for any foreign tax on or in respect of profits arising from the relevant activities; nor

(b) a person who would have such an entitlement in any such period if there were any such profits or if they exceeded a certain amount.

(5) The third condition is satisfied in the case of any person if the amounts taken into account in computing the profits or losses arising from the relevant activities to that person in any chargeable period in which he is within the charge to income tax or corporation tax in respect of profits arising from those activities do not include any income the amount of which is reduced in accordance with section 811(1) (deduction for foreign tax where no credit allowable).

(6) The further condition is satisfied in the case of an insurance company if the profits arising from the relevant activities in respect of which the company is within the charge to corporation tax do not include—

(a) any profits in the computation of which acquisition expenses have been brought into account in accordance with section 86 of the M276 Finance Act 1989 (expenses of acquiring insurance business); or

(b) any profits in relation to which the rate of corporation tax is fixed by section 88 or 88A of that Act (lower rate on certain profits of insurance companies).

Marginal Citations

M276 1989 c. 26.

Valid from 22/07/2004

Exemption for dormant companies U.K.

5A (1) Paragraph 1(2) above does not apply in computing for any chargeable period the profits and losses of a potentially advantaged person if that person is a company which satisfies the condition in sub-paragraph (2) below.

(2) The condition is that—

(a) the company was dormant throughout the pre-qualifying period, and

(b) apart from paragraph 1 above, the company has continued to be dormant at all times since the end of the pre-qualifying period.

(3) In sub-paragraph (2) above “the pre-qualifying period” means—

(a) if there is an accounting period of the company that ends on 31st March 2004, that accounting period, or

(b) if there is no such accounting period, the period of 3 months ending with that date.

(4) In this paragraph “dormant” has the same meaning as in section 249AA of the Companies Act 1985 (see subsections (4) to (7) of that section).

Valid from 22/07/2004

Exemption for small or medium-sized enterprises U.K.

5B (1) Paragraph 1(2) above does not apply in computing for any chargeable period the profits and losses of a potentially advantaged person if that person is a small or medium-sized enterprise for that chargeable period (see paragraph 5D below).

(2) Exceptions to sub-paragraph (1) above are provided—

(a) in the case of a small enterprise, by sub-paragraphs (3) and (4) below, and

(b) in the case of a medium-sized enterprise, by sub-paragraphs (3) and (4) and paragraph 5C below.

(3) The first exception is where the small or medium-sized enterprise elects for sub-paragraph (1) above not to apply in relation to the chargeable period.

Any such election is irrevocable.

(4) The second exception is where, at the time when the actual provision is or was made or imposed,—

(a) the other affected person, or

(b) a party to a relevant transaction (see sub-paragraph (5) below),

is a resident (see sub-paragraph (6) below) of a non-qualifying territory (whether or not that person is also a resident of a qualifying territory).

(5) For the purposes of sub-paragraph (4) above, a “party to a relevant transaction” is a person who, in a case where the actual provision is or was imposed by means of a series of transactions, is or was a party to one or more of those transactions.

(6) In this paragraph “resident”, in relation to a territory,—

(a) means a person who, under the laws of that territory, is liable to tax there by reason of his domicile, residence or place of management, but

(b) does not include a person who is liable to tax in that territory in respect only of income from sources in that territory or capital situated there.

(7) The definitions of “qualifying territory” and “non-qualifying territory” are in paragraph 5E below.

Modifications etc. (not altering text)

C121 Sch. 28AA paras. 5B, 5C excluded (19.7.2006) by Finance Act 2006 (c. 25), s. 113(6), Sch. 17 para. 12(2)(3)

C122 Sch. 28AA paras. 5B, 5C excluded by The Authorised Investment Funds (Tax) Regulations 2006 (S.I. 2006/964), reg. 69X(6) (as inserted (6.4.2008) by The Authorised Investment Funds (Tax) (Amendment) Regulations 2008 (S.I. 2008/705), regs. 1, 5)

Valid from 22/07/2004

Additional provisions for medium-sized enterprises U.K.

5C (1) Paragraph 5B(1) above does not apply as respects any provision made or imposed if—

(a) the potentially advantaged person in question is a medium-sized enterprise for the chargeable period in question, and

(b) the Board gives that person a notice under this sub-paragraph (a “transfer pricing notice”) requiring him to compute the profits and losses of that chargeable period in accordance with paragraph 1(2) above in the case of that provision.

(2) A transfer pricing notice may be given in respect of —

(a) any provision specified, or of a description specified, in the notice, or

(b) every provision in relation to which the assumption in paragraph 1(2) above would fall to be made apart from paragraph 5B(1) above.

(3) A transfer pricing notice may be given only after a notice of enquiry has been given to the potentially advantaged person in respect of his tax return for the chargeable period.

(4) A transfer pricing notice must identify the officer of the Board to whom any notice of appeal under this paragraph is to be given.

(5) A person to whom a transfer pricing notice is given may appeal against the decision to give the notice, but only on the grounds that the condition in sub-paragraph (1)(a) above is not satisfied.

(6) Any such appeal must be brought by giving written notice of appeal to the officer of the Board identified for the purpose in the transfer pricing notice in accordance with sub-paragraph (4) above.

(7) The notice of appeal must be given before the end of the period of 30 days beginning with the day on which the transfer pricing notice is given.

(8) A person to whom a transfer pricing notice is given may amend his tax return for the purpose of complying with the notice at any time before the end of the period of 90 days beginning with—

(a) the day on which the notice is given, or

(b) if he appeals against the notice, the day on which the appeal is finally determined or abandoned.

(9) Where a transfer pricing notice is given in the case of any tax return, no closure notice may be given in relation to that tax return until—

(a) the end of the period of 90 days specified in sub-paragraph (8) above, or

(b) the earlier amendment of the tax return for the purpose of complying with the notice.

(10) So far as relating to any provision made or imposed by or in relation to a person—

(a) who is a medium-sized enterprise for a chargeable period,

(b) who does not make an election under paragraph 5B(3) above for that period, and

(c) who is not excepted from paragraph 5B(1) above by virtue of paragraph 5B(4) above in relation to that provision for that period,

the tax return required to be made for that period is a return that disregards paragraph 1(2) above.

(11) Sub-paragraph (10) above does not prevent a tax return for a period becoming incorrect if, in the case of any provision made or imposed,—

(a) a transfer pricing notice is given which has effect in relation to that provision for that period,

(b) the return is not amended in accordance with sub-paragraph (8) above for the purpose of complying with the notice, and

(c) the return ought to have been so amended.

(12) In this paragraph—

• “closure notice” means a notice under—

  (a)

  section 28A or 28B of the Management Act, or

  (b)

  paragraph 32 of Schedule 18 to the Finance Act 1998;

• “company tax return” means the return required to be delivered pursuant to a notice under paragraph 3 of Schedule 18 to the Finance Act 1998, as read with paragraph 4 of that Schedule;

• “notice of enquiry” means a notice under—

  (a)

  section 9A or 12AC of the Management Act, or

  (b)

  paragraph 24 of Schedule 18 to the Finance Act 1998;

• “tax return” means—

  (a)

  a return under section 8, 8A or 12AA of the Management Act, or

  (b)

  a company tax return.

Modifications etc. (not altering text)

C123 Sch. 28AA paras. 5B, 5C excluded (19.7.2006) by Finance Act 2006 (c. 25), s. 113(6), Sch. 17 para. 12(2)(3)

C124 Sch. 28AA paras. 5B, 5C excluded by The Authorised Investment Funds (Tax) Regulations 2006 (S.I. 2006/964), reg. 69X(6) (as inserted (6.4.2008) by The Authorised Investment Funds (Tax) (Amendment) Regulations 2008 (S.I. 2008/705), regs. 1, 5)

Valid from 22/07/2004

Meaning of “small enterprise” and “medium-sized enterprise” U.K.

5D (1) In this Schedule—

(a) “small enterprise” means a small enterprise as defined in the Annex to the Commission Recommendation,

(b) “medium-sized enterprise” means an enterprise which—

(i) falls within the category of micro, small and medium-sized enterprises as defined in that Annex, and

(ii) is not a small enterprise as defined in that Annex,

but for these purposes that Annex has effect with the modifications set out in sub-paragraphs (3) to (6) of this paragraph.

(2) In this paragraph—

• “the Annex” means the Annex to the Commission Recommendation;

• “the Commission Recommendation” means Commission Recommendation 2003/361/EC of 6th May 2003 (concerning the definition of micro, small and medium-sized enterprises).

(3) Where any enterprise is in liquidation or administration, the rights of the liquidator or administrator (in that capacity) shall be left out of account when applying Article 3(3)(b) of the Annex in determining for the purposes of this Schedule whether—

(a) that enterprise, or

(b) any other enterprise (including that of the liquidator or administrator),

is a small or medium-sized enterprise.

(4) Article 3 of the Annex shall have effect with the omission of paragraph 5 (declaration in good faith where control cannot be determined etc).

(5) The first sentence of Article 4(1) of the Annex shall have effect as if the data to apply to—

(a) the headcount of staff, and

(b) the financial amounts,

were the data relating to the chargeable period in paragraph 5B(1) above (instead of the period described in that sentence) and calculated on an annual basis.

(6) Article 4 of the Annex shall have effect with the omission of the following provisions—

(a) the second sentence of paragraph 1 (data to be taken into account from date of closure of accounts);

(b) paragraph 2 (no change of status unless ceilings exceeded for two consecutive periods);

(c) paragraph 3 (bona fide estimate in case of newly established enterprise).

Valid from 22/07/2004

Meaning of “qualifying territory” and “non-qualifying territory” U.K.

5E (1) In this Schedule—

• “non-qualifying territory” means any territory which is not a qualifying territory;

• “qualifying territory” means—

  (a)

  the United Kingdom, or

  (b)

  any territory as respects which Condition 1 or Condition 2 below is satisfied.

(2) Condition 1 is that—

(a) arrangements to which section 788 applies (double taxation relief by agreement with other territories) have been made in relation to the territory;

(b) those arrangements contain a non-discrimination provision (see sub-paragraphs (4) and (5) below); and

(c) the territory is not designated as a non-qualifying territory for the purposes of this sub-paragraph in regulations made by the Treasury.

(3) Condition 2 is that—

(a) arrangements to which section 788 applies have been made in relation to the territory; and

(b) the territory is designated as a qualifying territory for the purposes of this sub-paragraph in regulations made by the Treasury.

(4) For the purposes of this paragraph a “non-discrimination provision”, in relation to any arrangement to which section 788 applies, is a provision to the effect that nationals of a state which is a party to those arrangements (a “contracting state”) are not to be subject in any other contracting state to—

(a) any taxation, or

(b) any requirement connected with taxation,

which is other or more burdensome than the taxation and connected requirements to which nationals of that other state in the same circumstances (in particular with respect to residence) are or may be subjected.

(5) In this paragraph, “national”, in relation to a contracting state, includes—

(a) any individual possessing the nationality or citizenship of the contracting state,

(b) any legal person, partnership or association deriving its status as such from the laws in force in that contracting state.

(6) A statutory instrument containing regulations under this paragraph shall not be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons.

Elimination of double counting U.K.

6 (1) This paragraph applies where—

(a) only one of the affected persons (“the advantaged person”) is a person on whom a potential advantage in relation to United Kingdom taxation is conferred by the actual provision; but

(b) the other affected person (“the disadvantaged person”) is a person in relation to whom the condition set out in sub-paragraph (3) of paragraph 5 above either—

(i) is satisfied, or

(ii) were any such exemption as is mentioned in paragraph (b) of that sub-paragraph to be disregarded, would be satisfied.

(2) Subject to sub-paragraphs (3) to (6) and paragraph 7 below, on the making of a claim by the disadvantaged person for the purposes of this paragraph—

(a) the disadvantaged person shall be entitled to have his profits and losses computed for tax purposes as if the arm’s length provision had been made or imposed instead of the actual provision; and

(b) notwithstanding any limit in the Tax Acts on the time within which any adjustment may be made, all such adjustments shall be made in his case as may be required to give effect to the assumption that the arm’s length provision was made or imposed instead of the actual provision.

(3) A claim made by the disadvantaged person for the purposes of this paragraph—

(a) shall not be made unless a computation has been made in the case of the advantaged person on the basis that the arm’s length provision was made or imposed instead of the actual provision; and

(b) must be consistent with the computation made on that basis in the case of the advantaged person.

(4) For the purposes of sub-paragraph (3) above a computation shall be taken to have been made in the case of the advantaged person on the basis that the arm’s length provision was made or imposed instead of the actual provision if, and only if—

(a) the computations made for the purposes of any return by the advantaged person have been made on that basis by virtue of this Schedule; or

(b) a relevant notice given to the advantaged person takes account of a determination in pursuance of this Schedule of an amount falling to be brought into account for tax purposes on that basis.

(5) Subject to section 111(3)(b) of the Finance Act 1998 (which provides for the extension of the period for making a claim), a claim for the purposes of this paragraph shall not be made except within one of the following periods—

(a) in a case where a return has been made by the advantaged person on the basis mentioned in sub-paragraph (3)(a) above, the period of two years beginning with the day of the making of the return; and

(b) in any case where a relevant notice taking account of such a determination as is mentioned in sub-paragraph (4)(b) above has been given to the advantaged person, the period of two years beginning with the day on which that notice was given.

(6) Subject to section 111(3)(b) of the Finance Act 1998, where—

(a) a claim for the purposes of this paragraph is made by the disadvantaged person in relation to a return made on the basis mentioned in sub-paragraph (3)(a) above, and

(b) a relevant notice taking account of such a determination as is mentioned in sub-paragraph (4)(b) above is subsequently given to the advantaged person,

the disadvantaged person shall be entitled, within the period mentioned in sub-paragraph (5)(b) above, to make any such amendment of the claim as may be appropriate in consequence of the determination contained in that notice.

(7) In this paragraph—

• “relevant notice” means—

  (a)

  a notice under section 28A(5) or 28B(5) of the Management Act stating the conclusions of an officer of the Board in relation to any self-assessment, partnership statement, claim or election;

  (b)

  a closure notice under paragraph 32 of Schedule 18 to the Finance Act 1998 in relation to an enquiry into a company tax return;

  (c)

  a notice of an assessment under section 29 of the Management Act;

  (d)

  a notice of any discovery assessment or discovery determination under paragraph 41 of Schedule 18 to the Finance Act 1998 (including any notice of an assessment by virtue of paragraph 52 of that Schedule);

  (e)

  a notice under section 30B(1) of the Management Act amending a partnership statement;

• “return” means any return required to be made under the Management Act or Schedule 18 to the Finance Act 1998 for income tax or corporation tax purposes or any voluntary amendment of such a return; and

• “voluntary amendment”, in relation to a return, means any amendment in accordance with the Management Act or Schedule 18 to the Finance Act 1998, other than one made in response to the giving of a relevant notice.

Modifications etc. (not altering text)

C125 Sch. 28AA paras. 6, 7 modified (27.7.1999) by Finance Act 1999 (c. 16), s. 87(1)-(3) (with s. 87(4))

Valid from 22/07/2004

Application of paragraph 6 in relation to transfers of trading stock etc U.K.

6A (1) Paragraph 6(2)(a) above does not affect the credits to be brought into account by the disadvantaged person in respect of—

(a) closing trading stock, or

(b) closing work in progress in a trade,

for accounting periods ending on or after the last day of the relevant accounting period of the advantaged person.

(2) For the purposes of sub-paragraph (1) above, the relevant accounting period of the advantaged person is the accounting period in which the actual provision was made or imposed.

(3) For the purposes of this paragraph “trading stock”, in relation to any trade, has the same meaning as it has for the purposes of section 100 (valuation of trading stock at discontinuance of trade) (see subsection (2) of that section).

Valid from 22/07/2004

Compensating adjustment where advantaged person is a controlled foreign company U.K.

6B (1) This paragraph applies in any case where—

(a) the actual provision is provision made or imposed in relation to a controlled foreign company,

(b) in determining for the purposes of Chapter 4 of Part 17 the amount of that company’s chargeable profits for an accounting period, its profits and losses fall to be computed in accordance with paragraph 1(2) above in the case of that provision,

(c) the whole of those chargeable profits fall to be apportioned under section 747(3) to one or more companies resident in the United Kingdom, and

(d) tax is chargeable by virtue of section 747(4) in respect of the whole of those chargeable profits, as so apportioned to those companies.

(2) Where this paragraph applies, paragraph 6 above shall have effect as if the controlled foreign company were a person on whom a potential advantage in relation to United Kingdom taxation were conferred by the actual provision.

(3) In the application of paragraph 6 above by virtue of this paragraph—

(a) references to the advantaged person in sub-paragraphs (4)(a) and (b), (5)(a) and (b) and (6)(b) of that paragraph include a reference to any of the companies mentioned in sub-paragraph (1)(c) above, and

(b) references to corporation tax include a reference to tax chargeable by virtue of section 747(4).

(4) In this paragraph—

• “controlled foreign company” has the same meaning as in Chapter 4 of Part 17;

• “accounting period”, in relation to a controlled foreign company, has the same meaning as in Chapter 4 of Part 17.

Valid from 22/07/2004

Claims under paragraph 6 where paragraph 1A applies U.K.

6C (1) Where paragraph 1A above applies in relation to any provision, this paragraph has effect in relation to that provision.

(2) A claim under paragraph 6(2) above may be made in accordance with this paragraph.

For the purposes of this Schedule a “paragraph 6C claim” is a claim under paragraph 6(2) above made in accordance with this paragraph.

(3) A paragraph 6C claim may be made by—

(a) the disadvantaged person, or

(b) the advantaged person,

but any such claim made by the advantaged person shall be taken to be made on behalf of the disadvantaged person.

(4) A paragraph 6C claim may be made before or after a computation falling within paragraph 6(3)(a) above has been made.

(5) A paragraph 6C claim must be made either—

(a) at any time before the end of the period mentioned in paragraph 6(5)(a) above, or

(b) within the period mentioned in paragraph 6(5)(b) above,

but this is subject to section 111(3)(b) of the Finance Act 1998 (extension of period for making a claim).

(6) A paragraph 6C claim is not a claim within paragraph 57 or 58 of Schedule 18 to the Finance Act 1998 (company tax returns, assessments and related matters).

Accordingly, paragraph 59 of that Schedule (application of Schedule 1A to the Management Act) has effect in relation to a paragraph 6C claim.

(7) Where—

(a) a paragraph 6C claim is made before a computation falling within paragraph 6(3)(a) above has been made,

(b) such a computation is subsequently made, and

(c) the claim is not consistent with the computation,

the affected persons shall be treated as if (instead of the claim actually made) a claim had been made that was consistent with the computation.

(8) All such adjustments shall be made (whether by discharge or repayment of tax, the making of assessments or otherwise) as are required to give effect to sub-paragraph (7) above.

(9) Sub-paragraph (8) above has effect notwithstanding any limit on the time within which any adjustment may be made.

(10) Where—

(a) a paragraph 6C claim is made,

(b) a return is subsequently made by the advantaged person on the basis mentioned in paragraph 6(3)(a) above, and

(c) a relevant notice (within the meaning of paragraph 6 above) taking account of such a determination as is mentioned in paragraph 6(4)(b) above is subsequently given to the advantaged person,

sub-paragraph (11) below applies.

(11) Where this sub-paragraph applies, any such amendment of the paragraph 6C claim as may be appropriate in consequence of the determination contained in the relevant notice may be made by—

(a) the disadvantaged person, or

(b) the advantaged person,

but any such amendment made by the advantaged person shall be taken to be made on behalf of the disadvantaged person.

(12) Any such amendment must be made within the period mentioned in paragraph 6(5)(b) above.

But that is subject to section 111(3)(b) of the Finance Act 1998 (extension of period for making amendment).

Valid from 22/07/2004

Compensating adjustment for guarantor company etc where paragraph 1B applies U.K.

6D (1) This paragraph applies in any case where—

(a) a company (“the issuing company”) has liabilities under a security issued by the company,

(b) those liabilities are to any extent the subject of a guarantee provided by a company (“the guarantor company”), and

(c) in computing the profits and losses of the issuing company for tax purposes, the amounts to be deducted in respect of interest or other amounts payable under the security fall to be reduced (whether or not to nil) under paragraph 1(2) above by virtue of paragraph 1B above.

(2) On the making of a claim in any such case, the guarantor company shall, to the extent of that reduction, be treated for all purposes of the Taxes Acts as if it (and not the issuing company)—

(a) had issued the security,

(b) owed the liabilities under it, and

(c) had paid any interest or other amounts paid under it by the issuing company,

and in computing the profits and losses of the guarantor company for those purposes amounts shall be brought into account accordingly.

This sub-paragraph is subject to the following provisions of this paragraph.

(3) Where the issuing company’s liabilities under the security are the subject of two or more guarantees (whether or not provided by the same person) TD must not exceed TR, where—

• TD is the total of the amounts brought into account by the guarantor companies by virtue of sub-paragraph (2) above, and

• TR is the total amount of the reductions that fall within sub-paragraph (1)(c) above.

(4) In this paragraph “the loan provision” means the actual provision made or imposed between—

(a) the issuing company, and

(b) another company (“the lending company”),

which is provision in relation to the security.

(5) Where—

(a) the guarantor company makes a claim under sub-paragraph (2) above, and

(b) the lending company makes a claim under paragraph 6 above in respect of the loan provision,

sub-paragraphs (6) and (7) below apply.

(6) In determining, in a case where this sub-paragraph applies, the arm’s length provision for the purposes of paragraph 6(2)(a) above in relation to the lending company’s claim, additional amounts shall be brought into account as credits corresponding to the debits that fall to be brought into account by virtue of sub-paragraph (2) above in relation to the guarantor company.

(7) If, in a case where this sub-paragraph applies,—

(a) the lending company makes its claim under paragraph 6 above before the guarantor company makes its claim under sub-paragraph (2) above, and

(b) the computation on which the lending company’s claim is based does not comply with sub-paragraph (6) above,

the guarantor company’s claim shall be disallowed.

(8) A claim under sub-paragraph (2) above may be made by—

(a) the guarantor company,

(b) where there are two or more guarantor companies, those companies acting together, or

(c) the issuing company,

but any claim made by the issuing company shall be taken to be made on behalf of the guarantor company or companies.

(9) Sub-paragraphs (3) to (6) of paragraph 6 above (claims and time limits) shall apply in relation to a claim under sub-paragraph (2) above made by or on behalf of any person or persons as they apply in relation to a claim under that paragraph made by the disadvantaged person, but taking references in those sub-paragraphs—

(a) to the advantaged person, as references to the issuing company, and

(b) to the disadvantaged person, as references to the guarantor company or companies.

(10) The following provisions of paragraph 1A above also apply for the purposes of this paragraph—

(a) sub-paragraph (7) (construction of references to a guarantee);

(b) sub-paragraph (9) (meaning of security);

(c) sub-paragraph (10) (extended meaning of security).

(11) In this paragraph “the Taxes Acts” has the meaning given in section 118(1) of the Management Act.

Valid from 22/07/2004

Certain interest not to be regarded as chargeable under Case III of Schedule D U.K.

6E Where—

(a) interest is paid by any person under the actual provision,

(b) paragraph 1(2) above applies in relation to the actual provision,

(c) the amount of interest that would have been payable under the arm’s length provision is less than the amount of interest paid under the actual provision (or there would not have been any interest payable),

(d) the person receiving the interest makes a claim under paragraph 6 above or a paragraph 6C claim,

the interest paid under the actual provision, to the extent that it exceeds the amount of interest that would have been payable under the arm’s length provision, shall not be regarded as chargeable under Case III of Schedule D.

Adjustment of disadvantaged person’s double taxation relief U.K.

7 (1) Subject to sub-paragraph (4) below, where—

(a) a claim is made for the purposes of paragraph 6 above, and

(b) the disadvantaged person is entitled, on that claim, to make a computation, or to have an adjustment made in his case, on the basis that the arm’s length provision was made or imposed instead of the actual provision,

the assumptions specified in sub-paragraph (2) below shall apply, in the disadvantaged person’s case, as respects any credit for foreign tax which the disadvantaged person has been or may be given in pursuance of any double taxation arrangements or under section 790(1).

(2) Those assumptions are—

(a) that the foreign tax paid or payable by the disadvantaged person does not include any amount of foreign tax which would not be or have become payable were it to be assumed for the purposes of that tax that the arm’s length provision had been made or imposed instead of the actual provision; and

(b) that the amount of the relevant profits of the disadvantaged person in respect of which he is given credit for foreign tax does not include the amount (if any) by which his relevant profits are treated as reduced in accordance with paragraph 6 above.

(3) Sub-paragraph (4) below applies if—

(a) a claim is made for the purposes of paragraph 6 above;

(b) the disadvantaged person is entitled, on that claim, to make a computation, or to have an adjustment made in his case, on the basis that the arm’s length provision was made or imposed instead of the actual provision;

(c) the application of that basis in the computation of the disadvantaged person’s profits or losses for any chargeable period involves a reduction in the amount of any income; and

(d) that income is also income that falls to be treated as reduced in accordance with section 811(1).

(4) Where this sub-paragraph applies—

(a) the reduction mentioned in sub-paragraph (3)(c) above shall be treated as made before any reduction under section 811(1); and

(b) tax paid, in the place in which any income arises, on so much of that income as is represented by the amount of the reduction mentioned in sub-paragraph (3)(c) above shall be disregarded for the purposes of section 811(1).

(5) Where, in a case in which a claim has been made for the purposes of paragraph 6 above, any adjustment is required to be made for the purpose of giving effect to any of the preceding provisions of this paragraph—

(a) it may be made in any case by setting the amount of the adjustment against any relief or repayment to which the disadvantaged person is entitled in pursuance of that claim; and

(b) nothing in the Tax Acts limiting the time within which any assessment is to be or may be made or amended shall prevent that adjustment from being so made.

(6) References in this paragraph to relevant profits of the disadvantaged person are references to profits arising to the disadvantaged person from the carrying on of the relevant activities.

Modifications etc. (not altering text)

C126 Sch. 28AA paras. 6, 7 modified (27.7.1999) by Finance Act 1999 (c. 16), s. 87(1)-(3) (with s. 87(4))

Valid from 22/07/2004

Balancing payments between affected persons: no charge to, or relief from, tax U.K.

7A (1) This paragraph applies where—

(a) the circumstances are as described in paragraph 6(1) above,

(b) one or more payments (the “balancing payments”) are made to the advantaged person by the disadvantaged person, and

(c) the sole or main reason for making those payments is that paragraph 1(2) above applies.

(2) To the extent that the balancing payments do not in the aggregate exceed the amount of the available compensating adjustment, those payments—

(a) shall not be taken into account in computing profits or losses of either of the affected persons for the purposes of income tax or corporation tax, and

(b) shall not for any of the purposes of the Corporation Tax Acts be regarded as distributions or charges on income.

(3) In this paragraph “the available compensating adjustment” means the difference between PL1 and PL2 where—

• PL1 is the profits and losses of the disadvantaged person computed for tax purposes on the basis of the actual provision, and

• PL2 is the profits and losses of the disadvantaged person as they fall (or would fall) to be computed for tax purposes on a claim under paragraph 6 above,

for this purpose taking PL1 or PL2 as a positive amount if it is an amount of profits and as a negative amount if it is an amount of losses.

Valid from 22/07/2004

Securities: election to discharge tax liability instead of making balancing payments U.K.

7B (1) This paragraph applies in any case where—

(a) both of the affected persons are companies,

(b) the circumstances are as described in paragraph 6(1) above, and

(c) the actual provision is provision in relation to a security (the “relevant security”).

(2) The disadvantaged person may make an election under this paragraph in respect of the relevant security if the condition in sub-paragraph (3) below is satisfied.

(3) The condition is that—

(a) the actual provision forms part of a capital market arrangement,

(b) the capital market arrangement involves the issue of a capital market investment,

(c) the securities that represent the capital market investment are issued wholly or mainly to independent persons (see sub-paragraph (9) below), and

(d) the total value of the capital market investments made under the capital market arrangement is at least £50 million.

(4) An election under this paragraph in respect of the relevant security is an election for the disadvantaged person—

(a) to make no balancing payment within paragraph 7A above to the advantaged person in respect of the application of paragraph 1(2) above in relation to the relevant security in a chargeable period by virtue of paragraph 1A above, but

(b) instead, to undertake sole responsibility for discharging the advantaged person’s liability to tax for that period so far as resulting from the application of paragraph 1(2) above in relation to the relevant security by virtue of paragraph 1A above.

(5) Where an election under this paragraph has effect in relation to an accounting period of the advantaged person, the tax mentioned in sub-paragraph (4)(b) above—

(a) shall be recoverable from the disadvantaged person as if it were an amount of corporation tax due and owing from that person, and

(b) shall not be recoverable from the advantaged person.

(6) Any election under this paragraph in respect of the relevant security—

(a) must be made by being included (whether by amendment or otherwise) in the disadvantaged person’s company tax return for the chargeable period in which the relevant security is issued,

(b) has effect in relation to each of the affected persons for the chargeable period in which the relevant security is issued and all subsequent chargeable periods, and

(c) is irrevocable.

For the purposes of this sub-paragraph a security issued in a chargeable period beginning before 1st April 2004 shall be treated as if it had been issued in the chargeable period beginning on that date.

(7) An election under this paragraph by a person is of no effect if the Board give that person a notice under this sub-paragraph refusing to accept the election.

(8) A notice under sub-paragraph (7) above may be given only after a notice of enquiry in respect of the company tax return containing the election has been given to the disadvantaged person.

(9) In this paragraph—

• “capital market arrangement” has the same meaning as in section 72B(1) of the Insolvency Act 1986 (see paragraph 1 of Schedule 2A to that Act);

• “capital market investment” has the same meaning as in section 72B(1) of the Insolvency Act 1986 (see paragraphs 2 and 3 of Schedule 2A to that Act);

• “company tax return” means the return required to be delivered pursuant to a notice under paragraph 3 of Schedule 18 to the Finance Act 1998, as read with paragraph 4 of that Schedule;

• “independent person” means a person—

  (a)

  who is not the disadvantaged person, and

  (b)

  who does not have a participatory relationship with either of the affected persons.

(10) The following provisions of paragraph 1A above also apply for the purposes of this paragraph—

(a) sub-paragraph (8) (meaning of participatory relationship);

(b) sub-paragraph (9) (meaning of security);

(c) sub-paragraph (10) (extended meaning of security).

Valid from 22/07/2004

Balancing payments by guarantor to issuer: no charge to, or relief from, tax U.K.

7C (1) This paragraph applies in any case where—

(a) the circumstances are as described in paragraph 6D(1) above,

(b) one or more payments (the “balancing payments”) are made by the guarantor company to the issuing company, and

(c) the sole or main reasons for making those payments are that paragraph 1(2) above applies by virtue of paragraph 1B above or that paragraph 6D above applies.

(2) To the extent that the balancing payments made by all the guarantor companies do not in the aggregate exceed the amount TR in paragraph 6D(3) above (total reductions within paragraph 6D(1)(c) above), those payments—

(a) shall not be taken into account in computing for the purposes of corporation tax the profits or losses of the guarantor company or companies or the issuing company, and

(b) shall not for any purpose of the Corporation Tax Acts be regarded as distributions or charges on income.

Valid from 22/07/2004

Guarantees: election to discharge tax liability instead of making balancing payments U.K.

7D (1) This paragraph applies where the following conditions are satisfied—

(a) both of the affected persons are companies,

(b) the circumstances are as described in paragraph 6(1) above,

(c) the actual provision falls within paragraph 1B(1) above.

(2) Sub-paragraphs (2) to (8) of paragraph 7B above apply in a case where this paragraph applies as they apply in a case where that paragraph applies, but with the modifications in sub-paragraphs (3) and (4) below.

(3) The relevant security is the security in paragraph 1B(1)(a) above.

(4) In sub-paragraph (4) (nature of the election)—

(a) for “paragraph 7A above” substitute paragraph 7C below;

(b) for “paragraph 1A”, in both places, substitute paragraph 1B.

Foreign exchange gains and losses and financial instruments U.K.

8 (1) Subject to sub-paragraph (2) below, this Schedule shall not require the amounts brought into account in any person’s case under—

(a) Chapter II of Part II of the M277 Finance Act 1993 (foreign exchange gains and losses), or

(b) Chapter II of Part IV of the M278 Finance Act 1994 (financial instruments),

to be computed in that person’s case on the assumption that the arm’s length provision had been made or imposed instead of the actual provision.

(2) Sub-paragraph (1) above—

(a) shall not affect so much of sections 136 and 136A of the M279 Finance Act 1993 (application of arm’s length test) as has effect by reference to whether the whole or any part of a loan falls to be treated in accordance with this Schedule as an amount on which interest has been charged or, as the case may be, has been charged at a higher rate; and

(b) accordingly, shall not prevent the assumption mentioned in that sub-paragraph from determining for the purposes of sections 136(8) and (9) and 136A(6) and (7) of that Act how much (if any) of any loan falls to be so treated.

Marginal Citations

M277 1993 c. 34.

M278 1994 c. 9.

M279 1993 c. 34.

Special rules for sales etc. of oil U.K.

9 (1) Subject to paragraph 10 below, this paragraph applies to provision made or imposed by or in relation to the terms of a sale of oil if—

(a) the oil sold is oil which has been, or is to be, extracted under rights exercisable by a company (“the producer") which (although it may be the seller) is not the buyer; and

(b) at the time of the sale not less than 20 per cent. of the producer’s ordinary share capital is owned directly or indirectly by one or more of the following, that is to say, the buyer and the companies (if any) that are linked to the buyer.

(2) Where this paragraph applies to provision made or imposed by or in relation to the terms of a sale of oil, this Schedule shall have effect as respects that provision as if the buyer, the seller and (if it is not the seller) the producer were all controlled by the same person at the time of the making or imposition of that provision.

(3) For the purposes of this paragraph two companies are linked if—

(a) one is under the control of the other; or

(b) both are under the control of the same person or persons.

(4) For the purposes of this paragraph—

(a) any question whether ordinary share capital is owned directly or indirectly by a company shall be determined as for section 838;

(b) rights to extract oil shall be taken to be exercisable by a company even if they are exercisable by that company only jointly with one or more other companies; and

(c) a sale of oil shall be deemed to take place at the time of the completion of the sale or when possession of the oil passes, whichever is the earlier.

(5) In this paragraph “oil” includes any mineral oil or relative hydrocarbon, as well as natural gas.

Transactions and deemed transactions involving oil U.K.

10 This Schedule does not apply in relation to provision made or imposed by means of any transaction or deemed transaction in the case of which the price or consideration is determined in accordance with any of subsections (1) to (4) of section 493 (transactions and deemed transactions involving oil treated as made at market value).

Special provision for companies carrying on ring fence trades U.K.

11 (1) This paragraph applies where any person (“the taxpayer") carries on as, or as part of, a trade any activities (“the ring fence trade") which, in accordance with section 492(1) either—

(a) fall to be treated for any tax purposes as a separate trade, distinct from all other activities carried on by him as part of the trade; or

(b) would so fall if the taxpayer did carry on any other activities as part of that trade.

(2) Subject to paragraph 10 above and sub-paragraph (4) below, where provision made or imposed as between the taxpayer and another person by means of a transaction or series of transactions—

(a) falls, in relation to the taxpayer, to be regarded as made or imposed in the course of, or with respect to, the ring fence trade; but

(b) falls, in relation to the other person, to be regarded as made or imposed in the course of, or with respect to, activities of that other person which do not fall within section 492(1),

this Schedule shall have effect in relation to that provision with the omission of paragraph 5(2) above.

(3) Subject to paragraph 10 above and sub-paragraph (4) below, this Schedule shall have effect as respects any provision made or imposed by the taxpayer as between the ring fence trade and any other activities carried on by him as if—

(a) that trade and those activities were carried on by two different persons;

(b) that provision were made or imposed as between those two persons by means of a transaction;

(c) a potential advantage in relation to United Kingdom taxation were conferred by that provision on each of those two persons;

(d) those two persons were both controlled by the same person at the time of the making or imposition of that provision; and

(e) paragraphs 5 to 7 above were omitted.

(4) This Schedule shall apply in accordance with this paragraph in relation to any provision mentioned in sub-paragraph (2) or (3) above only where the effect of its application in relation to that provision is either—

(a) that a larger amount (including, if there would not otherwise have been profits, an amount of more than nil) is taken for tax purposes to be the amount of the profits of the ring fence trade for any chargeable period; or

(b) that a smaller amount (including nil) is taken for tax purposes to be the amount for any chargeable period of any losses of that trade.

Appeals U.K.

12 (1) In so far as the question in dispute on any appeal falling within sub-paragraph (2) below—

(a) is or involves a determination of whether this Schedule has effect as respects any provision made or imposed as between any two persons, or of how it so has effect, and

(b) is not a question that would fall to be determined by the Special Commissioners apart from this sub-paragraph,

that question shall be determined by them.

(2) The appeals falling within this sub-paragraph are—

(a) any appeal under section 31 of, or Schedule 1A to, the Management Act;

(b) any appeal under paragraph 34(3) of Schedule 18 to the Finance Act 1998 against an amendment of a company’s return; and

(c) any appeal under paragraph 48 of that Schedule against a discovery assessment or a discovery determination.

(3) Sub-paragraph (4) below applies where—

(a) any such question as is mentioned in sub-paragraph (1) above falls to be determined by the Special Commissioners for the purposes of any proceedings before them; and

(b) that question relates to any provision made or imposed as between two persons each of whom is a person in relation to whom the condition set out in paragraph 5(3) above is satisfied.

(4) Where this sub-paragraph applies—

(a) each of the persons as between whom the actual provision was made or imposed shall be entitled to appear and be heard by the Special Commissioners, or to make representations to them in writing;

(b) the Special Commissioners shall determine that question separately from any other questions in those proceedings; and

(c) their determination on that question shall have effect as if made in an appeal to which each of those persons was a party.

(5) In this paragraph—

• “discovery assessment” means a discovery assessment under paragraph 41 of Schedule 18 to the Finance Act 1998 (including one by virtue of paragraph 52 of that Schedule); and

• “discovery determination” means a discovery determination under paragraph 41 of that Schedule.

Saving for the provisions relating to capital allowances and capital gains U.K.

13 Nothing in this Schedule shall be construed as affecting—

(a) the computation of the amount of any capital allowance or balancing charge made under the 1990 Act; or

(b) the computation in accordance with the 1992 Act of the amount of any chargeable gain or allowable loss;

and nothing in this Schedule shall require the profits or losses of any person to be computed for tax purposes as if, in his case, instead of income or losses falling to be brought into account in connection with the taxation of income, there were gains or losses falling to be brought into account in accordance with the 1992 Act.

General interpretation etc. U.K.

14 (1) In this Schedule—

• “the actual provision” and “the affected persons” shall be construed in accordance with paragraph 1(1) above;

• “the arm”s length provision’ shall be construed in accordance with paragraph 1(2) and (3) above;

• “double taxation arrangements” means arrangements having effect by virtue of section 788;

• “foreign tax” means any tax under the law of a territory outside the United Kingdom or any amount which falls for the purposes of any double taxation arrangements to be treated as if it were such tax;

• “insurance company” has the same meaning as in Chapter I of Part XII;

• “losses” includes amounts which are not losses but in respect of which relief may be given in accordance with any of the following enactments—

  (a)

  section 75(3) (excess of management expenses);

  (b)

  section 468L(5) (allowance for interest distributions of a unit trust);

  (c)

  Part X (loss relief and group relief);

  (d)

  section 83 of and Schedule 8 to the M280 Finance Act 1996 or paragraph 4 of Schedule 11 to that Act (deficits on loan relationships);

• “profits” includes income;

• “the relevant activities”, in relation to a person who is one of the persons as between whom any provision is made or imposed, means such of his activities as—

  (i)

  comprise the activities in the course of which, or with respect to which, that provision is made or imposed; and

  (ii)

  are not activities carried on either separately from those activities or for the purposes of a different part of that person’s business;

• “transaction” and “series of transactions” shall be construed in accordance with paragraph 3 above.

(2) Without prejudice to paragraphs 9(2) and 11(3) above, references in this Schedule to a person controlling a body corporate or a partnership shall be construed in accordance with section 840.

(3) In determining for the purposes of this Schedule whether a person has an entitlement, in pursuance of any double taxation arrangements or under section 790(1), to be given credit for foreign tax, any requirement that a claim is made before such a credit is given shall be disregarded.

(4) Any adjustments required to be made by virtue of this Schedule may be made by way of discharge or repayment of tax, by the modification of any assessment or otherwise.

(5) This Schedule shall have effect as if—

(a) a unit trust scheme were a company that is a body corporate;

(b) the rights of the unit holders under such a scheme were shares in the company that the scheme is deemed to be;

(c) rights and powers of a person in the capacity of a person entitled to act for the purposes of the scheme were rights and powers of the scheme; and

(d) provision made or imposed as between any person in such a capacity and another person were made or imposed as between the scheme and that other person.

Marginal Citations

M280 1996 c. 8.

Valid from 07/04/2005

SCHEDULE 28AB U.K. Section 804ZA: prescribed schemes and arrangements

Introductory U.K.

1 (1) A scheme or arrangement, other than a scheme or arrangement falling within sub-paragraph (3), is a prescribed scheme or arrangement if one or more of paragraphs 2 to 6 apply to it.

(2) A scheme or arrangement falling within sub-paragraph (3) is a prescribed scheme or arrangement if one or more of paragraphs 2 to 6 would, on the assumption in sub-paragraph (4), apply to it.

(3) A scheme or arrangement falls within this sub-paragraph if its main purpose, or one of its main purposes, is to cause an amount of underlying tax allowable in respect of a dividend paid by a body corporate resident in a territory outside the United Kingdom to be taken into account in the case of a person.

(4) The assumption is that the body corporate is resident in the United Kingdom.

(5) Nothing in sub-paragraph (4) requires it to be assumed that there is any change in the place or places at which the body corporate carries on its activities.

Attribution of foreign tax U.K.

2 This paragraph applies to a scheme or arrangement if the scheme or arrangement enables a person who is party to, or concerned in, the scheme or arrangement to pay, in respect of a source of income or chargeable gain, an amount of foreign tax all or part of which is properly attributable to another source of income or chargeable gain (or to more than one such other source).

Effect of paying foreign tax U.K.

3 (1) This paragraph applies to a scheme or arrangement if, under the scheme or arrangement, sub-paragraph (2) is satisfied in relation to a person who has claimed, or is in a position to claim, for a chargeable period an allowance under any arrangements by way of credit for foreign tax (“the claimant”).

(2) This sub-paragraph is satisfied if—

(a) an amount of foreign tax is paid by the claimant, and

(b) at the time when the claimant entered into the scheme or arrangement, it could reasonably be expected that the effect of the payment of that amount of foreign tax on the foreign tax total would be to increase it by less than the amount allowable to the claimant as a credit in respect of the payment of that amount of foreign tax.

(3) The foreign tax total is the amount found by—

(a) aggregating the amounts of foreign tax paid or payable in respect of the transaction or transactions forming part of the scheme or arrangement by persons party to, or concerned in, the scheme or arrangement, and

(b) taking into account any reliefs, deductions, reductions or allowances against or in respect of any tax that arise to the persons party to, or concerned in, the scheme or arrangement (including any reliefs, deductions, reductions or allowances arising to any one or more of those persons as a consequence of the payment by the claimant of that amount of foreign tax).

Effect of claim, election or other arrangement U.K.

4 (1) This paragraph applies to a scheme or arrangement if under the scheme or arrangement—

(a) a step is taken by a person who is party to, or concerned in, the scheme or arrangement, or

(b) a step that could have been taken by such a person is not taken,

and that action or that failure to act has the effect of increasing a claim made by a person who is party to, or concerned in, the scheme or arrangement for an allowance by way of credit in accordance with this Part or of giving rise to such a claim.

(2) The steps mentioned in sub-paragraph (1) are steps that may be made—

(a) under the law of any territory, or

(b) under arrangements made in relation to any territory.

(3) The steps mentioned in sub-paragraph (1) include—

(a) claiming, or otherwise securing the benefit of, reliefs, deductions, reductions or allowances;

(b) making elections for tax purposes.

Effect attributable to scheme or arrangement U.K.

5 (1) This paragraph applies to a scheme or arrangement if, under the scheme or arrangement, sub-paragraph (2) is satisfied in relation to a person who has claimed, or is in a position to claim, for a chargeable period an allowance under any arrangements by way of credit for foreign tax.

(2) This sub-paragraph is satisfied if amount A is less than amount B.

(3) Amount A is the amount of United Kingdom taxes payable by the person in respect of income and chargeable gains arising in the chargeable period.

(4) Amount B is the amount of United Kingdom taxes that would be payable by the person in respect of income and chargeable gains arising in the chargeable period if, in determining that amount, the transactions forming part of the scheme or arrangement were disregarded.

Tax deductible payments U.K.

6 (1) This paragraph applies to a scheme or arrangement if the scheme or arrangement includes—

(a) the making by a person (“A”) of a relevant payment or payments, and

(b) the giving, in respect of that payment or payments, of consideration that satisfies the requirements of sub-paragraph (3).

(2) A payment made by A is a relevant payment if all or part of it may be brought into account in computing A's income for the purposes of United Kingdom taxes.

(3) Consideration given in respect of a payment or payments made by A satisfies the requirements of this sub-paragraph if—

(a) all or part of it consists of a payment or payments made to A or a person connected with A, and

(b) tax is chargeable in respect of the payment or payments under the law of a territory outside the United Kingdom.

(4) In this paragraph references to a payment include references to a transfer of money's worth.

(5) Section 839 applies for the purposes of this paragraph.

Valid from 01/05/1995

SCHEDULE 28B U.K. Venture Capital Trusts: Meaning of “qualifying holdings”

Introductory U.K.

1 (1) This Schedule applies, where any shares in or securities of any company (“the relevant company”) are at any time held by another company (“the trust company”), for determining whether and to what extent those shares or securities (“the relevant holding”) are, for the purposes of section 842AA, to be regarded as at that time comprised in the trust company’s qualifying holdings.

(2) The relevant holding shall be regarded as comprised in the trust company’s qualifying holdings at any time if—

(a) all the requirements of the following provisions of this Schedule are satisfied at that time in relation to the relevant company and the relevant holding; and

(b) the relevant holding consists of shares or securities which were first issued by the relevant company to the trust company and have been held by the trust company ever since.

(3) Subject to paragraph 6(3) below, where the requirements of paragraph 6 or 7 below would be satisfied as to only part of the money raised by the issue of the relevant holding and that holding is not otherwise capable of being treated as comprising separate holdings, this Schedule shall have effect in relation to that holding as if it were two holdings consisting of—

(a) a holding from which that part of the money was raised; and

(b) a holding from which the remainder was raised;

and section 842AA shall have effect as if the value of the holding were to be apportioned accordingly between the two holdings which are deemed to exist in pursuance of this sub-paragraph.

Requirement that company must be unquoted company U.K.

2 (1) The requirement of this paragraph is that the relevant company (whether or not it is resident in the United Kingdom) must be an unquoted company.

(2) In this paragraph “unquoted company” means a company none of whose shares, stocks, debentures or other securities is marketed to the general public.

(3) For the purposes of this paragraph shares, stocks, debentures or other securities are marketed to the general public if they are—

(a) listed on a recognised stock exchange,

(b) listed on a designated exchange in a country outside the United Kingdom, or

(c) dealt in on the Unlisted Securities Market or dealt in outside the United Kingdom by such means as may be designated.

(4) In sub-paragraph (3) above “designated” means designated by an order made by the Board for the purposes of that sub-paragraph; and an order made for the purposes of paragraph (b) of that sub-paragraph may designate an exchange by name, or by reference to any class or description of exchanges, including a class or description framed by reference to any authority or approval given in a country outside the United Kingdom.

(5) Section 828(1) does not apply to an order made for the purposes of sub-paragraph (3) above.

(6) Where a company any shares in or securities of which are included in the qualifying holdings of the trust company ceases at any time while the trust company is approved as a venture capital trust to be an unquoted company, the requirements of this paragraph shall be deemed, in relation to shares or securities acquired by the trust company before that time, to continue to be satisfied for a period of five years after that time.

Requirements as to company’s business U.K.

3 (1) The requirements of this paragraph are as follows.

(2) The relevant company must be one of the following, that is to say—

(a) a company which exists wholly for the purpose of carrying on one or more qualifying trades or which so exists apart from purposes capable of having no significant effect (other than in relation to incidental matters) on the extent of the company’s activities;

(b) a company whose business consists entirely in the holding of shares in or securities of, or the making of loans to, one or more qualifying subsidiaries of that company; or

(c) a company whose business consists entirely in—

(i) the holding of such shares or securities, or the making of such loans; and

(ii) the carrying on of one or more qualifying trades.

(3) Subject to sub-paragraph (4) below, the relevant company or a qualifying subsidiary of that company must, when the relevant holding was issued and at all times since, have been either—

(a) carrying on a qualifying trade wholly or mainly in the United Kingdom; or

(b) preparing to carry on a qualifying trade which at the time when the relevant holding was issued it intended to carry on wholly or mainly in the United Kingdom.

(4) The requirements of sub-paragraph (3) above shall not be capable of being satisfied by virtue of paragraph (b) of that sub-paragraph at any time after the end of the period of two years beginning with the issue of the relevant holding unless—

(a) the relevant company or the subsidiary in question began to carry on the intended trade before the end of that period, and

(b) that company or subsidiary has, at all times since the end of that period, been carrying on a qualifying trade wholly or mainly in the United Kingdom.

(5) The requirements of that sub-paragraph shall also be incapable of being so satisfied at any time after the abandonment, within the period mentioned in sub-paragraph (4) above, of the intention in question.

Meaning of “qualifying trade” U.K.

4 (1) For the purposes of this Schedule—

(a) a trade is a qualifying trade if it is a trade complying with this paragraph; and

(b) the carrying on of any activities of research and development from which it is intended that there will be derived a trade that—

(i) will comply with this paragraph, and

(ii) will be carried on wholly or mainly in the United Kingdom,

shall be treated as the carrying on of a qualifying trade.

(2) Subject to sub-paragraphs (3) to (9) below, a trade complies with this paragraph if neither that trade nor a substantial part of it consists in one or more of the following activities, that is to say—

(a) dealing in land, in commodities or futures or in shares, securities or other financial instruments;

(b) dealing in goods otherwise than in the course of an ordinary trade of wholesale or retail distribution;

(c) banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities;

(d) leasing (including letting ships on charter or other assets on hire) or receiving royalties or licence fees;

(e) providing legal or accountancy services;

(f) providing services or facilities for any such trade carried on by another person (not being a company of which the company providing the services or facilities is a subsidiary) as—

(i) consists, to a substantial extent, in activities within any of paragraphs (a) to (e) above; and

(ii) is a trade in which a controlling interest is held by a person who also has a controlling interest in the trade carried on by the company providing the services or facilities.

(3) For the purposes of sub-paragraph (2)(b) above—

(a) a trade of wholesale distribution is one in which the goods are offered for sale and sold to persons for resale by them, or for processing and resale by them, to members of the general public for their use or consumption;

(b) a trade of retail distribution is one in which the goods are offered for sale and sold to members of the general public for their use or consumption; and

(c) a trade is not an ordinary trade of wholesale or retail distribution if—

(i) it consists, to a substantial extent, in dealing in goods of a kind which are collected or held as an investment, or in that activity and any other activity of a kind falling within sub-paragraph (2)(a) to (f) above, taken together; and

(ii) a substantial proportion of those goods are held by the company for a period which is significantly longer than the period for which a vendor would reasonably be expected to hold them while endeavouring to dispose of them at their market value.

(4) In determining for the purposes of this paragraph whether a trade carried on by any person is an ordinary trade of wholesale or retail distribution, regard shall be had to the extent to which it has the following features, that is to say—

(a) the goods are bought by that person in quantities larger than those in which he sells them;

(b) the goods are bought and sold by that person in different markets;

(c) that person employs staff and incurs expenses in the trade in addition to the cost of the goods and, in the case of a trade carried on by a company, to any remuneration paid to any person connected with it;

(d) there are purchases or sales from or to persons who are connected with that person;

(e) purchases are matched with forward sales or vice versa;

(f) the goods are held by that person for longer than is normal for goods of the kind in question;

(g) the trade is carried on otherwise than at a place or places commonly used for wholesale or retail trade;

(h) that person does not take physical possession of the goods;

and for the purposes of this sub-paragraph the features specified in paragraphs (a) to (c) above shall be regarded as indications that the trade is such an ordinary trade and those in paragraphs (d) to (h) above shall be regarded as indications of the contrary.

(5) A trade shall not be treated as failing to comply with this paragraph by reason only of its consisting, to a substantial extent, in the receiving of royalties or licence fees if—

(a) the company carrying on the trade is engaged in—

(i) the production of films; or

(ii) the production of films and the distribution of films produced by it since the issue of the relevant holding;

and

(b) all royalties and licence fees received by it are in respect of films produced by it since the issue of the relevant holding, in respect of sound recordings in relation to such films or in respect of other products arising from such films.

(6) A trade shall not be treated as failing to comply with this paragraph by reason only of its consisting, to a substantial extent, in the receiving of royalties or licence fees if—

(a) the company carrying on the trade is engaged in research and development; and

(b) all royalties and licence fees received by it are attributable to research and development which it has carried out.

(7) A trade shall not be treated as failing to comply with this paragraph by reason only of its consisting in letting ships, other than oil rigs or pleasure craft, on charter if—

(a) every ship let on charter by the company carrying on the trade is beneficially owned by the company;

(b) every ship beneficially owned by the company is registered in the United Kingdom;

(c) the company is solely responsible for arranging the marketing of the services of its ships; and

(d) the conditions mentioned in sub-paragraph (8) below are satisfied in relation to every letting of a ship on charter by the company;

but where any of the requirements mentioned in paragraphs (a) to (d) above are not satisfied in relation to any lettings, the trade shall not thereby be treated as failing to comply with this paragraph if those lettings and any other activity of a kind falling within sub-paragraph (2) above do not, when taken together, amount to a substantial part of the trade.

(8) The conditions are that—

(a) the letting is for a period not exceeding 12 months and no provision is made at any time (whether in the charterparty or otherwise) for extending it beyond that period otherwise than at the option of the charterer;

(b) during the period of the letting there is no provision in force (whether by virtue of being contained in the charterparty or otherwise) for the grant of a new letting to end, otherwise than at the option of the charterer, more than 12 months after that provision is made;

(c) the letting is by way of a bargain made at arm’s length between the company and a person who is not connected with it;

(d) under the terms of the charter the company is responsible as principal—

(i) for taking, throughout the period of the charter, management decisions in relation to the ship, other than those of a kind generally regarded by persons engaged in trade of the kind in question as matters of husbandry; and

(ii) for defraying all expenses in connection with the ship throughout that period, or substantially all such expenses, other than those directly incidental to a particular voyage or to the employment of the ship during that period;

and

(e) no arrangements exist by virtue of which a person other than the company may be appointed to be responsible for the matters mentioned in paragraph (d) above on behalf of the company;

but this sub-paragraph shall have effect, in relation to any letting between one company and another where one of those companies is the relevant company and the other is a qualifying subsidiary of that company, or where both companies are qualifying subsidiaries of the relevant company, as if paragraph (c) were omitted.

(9) A trade shall not comply with this paragraph unless it is conducted on a commercial basis and with a view to the realisation of profits.

Provisions supplemental to paragraph 4 U.K.

5 (1) In paragraph 4 above—

• “film” means an original master negative of a film, an original master film disc or an original master film tape;

• “oil rig” means any ship which is an offshore installation for the purposes of the M281 Mineral Workings (Offshore Installations) Act 1971;

• “pleasure craft” means any ship of a kind primarily used for sport or recreation;

• “research and development” means any activity which is intended to result in a patentable invention (within the meaning of the M282 Patents Act 1977) or in a computer program; and

• “sound recording”, in relation to a film, means its sound track, original master audio disc or original master audio tape.

(2) For the purposes of paragraph 4 above, in the case of a trade carried on by a company, a person has a controlling interest in that trade if—

(a) he controls the company;

(b) the company is a close company and he or an associate of his, being a director of the company, either—

(i) is the beneficial owner of more than 30 per cent. of the ordinary share capital of the company, or

(ii) is able, directly or through the medium of other companies or by any other indirect means, to control more than 30 per cent. of that share capital;

or

(c) not less than half of the trade could, in accordance with section 344(2), be regarded as belonging to him for the purposes of section 343;

and, in any other case, a person has a controlling interest in a trade if he is entitled to not less than half of the assets used for, or of the income arising from, the trade.

(3) For the purposes of sub-paragraph (2) above there shall be attributed to any person any rights or powers of any other person who is an associate of his.

(4) References in paragraph 4 above or this paragraph to a trade, except the references in paragraph 4(2)(f) to the trade for which services or facilities are provided, shall be construed without reference to so much of the definition of trade in section 832(1) as relates to adventures or concerns in the nature of trade; and those references in paragraph 4(2)(f) above to a trade shall have effect, in relation to cases in which what is carried on is carried on by a person other than a company, as including references to any business, profession or vocation.

(5) 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

• “director” shall be construed in accordance with subsection (5) of that section.

Marginal Citations

M281 1971 c. 61.

M282 1977 c. 37.

Valid from 22/07/2004

Meaning of “relevant qualifying subsidiary” U.K.

5A (1) For the purposes of this Schedule, a company (“the subsidiary”) is a relevant qualifying subsidiary of the relevant company at any time when it falls within sub-paragraph (2) below.

(2) The subsidiary falls within this sub-paragraph if—

(a) the relevant company possesses not less than 90 per cent. of the issued share capital of, and not less than 90 per cent. of the voting power in, the subsidiary;

(b) the relevant company would—

(i) in the event of a winding up of the subsidiary, or

(ii) in any other circumstances,

be beneficially entitled to receive not less than 90 per cent. of the assets of the subsidiary which would then be available for distribution to the equity holders of the subsidiary;

(c) the relevant company is beneficially entitled to not less than 90 per cent. of any profits of the subsidiary which are available for distribution to the equity holders of the subsidiary;

(d) no person other than the relevant company has control of the subsidiary within the meaning of section 840; and

(e) no arrangements are in existence by virtue of which any of the conditions in paragraphs (a) to (d) above would cease to be met.

(3) Sub-paragraphs (4) to (4C) and (5) of paragraph 10 below apply in relation to sub-paragraph (2) of this paragraph as they apply in relation to sub-paragraph (3) of that paragraph, but with the following modification.

(4) That modification is that sub-paragraph (5) of that paragraph is to be read as if the words “or (as the case may be) by another subsidiary of that company” were omitted.

(5) For the purposes of this paragraph—

(a) the persons who are equity holders of the subsidiary, and

(b) the percentage of the assets of the subsidiary to which an equity holder would be entitled,

shall be determined in accordance with paragraphs 1 and 3 of Schedule 18.

(6) But in making that determination—

(a) references in paragraph 3 of that Schedule to the first company are to be read as references to an equity holder, and

(b) references in that paragraph to a winding up are to be read as including references to any other circumstances in which assets of the subsidiary are available for distribution to its equity holders.

Requirements as to the money raised by the investment in question U.K.

6 (1) The requirements of this paragraph are that the money raised by the issue of the relevant holding must—

(a) have been employed wholly for the purposes of the trade by reference to which the requirements of paragraph 3(3) above are satisfied; or

(b) be money which the relevant company or a qualifying subsidiary of that company is intending to employ wholly for the purposes of that trade.

(2) The requirements of sub-paragraph (1) above shall not be capable of being satisfied by virtue of paragraph (b) of that sub-paragraph at any time after twelve months have expired from whichever is applicable of the following, that is to say—

(a) in a case where the requirements of sub-paragraph (3) of paragraph 3 above were satisfied in relation to the time when the relevant holding was issued by virtue of paragraph (a) of that sub-paragraph, that time; and

(b) in a case where they were satisfied in relation to that time by virtue of paragraph (b) of that sub-paragraph, the time when the relevant company or, as the case may be, the subsidiary in question began to carry on the intended trade.

(3) For the purposes of this paragraph money shall not be treated as employed otherwise than wholly for the purposes of a trade if the only amount employed for other purposes is an amount which is not a significant amount; and nothing in paragraph 1(3) above shall require any money whose use is disregarded by virtue of this sub-paragraph to be treated as raised by a different holding.

(4) References in this paragraph to employing money for the purposes of a trade shall include references to employing it for the purpose of preparing for the carrying on of the trade.

Requirement imposing a maximum on qualifying investments in the relevant company U.K.

7 (1) The requirement of this paragraph is that the relevant holding did not, when it was issued, represent an investment in excess of the maximum qualifying investment for the relevant period.

(2) Subject to sub-paragraph (4) below, the maximum qualifying investment for any period is exceeded to the extent that the aggregate amount of money raised in that period by the issue to the trust company during that period of shares in or securities of the relevant company exceeds £1 million.

(3) Any question for the purposes of this paragraph as to whether any shares in or securities of the relevant company which are for the time being held by the trust company represent an investment in excess of the maximum qualifying investment for any period shall be determined on the assumption, in relation to disposals by the trust company, that, as between shares or securities of the same description, those representing the whole or any part of the excess are disposed of before those which do not.

(4) Where—

(a) at the time of the issue of the relevant holding the relevant company or any of its qualifying subsidiaries was a member of a partnership or a party to a joint venture,

(b) the trade by virtue of which the requirements of paragraph 3(3) above are satisfied was at that time being carried on, or to be carried on, by those partners in partnership or by the parties to the joint venture as such, and

(c) the other partners or parties to the joint venture include at least one other company,

this paragraph shall have effect in relation to the relevant company as if the sum of money for the time being specified in sub-paragraph (2) above were to be divided by the number of companies (including the relevant company) which, at the time when the relevant holding was issued, were members of the partnership or, as the case may be, parties to the joint venture.

(5) For the purposes of this paragraph the relevant period is the period beginning with whichever is the earlier of—

(a) the time six months before the issue of the relevant holding; and

(b) the beginning of the year of assessment in which the issue of that holding took place.

Modifications etc. (not altering text)

C127 Sch. 28B paras. 6-9, 10B modified (13.11.2002 with effect in accordance with reg. 1(2) of the modifying S.I.) by The Venture Capital Trust (Exchange of Shares and Securities) Regulations 2002 (S.I. 2002/2661), regs. 7-9, 11

Requirement as to the assets of the relevant company U.K.

8 (1) The requirement of this paragraph is that the value of the relevant assets—

(a) did not exceed £10 million immediately before the issue of the relevant holding; and

(b) did not exceed £11 million immediately afterwards.

(2) Subject to sub-paragraph (3) below, the reference in sub-paragraph (1) above to the value of the relevant assets is a reference—

(a) in relation to a time when the relevant company did not have any qualifying subsidiaries, to the value of the gross assets of that company at that time; and

(b) in relation to any other time, to the aggregate value at that time of the gross assets of all the companies in the relevant company’s group.

(3) For the purposes of this paragraph assets of any member of the relevant company’s group that consist in rights against, or in shares in or securities of, another member of the group shall be disregarded.

(4) In this paragraph references, in relation to any time, to the relevant company’s group are references to the relevant company and its qualifying subsidiaries at that time.

Requirements as to the subsidiaries etc. of the relevant company U.K.

9 (1) The requirements of this paragraph are that F365 . . . the relevant company must not be—

(a) a company which controls (whether on its own or together with any person connected with it) any company that is not a qualifying subsidiary of the relevant company; or

(b) a company which is under the control of another company (or of another company and a person connected with the other company);

and arrangements must not be in existence by virtue of which the relevant company could fall within paragraph (a) or (b) above.

(2) F366 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F365 Words in Sch. 28B para. 9(1) repealed (retrospectively) by Finance Act 1996 (c. 8), s. 161(1)(2)(a), Sch. 41 Pt. 5(22), Note

F366 Sch. 28B para. 9(2) repealed (retrospectively) by Finance Act 1996 (c. 8), s. 161(1)(2)(b), Sch. 41 Pt. 5(22), Note

Modifications etc. (not altering text)

C128 Sch. 28B paras. 6-9, 10B modified (13.11.2002 with effect in accordance with reg. 1(2) of the modifying S.I.) by The Venture Capital Trust (Exchange of Shares and Securities) Regulations 2002 (S.I. 2002/2661), regs. 7-9, 11

Meaning of “qualifying subsidiary” U.K.

10 (1) Subject to the following provisions of this paragraph, a company is a qualifying subsidiary of the relevant company for the purposes of this Schedule if—

(a) the company in question (“the subsidiary”), and

(b) where the relevant company has more than one subsidiary, every other subsidiary of the relevant company,

is a company falling within each of sub-paragraphs (2) and (3) below.

(2) The subsidiary falls within this sub-paragraph if—

(a) it is a company in relation to which the requirements of paragraph 3(2)(a) above are satisfied;

(b) it exists wholly for the purpose of holding and managing property used by the relevant company or any of the relevant company’s other subsidiaries for the purposes of—

(i) research and development from which it is intended that a qualifying trade to be carried on by the relevant company or any of its qualifying subsidiaries will be derived, or

(ii) one or more qualifying trades so carried on;

(c) it would exist wholly for such a purpose apart from purposes capable of having no significant effect (other than in relation to incidental matters) on the extent of the company’s activities; or

(d) it has no profits for the purposes of corporation tax and no part of its business consists in the making of investments.

(3) The subsidiary falls within this sub-paragraph if—

(a) the relevant company, or another of its subsidiaries, possesses not less than 90 per cent. of the issued share capital of, and not less than 90 per cent. of the voting power in, the subsidiary;

(b) the relevant company, or another of its subsidiaries, would in the event of a winding up of the subsidiary or in any other circumstances be beneficially entitled to receive not less than 90 per cent. of the assets of the subsidiary which would then be available for distribution to the equity holders of the subsidiary;

(c) the relevant company, or another of its subsidiaries, is beneficially entitled to not less than 90 per cent. of any profits of the subsidiary which are available for distribution to the equity holders of the subsidiary;

(d) no person other than the relevant company or another of its subsidiaries has control of the subsidiary within the meaning of section 840; and

(e) no arrangements are in existence by virtue of which the relevant company could cease to fall within this sub-paragraph.

(4) The subsidiary shall not be regarded, at a time when it is being wound up, as having ceased on that account to be a company falling within sub-paragraphs (2) and (3) above if it is shown—

(a) that it would fall within those sub-paragraphs apart from the winding up; and

(b) that the winding up is for bona fide commercial reasons and not part of a scheme or arrangement the main purpose of which, or one of the main purposes of which, is the avoidance of tax.

(5) The subsidiary shall not be regarded, at any time when arrangements are in existence for the disposal by the relevant company, or (as the case may be) by another subsidiary of that company, of all its interest in the subsidiary in question, as having ceased on that account to be a company falling within sub-paragraphs (2) and (3) above if it is shown that the disposal is to be for bona fide commercial reasons and not part of a scheme or arrangement the main purpose of which, or one of the main purposes of which, is the avoidance of tax.

(6) For the purposes of this paragraph the persons who are equity holders of the subsidiary and the percentage of the assets of the subsidiary to which an equity holder would be entitled shall be determined in accordance with paragraphs 1 and 3 of Schedule 18, taking references in paragraph 3 to the first company as references to an equity holder, and references to a winding up as including references to any other circumstances in which assets of the subsidiary are available for distribution to its equity holders.

Valid from 22/07/2004

Requirement as to property managing subsidiaries U.K.

10ZA (1) The requirement of this paragraph is that the relevant company must not have a property managing subsidiary which is not a relevant qualifying subsidiary of the relevant company.

(2) “Property managing subsidiary” means a qualifying subsidiary of the relevant company whose business consists wholly or mainly in the holding or managing of land or any property deriving its value from land.

(3) In sub-paragraph (2) above, “land” and “property deriving its value from land” have the same meaning as in section 776.

Valid from 31/07/1998

Requirement that securities should not relate to a guaranteed loan U.K.

10A (1) The requirement of this paragraph is that there are no securities relating to a guaranteed loan in the relevant holding.

(2) For the purposes of this paragraph a security relates to a guaranteed loan if (and only if) there are arrangements for the trust company to be or become entitled, in the event of a failure by any person to comply with—

(a) the terms of the loan to which the security relates, or

(b) the terms of the security,

to receive anything (whether directly or indirectly) from a third party.

(3) For the purposes of sub-paragraph (2) above it shall be immaterial whether the arrangements apply in all cases of a failure to comply or only in certain such cases.

(4) For the purposes of this paragraph “third party” means any person except—

(a) the relevant company; and

(b) if the relevant company is the parent company of a trading group for the purposes of paragraph 3 above, the subsidiaries of the relevant company.

Valid from 31/07/1998

Requirement that a proportion of the holding in each company must be eligible shares U.K.

10B (1) The requirement of this paragraph is that eligible shares represent at least 10 per cent. by value of the totality of the shares in or securities of the relevant company (including the relevant holding) which are held by the trust company.

(2) For the purposes of this paragraph the value at any time of any shares in or securities of a company shall be taken (subject to sub-paragraph (4) below) to be their value immediately after—

(a) any relevant event occurring at that time; or

(b) where no relevant event occurs at that time, the last relevant event to occur before that time.

(3) In sub-paragraph (2) above “relevant event”, in relation to any shares in or securities of the relevant company, means—

(a) the acquisition by the trust company of those shares or securities;

(b) the acquisition by the trust company of any other shares in or securities of the relevant company which—

(i) are of the same description as those shares or securities, and

(ii) are acquired otherwise than by virtue of being allotted to the trust company without that company’s becoming liable to give any consideration;

or

(c) the making of any such payment in discharge, in whole or in part, of any obligation attached to any shares in or securities of the relevant company held by the trust company as (by discharging that obligation) increases the value of any such shares or securities.

(4) If at any time the value of any shares or securities held by the trust company is less than the amount of the consideration given by the trust company for those shares or securities, it shall be assumed for the purposes of this paragraph that the value of those shares or securities at that time is equal to the amount of that consideration.

(5) In this paragraph “eligible shares” has the same meaning as in section 842AA.

Modifications etc. (not altering text)

C129 Sch. 28B para. 10B modified (31.7.1998) by Finance Act 1998 (c. 36), s. 72(5)

C130 Sch. 28B paras. 6-9, 10B modified (13.11.2002 with effect in accordance with reg. 1(2) of the modifying S.I.) by The Venture Capital Trust (Exchange of Shares and Securities) Regulations 2002 (S.I. 2002/2661), regs. 7-9, 11

Valid from 16/06/1999

Acquisitions for restructuring purposes U.K.

10C (1) This paragraph applies where—

(a) arrangements are made for a company (“the new company”) to acquire all the shares (“old shares”) in another company (“the old company”);

(b) the acquisition provided for by the arrangements falls within sub-paragraph (2) below; and

(c) the Board have, before any exchange of shares takes place under the arrangements, given an approval notification.

(2) An acquisition of shares falls within this sub-paragraph if—

(a) the consideration for the old shares consists wholly of the issue of shares (“new shares”) in the new company;

(b) new shares are issued in consideration of old shares only at times when there are no issued shares in the new company other than subscriber shares and new shares previously issued in consideration of old shares;

(c) the consideration for new shares of each description consists wholly of old shares of the corresponding description; and

(d) new shares of each description are issued to the holders of old shares of the corresponding description in respect of, and in proportion to, their holdings.

(3) For the purposes of sub-paragraph (1)(c) above an approval notification is one which, on an application by either the old company or the new company, is given to the applicant company and states that the Board are satisfied that the exchange of shares under the arrangements—

(a) will be effected for bona fide commercial reasons; and

(b) will not form part of any such scheme or arrangements as are mentioned in section 137(1) of the 1992 Act.

(4) If the requirements of paragraph 3 above were satisfied in relation to the old company and any old shares immediately before the beginning of the period for giving effect to the arrangements, then (to the extent that it would not otherwise be the case) those requirements shall be deemed to be satisfied in relation to the new company and the matching new shares at all times which—

(a) fall in that period; and

(b) do not fall after a time when (apart from the arrangements) those requirements would have ceased by virtue of—

(i) sub-paragraph (4) or (5) of that paragraph, or

(ii) any cessation of a trade by any company,

to be satisfied in relation to the old company and the matching old shares.

(5) For the purposes of paragraph 3 above the period of two years mentioned in sub-paragraph (4) of that paragraph shall be deemed, in the case of any new shares, to expire at the same time as it would have expired (or by virtue of this sub-paragraph would have been deemed to expire) in the case of the matching old shares.

(6) Subject to sub-paragraph (7) below, where—

(a) there is an exchange under the arrangements of any new shares for any old shares, and

(b) those old shares are shares in relation to which the requirements of paragraphs 6 and 8 above were (or were deemed to be) satisfied to any extent immediately before the exchange,

those requirements shall be deemed, at all times after that time, to be satisfied to the same extent in relation to the matching new shares.

(7) Where there is a time following any exchange under the arrangements of any new shares for any old shares when (apart from the arrangements) the requirements of paragraph 6 above would have ceased under—

(a) sub-paragraph (2) of that paragraph, or

(b) this sub-paragraph,

to be satisfied in relation to those old shares, those requirements shall cease at that time to be satisfied in relation to the matching new shares.

(8) For the purposes of paragraph 7 above any new shares acquired under the arrangements shall be deemed to represent an investment which—

(a) raised the same amount of money as was raised (or, by virtue of this sub-paragraph, is deemed to have been raised) by the issue of the matching old shares, and

(b) raised that amount by an issue of shares in the new company made at the time when the issue of the matching old shares took place (or, as the case may be, is deemed to have taken place).

(9) In determining whether the requirements of paragraph 9 above are satisfied in relation to the old company or the new company at a time in the period for giving effect to the arrangements, both—

(a) the arrangements themselves, and

(b) any exchange of new shares for old shares that has already taken place under the arrangements,

shall be disregarded.

(10) For the purposes of paragraph 10B above the value of the new shares, both immediately after the time of their acquisition and immediately after the time of any subsequent relevant event occurring by virtue of the arrangements, shall be taken to be the same as the value, when last valued in accordance with that paragraph, of the old shares for which they are exchanged.

(11) Nothing in this paragraph shall deem any of the requirements of this Schedule to be satisfied in relation to any new shares unless the matching old shares were first issued to the trust company and have been held by that company from the time when they were issued until they are acquired by the new company.

(12) References in this paragraph to the period for giving effect to the arrangements are references to the period which—

(a) begins with the time when those arrangements first came into existence; and

(b) ends with the time when the new company completes its acquisition under the arrangements of all the old shares.

(13) If, at any time after the arrangements first came into existence and before the new company has acquired all the old shares, the arrangements—

(a) cease to be arrangements for the acquisition of all the old shares by the new company, or

(b) cease to be arrangements for an acquisition falling within sub-paragraph (2) above,

this paragraph shall not deem any requirement of this Schedule to be satisfied, and sub-paragraph (10) above shall not apply, in the case of any new shares at any time after the arrangements have so ceased.

(14) Subject to sub-paragraph (15) below, references in this paragraph, except in the expression “subscriber shares”, to shares in a company include references to any securities of that company.

(15) For the purposes of this paragraph, a relevant security of the old company shall not be treated as a security of that company if—

(a) the arrangements do not provide for the acquisition of the security by the new company; or

(b) such treatment prevents sub-paragraph (1)(b) above from being satisfied in connection with the arrangements.

(16) In sub-paragraph (15) above “relevant security” means an instrument which is a security for the purposes of this Schedule by reason only of section 842AA(12).

(17) For the purposes of this paragraph—

(a) old shares and new shares are of a corresponding description if, were they shares in the same company, they would be of the same description; and

(b) old shares and new shares are matching shares in relation to each other if the old shares are the shares for which those new shares are exchanged under the arrangements.

Valid from 16/06/1999

Conversion of convertible shares and securities U.K.

10D (1) This paragraph applies where—

(a) shares have been issued to the trust company by virtue of the exercise by that company of any right of conversion attached to other shares, or securities, held by that company (“the convertibles”);

(b) the shares so issued are in the same company as the convertibles to which the right was attached;

(c) the convertibles to which the right was attached were first issued to the trust company and were held by that company from the time they were issued until converted; and

(d) the right was attached to the convertibles when they were first so issued and was not varied before it was exercised.

(2) Sub-paragraphs (5) to (8) of paragraph 10C above shall apply in relation to the exchange of convertibles for shares by virtue of the exercise of the right of conversion as if—

(a) that exchange were an exchange under any such arrangements as are mentioned in that paragraph of new shares for old shares; and

(b) the references in those sub-paragraphs and sub-paragraph (17)(b) of that paragraph to the arrangements were references to the provision conferring the right of conversion.

(3) For the purposes of paragraph 10B above the value of the new shares immediately after the time of their acquisition by the trust company shall be taken to be the same as the value, when last valued in accordance with that paragraph, of the convertibles for which they are exchanged.

Winding up of the relevant company U.K.

11 None of the requirements of this Schedule shall be regarded, at a time when the relevant company is being wound up, as being, on that account, a requirement that is not satisfied in relation to that company if it is shown—

(a) that the requirements of this Schedule would be satisfied in relation to that company apart from the winding up; and

(b) that the winding up is for bona fide commercial reasons and not part of a scheme or arrangement the main purpose of which, or one of the main purposes of which, is the avoidance of tax.

Valid from 28/07/2000

Company in administration or receivership U.K.

11A (1) A company which is in administration or receivership shall not be regarded as ceasing to comply with paragraph 3(2) or (3) by reason of anything done as a consequence of its being in administration or receivership.

(2) For this purpose—

(a) a company is “in administration" if there is in force in relation to it—

(i) an administration order under Part II of the M283 Insolvency Act 1986 or Part III of the M284 Insolvency (Northern Ireland) Order 1989, or

(ii) any corresponding order under the law of a country or territory outside the United Kingdom; and

(b) a company is “in receivership" if there is in force in relation to it—

(i) an order for the appointment of an administrative receiver, a receiver and manager or a receiver under Chapter I or II of Part III of the M285 Insolvency Act 1986 or Part IV of the M286 Insolvency (Northern Ireland) Order 1989, or

(ii) any corresponding order under the law of a country or territory outside the United Kingdom.

(3) This paragraph applies only if—

(a) the making of the order in question, and

(b) everything done as a consequence of the company being in administration or receivership,

is for bona fide commercial reasons and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

Marginal Citations

M283 1986 c. 45.

M284 S.I. 1989/2405 (N.I. 19).

M285 1986 c. 45.

M286 S.I. 1989/2405 (N.I. 19).

Valid from 28/07/2000

Company reorganisations etc. involving exchange of shares U.K.

11B (1) The Treasury may by regulations make provision for cases where—

(a) a holding of shares or securities that meets the requirements of this Schedule is exchanged for other shares or securities,

(b) the exchange is made for bona fide commercial reasons and does not form part of a scheme or arrangements of which the main purpose, or one of the main purposes, is the avoidance of tax, and

(c) the new shares or securities do not meet some or all of the requirements of this Schedule,

providing that the new shares or securities shall be treated as meeting those requirements.

(2) The references in sub-paragraph (1) to an exchange of shares or securities include any form of company reorganisation or other arrangement which involves a holder of shares or securities in a company receiving other shares or securities—

(a) whether the original shares or securities are transferred, cancelled or retained, and

(b) whether the new shares or securities are in the same or another company.

(3) The regulations shall specify—

(a) the cases in which, and conditions subject to which, they apply,

(b) which requirements of this Schedule are to be treated as met, and

(c) the period for which those requirements are to be treated as met.

(4) The regulations may contain such administrative provisions (including provision for advance clearances) as appear to the Treasury to be necessary or expedient.

(5) The regulations may authorise the Board to give notice to any person requiring him to provide such information, specified in the notice, as they may reasonably require in order to determine whether any conditions imposed by the regulations are met.

(6) Regulations under this paragraph—

(a) may make different provision for different cases,

(b) may include such supplementary, incidental and transitional provisions as appear to the Treasury to be appropriate, and

(c) may include provision having retrospective effect.

Power to amend Schedule U.K.

12 The Treasury may by order amend this Schedule for any or all of the following purposes, that is to say—

(a) to make such modifications of paragraphs 4 and 5 above as they may consider expedient;

(b) to substitute different sums for the sums of money for the time being specified in paragraphs 7(2) and 8(1) above.

General interpretation U.K.

13 (1) In this Schedule—

• “debenture” has the meaning given by section 744 of the M287 Companies Act 1985; and

• “securities” has the same meaning as in section 842AA;

and references in this Schedule to the issue of any securities, in relation to any security consisting in a liability in respect of an unsecured loan, shall have effect as references to the making of the loan.

[F367 (2) For the purposes of paragraphs 5(2) and 9 above, the question whether a person controls a company shall be determined in accordance with subsections (2) to (6) of section 416 with the modification given by sub-paragraph (3) below.

(3) The modification is that, in determining whether a person controls a company, there shall be disregarded—

(a) his or any other person’s possession of, or entitlement to acquire, relevant fixed-rate preference shares of the company; and

(b) his or any other person’s possession of, or entitlement to acquire, rights as a loan creditor of the company.

(4) Section 839 shall apply for the purposes of this Schedule, but as if the reference in subsection (8) to section 416 were a reference to subsections (2) to (6) of section 416 with the modification given by sub-paragraph (3) above.

(5) For the purposes of sub-paragraph (3) above—

(a) relevant fixed-rate preference shares are fixed-rate preference shares that do not for the time being carry voting rights; and

(b) “fixed-rate preference shares” has the same meaning as in section 95.]

Textual Amendments

F367 Sch. 28B para. 13(2)-(5) substituted for para. 13(2)(3) (retrospectively) by Finance Act 1996 (c. 8), s. 161(1)(3)

Marginal Citations

M287 1985 c. 6.

s.844

SCHEDULE 29 U.K. CONSEQUENTIAL AMENDMENTS

THE CAPITAL ALLOWANCES ACTS U.K.

F368 1 and 2 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F368 Sch. 29 paras. 1, 2 repealed by Capital Allowances Act 1990 (c. 1), s. 164, Sch. 2

TAXES MANAGEMENT ACT 1970 c.9 U.K.

3 U.K. The Taxes Management Act 1970 shall have effect subject to the amendments made by paragraphs 4 to 10 below.

F369 4 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F369 Sch. 29 para. 4 repealed (with effect in accordance with s. 90 of the repealing Act) by Finance Act 1990 (c. 29), Sch. 19 Pt. 5, Note 2

F370 5 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F370 Sch. 29 para. 5 repealed by Copyright, Designs and Patents Act 1988 (c. 48), Sch. 8; S.I. 1989/816

6 The following section shall be inserted after section 16—[for text see 1970(M) s.16A—agency workers].

7 F371 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.K.

(2) In subsection (2) and (3) of that section for the words “this section” there shall be substituted the words “ subsection (1) above ”.

F371 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F371 Sch. 29 para. 7(1)(3) repealed (1988-89 and subsequent years) by Finance Act 1988 (c. 39), s. 148, Sch. 14 Pt. 4, Note 9

8 (1) In subsection (1) of section 55 (recovery of tax not postponed) the following paragraph shall be [F372 substituted for paragraph (g)]—[for text see Taxes Management Act 1970 (c. 9), s. 55(1)(g) ]. U.K.

(2) The following subsection shall be inserted in that section after subsection (6)—[for text see Taxes Management Act 1970 (c. 9), s. 55(6A)].

Textual Amendments

F372 Words in Sch. 29 para. 8 substituted (retrospectively) by Finance Act 1988 (c. 39), s. 146, Sch. 13 paras. 1, 13

9 U.K. The following Table shall be substituted for the Table in section 98—[for text see Taxes Management Act 1970 (c. 9), s. 98].

10 (1) The Taxes Management Act 1970, as amended by the Finance (No.2) Act 1987, shall have effect, after the day appointed under section 95 of the 1987 Act for the purposes of the provision in question, subject to the following amendments.

(2) In section 11(8) for “286” there shall be substituted “ 419 ”.

(3) In section 30(2A) and (3A) for “87 of the Finance (No.2) Act 1987” there shall be substituted “ 826 of the principal Act ”.

(4) In section 87A—

(a) in subsection (1) for “243(4)” there shall be substituted “ 10 ”;

F373 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c) in subsection (4), in paragraph (a) for “85 of the Finance Act 1972” there shall be substituted “ 239 of the principal Act ”, and in paragraph (b) for “85” there shall be substituted “ 239 ”; and

(d) in subsection (5) for the words from “subsection” to “1972” there shall be substituted “ section 252(5) of the principal Act ”.

(5) In section 89 for “87 of the Finance (No.2) Act 1987” there shall be substituted “ 826 of the principal Act ”.

(6) In section 91(2A) for “90 of the Finance (No.2) Act 1987” there shall be substituted “ 10 of the principal Act ”.

(7) In section 94(8) for the words from “subsection (3)” to “1972” there shall be substituted “ section 239(3) of the principal Act ”;

(8) In section 109—

(a) in subsection (3) for “286” and “(4)” there shall be substituted “ 419 ” and “ (3) ”;

(b) in subsection (3A) for “(5)” and “286” (twice) there shall be substituted “ (4) ” and “ 419 ”.

Textual Amendments

F373 Sch. 29 para. 10(4)(b) repealed (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 12 (with ss. 60, 101(1), 171, 201(3), Sch. 11 paras. 22, 26(2), 27)

THE FRIENDLY SOCIETIES ACT (NORTHERN IRELAND) 1970 c.31 (N.I.) U.K.

11 In section 1 of the Friendly Societies Act (Northern Ireland) 1970 at the end of subsection (3) there shall be added the following—

“but nothing in this subsection shall apply with respect to—

(a) policies issued in respect of insurances made on or after 19th March 1985; or

(b) policies issued in respect of insurances made before that date which are varied on or after that date.”

THE FINANCE ACT 1973 c.51 U.K.

F374 12 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F374 Sch. 29 para. 12 repealed (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 12 (with ss. 60, 101(1), 171, 201(3), Sch. 11 paras. 22, 26(2), 27)

FRIENDLY SOCIETIES ACT 1974 c.46 U.K.

13 U.K. In section 7 of the Friendly Societies Act 1974 at the end of subsection (3) there shall be added the following—

“but nothing in this subsection shall apply with respect to—

(a) policies issued in respect of insurances made on or after 19th March 1985; or

(b) policies issued in respect of insurances made before that date which are varied on or after that date.”

THE SOCIAL SECURITY ACTS U.K.

F375 14 N.I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F375 Sch. 29 para. 14 repealed (1.7.1992) by Social Security (Consequential Provisions) (Northern Ireland) Act 1992 (c. 9), ss. 3, 7(2), Sch.1 (with Sch. 3 paras. 2, 4)

CAPITAL GAINS TAX ACT 1979 c.14 U.K.

F376 15 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F376 Sch. 29 para. 15 repealed (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 12 (with ss. 60, 101(1), 171, 201(3), Sch. 11 paras. 22, 26(2), 27)

F377 16 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F377 Sch. 29 para. 16 repealed (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 12 (with ss. 60, 101(1), 171, 201(3), Sch. 11 paras. 22, 26(2), 27)

F378 17 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F378 Sch. 29 para. 17 repealed (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 12 (with ss. 60, 101(1), 171, 201(3), Sch. 11 paras. 22, 26(2), 27)

F379 18 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F379 Sch. 29 para. 18 repealed (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 12 (with ss. 60, 101(1), 171, 201(3), Sch. 11 paras. 22, 26(2), 27)

F380 19 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F380 Sch. 29 para. 19 repealed (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 12 (with ss. 60, 101(1), 171, 201(3), Sch. 11 paras. 22, 26(2), 27)

F381 20 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F381 Sch. 29 para. 20 repealed (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 12 (with ss. 60, 101(1), 171, 201(3), Sch. 11 paras. 22, 26(2), 27)

F382 21 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F382 Sch. 29 para. 21 repealed (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 12 (with ss. 60, 101(1), 171, 201(3), Sch. 11 paras. 22, 26(2), 27)

F383 22 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F383 Sch. 29 para. 22 repealed (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 12 (with ss. 60, 101(1), 171, 201(3), Sch. 11 paras. 22, 26(2), 27)

F384 23 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F384 Sch. 29 para. 23 repealed (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 12 (with ss. 60, 101(1), 171, 201(3), Sch. 11 paras. 22, 26(2), 27)

F385 24 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F385 Sch. 29 para. 24 repealed (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 12 (with ss. 60, 101(1), 171, 201(3), Sch. 11 paras. 22, 26(2), 27)

F386 25 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F386 Sch. 29 para. 25 repealed (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 12 (with ss. 60, 101(1), 171, 201(3), Sch. 11 paras. 22, 26(2), 27)

F387 26 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F387 Sch. 29 para. 26 repealed (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 12 (with ss. 60, 101(1), 171, 201(3), Sch. 11 paras. 22, 26(2), 27)

F388 27 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F388 Sch. 29 para. 27 repealed (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 12 (with ss. 60, 101(1), 171, 201(3), Sch. 11 paras. 22, 26(2), 27)

F389 28 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F389 Sch. 29 para. 28 repealed (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 12 (with ss. 60, 101(1), 171, 201(3), Sch. 11 paras. 22, 26(2), 27)

ADMINISTRATION OF JUSTICE ACT 1985 c.61 U.K.

30 U.K. In paragraph 36(3) of Schedule 2 to the Administration of Justice Act 1985 for all the words preceding “any reference” there shall be substituted the words “ (3) In sections 745(3) and 778(3) of, and paragraph 14(5) of Schedule 15 to, the Income and Corporation Taxes Act 1988 ”.

LAW REFORM (MISCELLANEOUS PROVISIONS) (SCOTLAND) ACT 1985 c.73 U.K.

31 U.K. In Schedule 1 to the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 for the heading preceding paragraph 41 there shall be substituted the following—

“ Income and Corporation Taxes Act 1988;”and in paragragh 41 for “30(5)” there shall be substituted the words “ (3) and 778(3) of, and paragraph 14(5) of Schedule 15 to, the Income and Corporation Taxes Act 1988 ”.

TRANSLATION OF REFERENCES TO ENACTMENTS REPEALED AND RE-ENACTED U.K.

32 In the enactments specified in Column 1 of the following Table for the words set out or referred to in Column 2 there shall be substituted the words set out in the corresponding entry in Column 3.

Enactment amended	Words to be omitted	Words to be substituted
In the Provisional Collection of Taxes Act 1968 c. 2
Section 1(1A)(a)	343 of the Income and Corporation Taxes Act 1970	476 of the Income and Corporation Taxes Act 1988
1(1A)(b)	27 of the Finance Act 1984	479 of that Act
5(1)(c)	from “243(6)” to “1972”	8(5) of the Income and Corporation Taxes Act 1988
5(2)	from “the said” to “1972”	sections 8(5) and 822 of the 1988 Act (over-deductions from preference dividends before passing of annual Act)
In the Capital Allowances Act 1968 c.3
[Repealed by 1990(C) s.164(4)and Sch.2.See 1989edition for these provisions.]
In the Finance Act 1969 c. 32
Section 58(1)(a)	204 of the Income and Corporation Taxes Act 1970	203 of the Income and Corporation Taxes Act 1988
In the Taxes Management Act 1970 c. 9
Section 6(1)(c)	463	706
8(8)	457 or 458	683 or 684
8(9)	86 of the Finance Act 1972	231 of the principal Act
9(4)	155	114
11(6)	85(4) of the Finance Act 1972	239(4) of the principal Act
12(5)	137(4)	100(2)
15(7)(a)	from “section 196” to “1977”	sections 141, 142, 143, 145 or 154 to 165 of the principal Act
15(11)(b)	Part II of the Finance Act 1976	Part V of the principal Act
	80 to 82	34 to 36
27(2)	454(3)	681(4)
29(2)	Schedule 16to the Finance Act 1972	sections 426to 430of the principal Act
F390 29(8)	39(3)	284(4) F391
30	47 or 48 (twice)	824 or 825 of the principal Act or section 47
31	all of subsection (3)	(3) The appeal shall be to the Special Commissioners if the assessment is made—
		(a) by the Board; or
		(b) under section 350, 426, 445, 740, 743(1) or 747(4)(a) of the principal Act; or
		(c) under section 38 of the Finance Act 1973 or section 830 of the principal Act and is not an assessment to tax under Schedule E;
		or if the appeal involves any question as to the application of Part XV or XVI of the principal Act.
35(2)(b)	187	148
42(3)(a)	27	278
42(3)(c)	section 218	subsection (5) of section 614
42(3)(c)	that section	section 615(3) of that Act
47B	Schedule 5 to the Finance Act 1983	Chapter III of Part VII of the principal Act
47B	paragraph 5A(5) of that Schedule	section 294(5) of that Act
55(1)(b)	204	203
55(1)(c)	Schedule 20 to the Finance Act 1972	Schedule 16 to the principal Act
55(1)(e)	Schedule 14 to the Finance Act 1972	Schedule 13 to the principal Act
55(1)(g)	88of the Finance Act 1984	753of the principal Act
F392 55(1)(g)	82(4)(a)	747(4)(a) F392
58(3)(b)	from “sections” to “that Act or”	section 102, 113(5), 263(5) and (6), 343(10) or 783(9) of the principal Act, or paragraph 22 of Schedule 7 to the Income and Corporation Taxes Act 1970, or F393
63(3) (as substituted by Schedule 4 to the Debtors (Scotland) Act 1987 c.18)	204	203
71(1)	Part XI	sections 6 to 12 and Parts VIII and XI
78(1)	89	43
F394 . . .	F394 . . .	F394 . . .
78(5)	533	839
86(2)(b)	204	203
86(2)(d)	14 to the Finance Act 1972	13 to the principal Act
86(4)	5 (three times)	3
86(4)	4(3)	5(4)
86(4)	14 to the Finance Act 1972	13 to the principal Act
86(4)	243(4)	10(1)
86(4)	344	478
87	14 (four times)	13
87	20 (four times)	16
87	the Finance Act 1972	the principal Act
88(2)	14 or 20 to the Finance Act 1972	13 or 16 to the principal Act
88(5)(b)	4(2)	5(2)
88(5)(c)	4(3)	5(4)
91(3)(c)	204	203
93(1)	39(3)	284(4) F395
93(3)	204	203
94(2)	240(5) or 246(3)	7(2) or 11(3)
95(1)(a)	39(3)	284(4) F395
109(4)	286(5)	419(4)
109(1)-(3),(5)	section 286	sections 419 and 420
118(1)	526(5)	832(1)
118(1)	354	468
118(1)	1970	1988
Schedule 2, para.2(2), in column 1 of the Table	II of Part I	I of Part VII
	65(4)	351(5)
	3	2
para.2(2), in column 2 of the Table	158(1)	121(1), (2)
	315(3)	441(3)
	331	459
	332	460
	338	467
	339	484
	384	527
	389	534
	391	536
	392	538
3, para.3,5	204 (three times)	203
para.5B	65 of the Finance Act 1976	159 of the principal Act
para.8	section 286	sections 419 and 420
para.8	15 of Schedule 16 to the Finance Act 1972	13 of Schedule 19 to the principal Act
last para.	from “11” to “to the principal Act”	102, 113(5), 263(5) and (6), 343(10) and 783(9) of the principal Act, to paragraph 22 of Schedule 7 to the Income and Corporation Taxes Act 1970
F396 . . .
F396 . . .
In the Friendly Societies Act (Northern Ireland) 1970 c. 31 (N.I.)
Section 1(5)	(2) and (3) respectively of section 337 of the Income and Corporation Taxes Act 1970	(1) and (2) respectively of section 466 of the Income and Corporation Taxes Act 1988
82(4)	226(13) of the Income and Corporation Taxes Act 1970	620(9) of the Income and Corporation Taxes Act 1988
In the Finance Act 1971 c. 68
Section 21	the whole of subsection (6)	(6) Part II of Schedule 3 to this Act shall have effect.
40(2)(a), 43(3)	533	839 F397
44(5), (6)	VIIIof the Taxes Act or Chapter IIof Part IIIof the Finance Act 1976(Schedule E) (twice)	Schedule E
F398 44(6)	63of the Finance (No. 2)Act 1987	404of the Taxes Act
F398 44(6)	533of the Taxes Act	839of that Act
F398 44(7)	533	839 F398
47(1)	the whole of paragraph (ii)	(ii)the provisions of this Chapter as applied by this subsection shall have effect subject to section 198(2)of the Taxes Act (offices and employments with duties abroad).
F398 47(2)	from beginning to “shall each”	Section 306of the Income and Corporation Taxes Act 1970(capital allowances for machinery and plant used by investment or life assurance companies) shall
F398 69(2)	1970	1988
Schedule 3, para.8(1), (5)	the Taxes Act	the Income and Corporation Taxes Act 1970
para.8(3)	the words from “sub-paragraphs” to “this Schedule)”	section 598(2) to (4) of the Taxes Act
para.8(4)	1970	1970 or Chapter I of Part XIV of the Taxes Act
8,para.3	533 (three times)	839 F398
para.8(4), 8A(11)	169(4)(d), 174(6)and 259(2)	383(5)(d), 388(7)and 403(3) F398
para.13	533of the Taxes Act	839of that Act
F398 F399 para.13	63of the Finance (No.2)Act 1987	404of the Taxes Act
F398 F399 In the Finance Act 1972 c. 41
Section 68(10)	533	839 F400
69(1)(c)(i)	533	839 F400
69(4)	80	34 F400
134(2)	1970	1988
In the Finance Act 1973 c. 51
Section 32(1)(b)	30 above	395 of the Taxes Act 1988
32(1)(c)	31 above	116 of that Act
32(1)(c)	85(5) of the Finance Act 1972	239(5) of that Act
32(1)(d)	92 of the Finance Act 1972	240 of that Act
32(2)	from beginning of paragraph (a) to end of paragraph (d)	(a) section 410(1) or (2) of or paragraph 5(3) of Schedule 18 to the Taxes Act 1988;
		(b) section 395(1)(c) of that Act;
		(c) section 116(1) of that Act;
		(d) paragraph 5(3) of Schedule 18 to or section 240(11) of that Act.
32(3)	258 of the Income and Corporation Taxes Act 1970	402 of the Taxes Act 1988
38(2)(d)	237(5) of the Taxes Act	254(1) of the Taxes Act 1988
38(3)	from beginning to “such rights”	Any gains accruing on the disposal of exploration or exploitation rights
38(3B)	533 of the Taxes Act	839 of the Taxes Act 1988
38(5)	the Taxes Act	the Taxes Act 1970
59	all of subsection (2)	(2) In this Act—
		(a) “the Taxes Act 1970” means the Income and Corporation Taxes Act 1970; and
		(b) “the Taxes Act 1988” means the Income and Corporation Taxes Act 1988.
Schedule 15, para.2,4	this Act	this Act or section 830 of the Taxes Act 1988
15, para.6	533 of the Taxes Act	839 of the Taxes Act 1988
In the Friendly Societies Act 1974 c. 46
Section 7(5)	(2) and (3) respectively of section 337 of the Income and Corporation Taxes Act 1970	(1) and (2) respectively of section 466 of the Income and Corporation Taxes Act 1988
93(4)	226(13) of the Income and Corporation Taxes Act 1970	620(9) of the Income and Corporation Taxes Act 1988
F401 . . .
F396 . . .
In the Finance Act 1976 c. 40
Section 41(1)	section 168of the Taxes Act	sections 380and 381of the Income and Corporation Taxes Act 1988 F402
41(2)	section 168	sections 380and 381 F402
41(2)	533of the Taxes Act	839of the Income and Corporation Taxes Act 1988 F402
41(6)	section 168	sections 380and 381 F402
131(2)	from beginning to “such a security”	A security issued by the Inter-American Development Bank
In the Finance Act 1978 c. 42
Section 37(4)	section 84(1), (2)and (3)of the Taxes Act	subsections (1)to (4)and (6)of section 38of the Income and Corporation Taxes Act 1988 F402
37(6)(a)	533	839of the Income and Corporation Taxes Act 1988 F402
F396 . . .
In the European Parliament (Pay and Pensions) Act 1979 c. 50
Section 8(1)	subsections (1A) and (1B) of section 229 of the Income and Corporation Taxes Act 1970	section 629(2) and (3) of the Income and Corporation Taxes Act 1988
In the Finance Act 1980 c.48
Section
64(9)(b)	154(2)or 155(1)of the Taxes Act	113(2)or 114(1)of the Taxes Act 1988 F403
65(5), 66(5)	154(2), 155(1)or 252(2)of the Taxes Act	113(2), 114(1)or 343(2)of the Taxes Act 1988 F404
70(3)	the said Act of 1971	the Finance Act 1971 F404
73(6)	533of the Taxes Act	839of the Taxes Act 1988 F404
118	the whole of subsection (3)	(3) The trustees of the National Heritage Memorial Fund shall be treated for the purposes of section 49(2) of the Finance Act 1974 and section 99 above as a body of persons established for charitable purposes only.
122(2)	1970	1970 and “the Taxes Act 1988” means the Income and Corporation Taxes Act 1988
Schedule
F396 . . .
In the Finance Act 1981 c. 35
F396 . . .
139(2)	1970	1988
In the Housing (Northern Ireland) Order 1981 (S.I. No.156 N.I.3)
Article 146(3)	341 (three times)	488
146(3)	1970 (three times)	1988
In the Iron and Steel Act 1982 c. 25
Section 13(3)	252(3) of the Income and Corporation Taxes Act 1970	343(3) of the Income and Corporation Taxes Act 1988
13(4)	265(1) of the Income and Corporation Taxes Act 1970	345(1) of the Income and Corporation Taxes Act 1988
In the Finance Act 1982 c. 39
Section 27	this Act (three times)	this Act or the Taxes Act 1988
70(1)	38(4)of the Finance Act 1973	830(4)of the Taxes Act 1988 F405
70(12)	533of the Taxes Act	839of the Taxes Act 1988 F405
72(5)	137(4)of the Taxes Act	100(2)of the Taxes Act 1988 F405
88(9)(a)	Chapter IV of Part II of the Finance Act 1985	section 710 of the Taxes Act 1988
88(9)(b)	section 36 of the Finance Act 1984	Schedule 4 to that Act
88(9)(c)	VII of Part II of that Act	V of Part XVII of the Taxes Act 1988
147(1)	532(1)(b) of the Taxes Act	838 of the Taxes Act 1988
147(2), (3)	the Taxes Act	the Taxes Act 1970
157	the whole of subsection (2)	(2) In this Act—
		(a) “the Taxes Act 1970” means the Income and Corporation Taxes Act 1970; and
		(b) “the Taxes Act 1988” means the Income and Corporation Taxes Act 1988.
Schedule 11,para.4(3)	154(2),section 155(1)or section 255(2)of the Taxes Act	113(2), 114(1)or 243(2)of the Taxes Act 1988 F406
	533of the Taxes Act	839of the Taxes Act 1988 F406
para.4(4)	341of the Taxes Act	488of the Taxes Act 1988 F406
12,para. 3(3)(b)	Chapter III of Part XIof the Taxes Act	Part XIof the Taxes Act 1988 F406
para. 3(3)(e)	533of the Taxes Act	839of the Taxes Act 1988 F406
para. 3(3)	the Taxes Act	the Taxes Act 1970 F406
13, para.3(3)(a)	463 of the Taxes Act	706 of the Taxes Act 1988
21, para.3(2)
In the Finance Act 1983 c. 28
Section 46(3)	Commission	Historic Buildings and Monuments Commission
F396 . . .
		(ab) deep discount securities (within the meaning of Schedule 4 to the Income and Corporation Taxes Act 1988); nor
In the Telecommunications Act 1984 c. 12
Section 62(7)	subsection (10) of section 48 of the Finance Act 1981	section 400(9) of the Income and Corporation Taxes Act 1988
72(3)(b)	paragraph (a) of the proviso to section 21(3) of the Finance Act 1970	section 592(5) of the Income and Corporation Taxes Act 1988
72(3)	II of Part II of the said Act of 1970	I of Part XIV of that Act
72(4)	“416” and “1970”	“581” and “1988”
In the Finance Act 1984 c. 43
F396 . . .
60(1)	252of the Taxes Act	343of the Taxes Act 1988 F407
128	1970	1970; and “the Taxes Act 1988” means the Income and Corporation Taxes Act 1988
Schedule 14, para.1(1)	VII of Part II of this Act	V of Part XVII of the Taxes Act 1988
para.7(6)(b)	45 of the Finance Act 1981	740 of the Taxes Act 1988
para.8(6)	45 of the Finance Act 1981	740 of the Taxes Act 1988
para.12(7)	45 of the Finance Act 1981	740 of the Taxes Act 1988
para.15(2)	(5) of section 481 of the Taxes Act	(6) of section 745 of the Taxes Act 1988
In the Finance Act 1985 c. 54
Section 56(1)(c)	enactment	enactment (including any contained in the Taxes Act)
F408 56(8)	Chapter Iof Part XIV	sections 520to 533 F408
57(7)	533	839 F408
F396 . . .
80(5)(b)	13of the Oil Taxation Act 1975	492of the Taxes Act
F409 98(2)	1970	1988
Schedule 17, para.3(2), 5(4)(a),6(d)	533	839 F408
F396 . . .
In the Companies Act 1985 c. 6
Section 209(3)(b)	444 of the Income and Corporation Taxes Act 1970	670 of the Income and Corporation Taxes Act 1988
266(4)
266(4)	359 (twice)	842 F410
	1970	1988 F410
In the Trustee Savings Bank Act 1985 c. 58
Schedule 2 para.4(2)	Taxes Act (twice)	the Income and Corporation Taxes Act 1970
6(1)	137	100
(4)	177	393
(8)	29 of the Finance Act 1973	410(1) to (6) of the Taxes Act
7(2)	26 of the Finance Act 1982	369 of the Taxes Act
9(1)	1970	1988
In the Bankruptcy (Scotland) Act 1985 c. 66
Schedule 3 Part I para.1(1)	204 of the Income and Corporation Taxes Act 1970	203 of the Income and Corporation Taxes Act 1988
para.1(2)	69 of the Finance (No.2) Act 1975	559 of the Income and Corporation Taxes Act 1988
In the Housing Associations Act 1985 c. 69
Section 62(2)	341	488
62(2)	1970	1988
In the Airports Act 1986 c. 31
Section 77(2)	1970 Act	Income and Corporation Taxes Act 1970
77(4)	48(10) of the Finance Act 1981	400(9) of the 1988 Act
77(5)	261(2) of the 1970 Act	408(2) of the 1988 Act
77(5)	262(1) of the 1970 Act	409(1) of that Act
77(5)	262(2)	409(2)
77(6)	1970 (twice)	1988
77(6)	258 to 264	Chapter IV of Part X
In the Finance Act 1986 c. 41
Section 24(4)	Finance Act 1978	Taxes Act 1988
F396 . . .
114(2)	1970	1970 and “the Taxes Act 1988” means the Income and Corporation Taxes Act 1988.
Schedule 13, para.17	134of the Taxes Act	87of the Taxes Act 1988 F411
para.17	(5)of the said section 134	(7)of that section
F411 15, para.10(1)	533of the Taxes Act	839of the Taxes Act 1988 F411
para.10(4)	80of the Taxes Act	34of the Taxes Act 1988 F411
16, para.8(5)	from “154(2)” to first “Act”	113(2), 114(1)or 343(2)of the Taxes Act 1988 F411
para.8(8)	533of the Taxes Act	839of the Taxes Act 1988 F411
In the Gas Act 1986 c. 44
Section 63(9)	533 of the Income and Corporation Tax Act 1970	839 of the Income and Corporation Taxes Act 1988
In the Insolvency Act 1986 c. 45
Schedule 6, para. 1	204 of the Income and Corporation Taxes Act 1970	203 of the Income and Corporation Taxes Act 1988
para. 2
	69 of the Finance (No. 2) Act 1975	559 of the Income and Corporation Taxes Act 1988
F412 . . .
In the Building Societies Act 1986 c. 53
Schedule 8, para.7	Schedule 8 to the Finance Act 1986	section 333 of the Income and Corporation Taxes Act 1988
In the Financial Services Act 1986 c. 60
Schedule 15, para.14(5)	332	460(1) or 461(1)
para.14(5)	1970	1988
In the Companies (Northern Ireland) Order 1986 (S.I.No.1032 N.I.6)
Article 217(3)(b)	444of the Income and Corporation Taxes Act 1970	670of the Income and Corporation Taxes Act 1988 F413
274(4)	359 (twice)	842 F413
274(4)	1970	1988 F413
F414 . . .
In the Finance Act 1987 c. 16
Section
72	1970	1988
In the Debtors (Scotland) Act 1987 c. 18
Section 53(6)	65(1A)	351(2)
53(6)	1970	1988
63(9)	65(1A)	351(2)
63(9)	1970	1988
In the Abolition of Domestic Rates Etc. (Scotland) Act 1987 c. 47
Section 3(5)	the whole of paragraph (b)	(b) “retail prices index” has the meaning given by section 833 of the Income and Corporation Taxes Act 1988
In the Finance (No.2) Act 1987 c. 51
Section 84(1)	247 of the Taxes Act	12 of the Income and Corporation Taxes Act 1988

Textual Amendments

F390 Repealed by 1989 s.187and Sch.17 Part Vin relation to accounting periods beginning after 31March 1989.

F391 Repealed by 1988(F) s.148and Sch.14 Part VIIIfor 1990-91and subsequent years.

F392 Repealed by 1988(F) s.148and Sch.14 Part IVfor 1988-89and subsequent years.

F393 Repealed by 1988(F) s.148and Sch.14 Part IXfrom 3April 1989—commencement order S.I. 1989 No.473 (in Part III Vol.5).

F394 Entry in Sch. 29 para. 32 Table repealed by Finance Act 1991 (c. 31, SIF 63:1), ss. 81, 123, Sch 19 Pt. V, Note 1

F395 Repealed by 1988(F) Sch.14 Part VIIIfor 1990-91and subsequent years.

F396 Entries in Sch. 29 para. 32 repealed (6.3.1992 with effect as mentioned in s. 289(1)(2) of the repealing Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 12 (with ss. 60, 101(1), 172, 201(3), Sch. 11 paras. 22, 26(2), 27).

F397 Repealed by 1990(C) s.164(4)and Sch.2.See 1989edition for these provisions.

F398 Repealed by 1990(C) s.164(4)and Sch.2.See 1989edition for these provisions.

F399 Repealed by 1988(F) s.148and Sch.14 Part IVfor 1988-89and subsequent years.

F400 Repealed by 1990(C) s.164(4)and Sch.2.See 1989edition for these provisions.

F401 Entry in Sch. 29 para. 32 repealed (1.7.1992) by Social Security (Consequential Provisions) Act 1992 (c. 6), ss. 3, 7(2), Sch. 1 and by Social Security (Consequential Provisions) (Northern Ireland) Act 1992 (c. 9), ss. 3, 7(2), Sch. 1

F402 Repealed by 1990(C) s.164(4)and Sch.2.See 1989edition for these provisions.

F403 Repealed by 1990(C) s.164(4)and Sch.2.See 1989edition for these provisions.

F404 Repealed by 1990(C) s.164(4)and Sch.2.See 1989edition for these provisions.

F405 Repealed by 1990(C) s.164(4)and Sch.2.See 1989edition for these provisions.

F406 Repealed by 1990(C) s.164(4)and Sch.2.See 1989edition for these provisions.

F407 Repealed by 1990(C) s.164(4)and Sch.2.See 1989edition for these provisions.

F408 Repealed by 1990(C) s.164(4)and Sch.2.See 1989edition for these provisions.

F409 Repealed by 1988(F) s.148and Sch.14 Part IVfor 1988-89and subsequent years.

F410 Repealed by 1988(F) s.148and Sch.14 Part VIfor accounting periods ending after 5April 1988.

F411 Repealed by 1990(C) s.164(4)and Sch.2.See 1989edition for these provisions.

F412 Entry in Sch. 29 para. 32 repealed (1.7.1992) by Social Security (Consequential Provisions) Act 1992 (c. 6), ss. 3, 7(2), Sch. 1

F413 Repealed by 1988(F) s.148and Sch.14 Part VIfor disposals made on or after 6April 1988.

F414 Entry in Sch. 29 para. 32 repealed (1.7.1992) by Social Security (Consequential Provisions) (Northern Ireland) Act 1992 (c. 9), ss. 3, 7(2), Sch. 1

Modifications etc. (not altering text)

C131 See 1990 s.132and Sch.19 Part Vfor repeal in relation to allowances and charges falling to be made for chargeable periods ending after the day to be appointed (see 1988 s.10).

C132 See 1990 s.132and Sch.19 Part Vfor repeal in relation to allowances and charges falling to be made for chargeable periods ending after the day to be appointed (see 1988 s.10).

Section 844.

SCHEDULE 30 U.K. TRANSITIONAL PROVISIONS AND SAVINGS

Corporation tax payment dates U.K.

1 (1) In this paragraph, an “old company” means a company to which section 244 of the 1970 Act applied in respect of the last accounting period ending before 17th March 1987. U.K.

(2) In relation to an old company —

(a) “the company's section 244 interval” means the interval after the end of an accounting period of the company which, in accordance with section 244 of the 1970 Act, was the period within which corporation tax assessed for that period was required to be paid; and

(b) “the period of reduction” means the number of whole days which are comprised in a period equal to one-third of the difference between nine months and the company⿿s section 244 interval.

(3) Subject to sub-paragraph (6) below, with respect to the first accounting period of an old company beginning on or after 17th March 1987, section 243(4) of the 1970 Act and section 10(1) of this Act (time for payment of corporation tax) shall have effect as if for the reference to nine months there were substituted a reference to a period which is equal to the company⿿s section 244 interval less the period of reduction.

(4) Subject to sub-paragraph (6) below, with respect to any accounting period of an old company which begins —

(a) after the accounting period referred to in sub-paragraph (3) above, but

(b) before the second anniversary of the beginning of that period,

section 10(1) of this Act shall have effect as if for the reference to nine months there were substituted a reference to a period equal to the previous payment interval less the period of reduction.

(5) In relation to any accounting period of an old company falling within sub-paragraph (4) above, “the previous payment interval”means the interval after the end of the immediately preceding accounting period within which corporation tax for that preceding period is required to be paid by virtue of section 243(4) of the 1970 Act or section 10(1) of this Act, as modified by this paragraph.

(6) If the accounting period referred to in sub-paragraph (3) above or any accounting period falling within sub-paragraph (4) above is less than 12 months, the sub-paragraph in question shall have effect in relation to that accounting period as if for the reference in that sub-paragraph to the period of reduction there were substituted a reference to the number of whole days comprised in a period which bears to the period of reduction the same proportion as that accounting period bears to 12 months.

(7) With respect to any accounting period of an old company which falls within sub-paragraph (3) or (4) above, section 86(4) of the Management Act (interest on overdue tax) shall have effect as if, in paragraph 5(a) of the Table (the reckonable date in relation to corporation tax), the reference to the nine months mentioned in section 243(4) of the 1970 Act or section 10(1) of this Act were a reference to the period which, under sub-paragraphs (3) to (6) above, is substituted for those nine months.

(8) In section 88(5)(e) of the Management Act (the date when corporation tax ought to have been paid) for the words from “where section 244(1)” to “the interval” there shall be substituted “ in the case of an accounting period in respect of which section 10(1) of the principal Act applies as modified by sub-paragraph 1(3) or (4) of Schedule 30 to that Act, at the end of the period which, under that sub-paragraph, is substituted for the period of nine months ”.

(9) With respect to any accounting period of an old company which falls within sub-paragraph (3) or (4) above, section 825 shall have effect as if, in subsection (8) in paragraph (a) of the definition of “the material date”, the reference to the nine months mentioned in section 10(1) were a reference to the period which, under sub-paragraphs (1) to (8) above is substituted for those nine months.

Duration of leases U.K.

2 (1) Subject to sub-paragraph (2) and paragraph 3 below, section 38 has effect —

(a) as respects a lease granted after 12th June 1969; and

(b) so far as it relates to section 34(5), as respects a variation or waiver the contract for which is entered into after that date.

(2) So far as relates to relief under —

(a) section 385 [F415 or] 393 [F416 or 393A(1)]; or

(b) section 380(1) as applied by subsection (2) of that section; or

(c) section 25(1);

given by setting a loss against, or making a deduction from, income of —

(i) the year 1988-89 or any subsequent year of assessment, or

(ii) a company's accounting period ending after 5th April 1988,

section 38 shall be deemed to have had effect as from the passing of the Finance Act 1963[1963 c. 25.] , and as respects leases granted at any time.

(3) Notwithstanding section 31 or any other enactment governing the order in which reliefs are given, in applying sub-paragraph (2) above it shall be assumed that all relief which could not be affected by the operation of that sub-paragraph was given (for all years of assessment and accounting periods before or after the passing of this Act) before relief which could be affected by the operation of that sub-paragraph.

(4) All such adjustments shall be made, whether by way of assessment or discharge of repayment of tax, as are required to give effect to section 38 with this paragraph.

Textual Amendments

F415 Word "or" repealed by 1991 s. 123 and Sch. 19 Part V in relation to losses incurred in accounting periods ending on or after 1 April 1991.

F416 1991 s.73(3)-(5) and Sch. 15 para. 27(1) in relation to losses incurred in accounting periods ending on or after 1 April 1991 - deemed always to have had effect.

3 (1) Sections 24 and 38 shall have effect subject to the modifications set out in sub-paragraphs (2) to (4) below in relation to any lease granted after 12th June 1969 and before 25th August 1971 and, so far as section 38 relates to section 34(5), in relation to any variation or waiver the contract for which was entered into between those dates, except to the extent that section 38 affects the computation of the profits or gains or losses of a trade, profession or vocation or relates to relief under —

(a) section 25(1);

(b) section 385 [F417 or ]393 [F418 or 393A(1)];

(c) subsection (1) of section 380 as applied by subsection (2) of that section; or

(d) section 779(5).

(2) In section 24, in subsection (1), in the definition of “premium”, the words from “or to” to “landlord ”, and subsections (3) and (4) shall be omitted.

(3) In subsection (1) of section 38 the following paragraph shall be inserted before paragraph (a) —

“(aa) where the terms of the lease include provision for the determination of the lease by notice given by the landlord, the lease shall not be treated as granted for a term longer than one ending at the earliest date on which it could be determined by notice so given;”and sub-paragraph (ii) of paragraph (a) and paragraph (c) shall be omitted.

(4) In subsection (2) of that section for the words “Subsection (1)” there shall be substituted the words “ Subsection (1)(a) ”, and subsection (4) of that section shall be omitted.

Textual Amendments

F417 Word "or" repealed by 1991 s. 123 and Sch. 19 Part V in relation to losses incurred in accounting periods ending on or after 1 April 1991.

F418 1991 s. 73(3)-(5) and Sch. 15 para. 27(1) in relation to losses incurred in accounting periods ending on or after 1 April 1991 - deemed always to have had effect.

4 (1) Where section 38 does not have effect, the following provisions of this paragraph shall apply in ascertaining the duration of a lease for the purposes of sections 34 to 36.

(2) Subject to sub-paragraph (4) below, where the terms of the lease include provision for the determination of the lease by notice given either by the landlord or by the tenant, the lease shall not be treated as granted for a term longer than one ending at the earliest date on which it could be determined by notice.

(3) Subject to sub-paragraph (4) below, where any of the terms of the lease (whether relating to forfeiture or to any other matter) or any other circumstances render it unlikely that the lease will continue beyond a date falling before the expiration of the term of the lease, the lease shall not be treated as having been granted for a term longer than one ending on that date.

(4) Where the duration of a lease falls to be ascertained after the date on which the lease has for any reason come to an end, the duration shall be taken to have extended from its commencement to that date, and where the duration falls to be ascertained at a time when the lease is subsisting the preceding provisions of this paragraph shall be applied in accordance with circumstances prevailing at that time.

(5) In relation to Scotland, “term ” in this paragraph, where referring to the duration of a lease, means “period”.

(6) This paragraph shall be construed as one with Part II.

Repeal of section 136 of the Income Tax Act 1952: allowance of annual value of land as a business expense U.K.

5 (1) This paragraph has effect for allowing deductions by reference to those which would have fallen to be made if section 136 of the Income Tax Act 1952[1952 c. 10.] had applied for the years 1963-64 and 1964-65.

(2) Subject to the provisions of this paragraph, an allowance under this paragraph shall be made to the person (“the occupier”) carrying on a trade where land which was occupied by him at any time before the end of the year 1962-63 for the purposes of the trade permanently ceases to be occupied by him for those purposes.

(3) The amount of the allowance shall be the excess of —

(a) the aggregate of any deductions in respect of the annual value of the land which, by virtue of section 136, would have been made in computing the profits or gains of the trade for the years 1963-64 and 1964-65 but for section 29(1) of the Finance Act 1963[1963 c. 25.] and the repeal by that Act of section 136;

over

(b) the aggregate of any deductions relating to the land made in computing the profits or gains of the trade for those years, being —

(i) deductions permitted by section 29(2) of the Finance Act 1963, so far as made in respect of the period in respect of which the deductions mentioned in paragraph (a) above would have been made; or

(ii) deductions in respect of rent from which an amount representing tax was deducted under section 173 of the Income Tax Act 1952, so far as made in respect of that period.

(4) The allowance shall be made by —

(a) treating the amount of it as rent paid for the land by the occupier (in addition to any actual rent), becoming due from day to day during the period defined in sub-paragraph (5) below; and

(b) allowing deductions accordingly in computing the profits or gains of the trade chargeable under Case I of Schedule D for any chargeable period the profits or gains for which fall to be computed by reference to a period including the period defined in sub-paragraph (5) below or any part thereof.

(5) The period referred to in sub-paragraph (4) above is that ending when the land permanently ceases to be occupied by the occupier for the purposes of the trade, and of a duration, equal to the aggregate of —

(a) the number of months and fractions of months during which the land was occupied by him for the purposes of the trade in so much of the period by reference to which the profits or gains of the trade for the year 1963-64 fell to be computed as fell before the beginning of that year; and

(b) the number of months and fractions of months during which the land was so occupied in so much of the period by reference to which the profits or gains of the trade for the year 1964-65 fell to be computed as fell before the beginning of the year 1963-64.

(6) No allowance shall be made under this paragraph where the date on which the land permanently ceases to be occupied by the occupier for the purposes of the trade

(a) falls within a chargeable period in which he permanently ceases to carry on the trade; or

(b) where the occupier is not a company, falls within a year of assessment and also within a period by reference to which the profits or gains of the trade for that year of assessment fall to be computed.

(7) Where, by reason of a change in the persons carrying on the trade, the trade falls to be treated for any of the purposes of the Income Tax Acts as permanently discontinued, a person engaged in carrying on the trade immediately before the change occurred who continues to be so engaged immediately after it occurred shall be treated for the purposes of this paragraph as not having been in occupation of the land at any time before it occurred.

(8) Where there has been a change in the persons carrying on the trade, but by virtue of section 113 of this Act or section 17(1) of the Finance Act 1954[1954 c. 44.] (company reconstructions before introduction of corporation tax), the trade does not by reason of the change fall to be treated for any of the purposes of the Income Tax Acts as permanently discontinued, this paragraph (including this sub-paragraph) shall apply as if any occupation of the land before the change occurred by the persons carrying on the trade immediately before it occurred were occupation by the persons carrying on the trade immediately after it occurred.

(9) Where section 343(1) applies, then for the purposes of this paragraph any occupation of land for the purposes of the trade by the predecessor shall be treated as having been the occupation of the successor.

• Subsection (6) of that section shall apply to this sub-paragraph as it applies to subsections (2) to (5) of that section, and in this paragraph “predecessor” and “successor” have the same meaning as in that section.

(10) Where section 518 has effect, then for the purposes of this paragraph any occupation of land for the purposes of the trade by the transferor shall be treated as having been the occupation of the transferee. This sub-paragraph shall be construed as one with section 518.

(11) Sub-paragraphs (1) to (10) above shall apply in relation to a profession or vocation as they apply in relation to a trade, but as if the reference in sub-paragraph (4) to Case I of Schedule D were a reference to Case II of that Schedule.

(12) For the purposes of this paragraph, any occupation of land by the London Transport Board which was by virtue of paragraph 6 of Schedule 3 to the Finance Act 1970[1970 c. 24.] immediately before the commencement of this Act treated as occupation by another body, shall continue to be so treated by virtue of this sub-paragraph.

Loss relief etc. U.K.

6 (1) The substitution of this Act for the corresponding enactments repealed by this Act shall not alter the effect of any provision enacted before this Act (whether or not there is a corresponding provision in this Act) so far as it determines whether and to what extent — U.K.

(a) losses or expenditure incurred in, or other amounts referable to, a chargeable period earlier than those to which this Act applies may be taken into account for any tax purposes in a chargeable period to which this Act applies; or

(b) losses or expenditure incurred in, or other amounts referable to, a chargeable period to which this Act applies may be taken into account for any tax purposes in a chargeable period earlier than those to which this Act applies.

(2) Without prejudice to sub-paragraph (1) above, the repeals made by this Act shall not affect the following enactments (which are not re-enacted) —

(a) section 27(4) of the Finance Act 1952[1952 c. 33.] (restrictions on removal of six year time limit on carry forward of trading losses);

(b) section 29(3) of the Finance Act 1953[1953 c. 34.] (Isles of Scilly);

(c) section 17 of, and Schedule 3 to, the Finance Act 1954[1954 c. 44.] (company reconstructions before corporation tax) so far as in force by virtue of the saving in Part IV of Schedule 22 to the Finance Act 1965 [1965 c. 25.] , and section 80(8) of the Finance Act 1965 (which amends Schedule 3 to the Finance Act 1954);

(d) section 82(4) of the Finance Act 1965 (losses allowable against chargeable gains);

(e) section 85 of the Finance Act 1965 (carry forward of surplus of franked investment income: dividends paid out of pre-1966-67 profits) and the enactments amending that section;

(f) paragraph 25 of Schedule 15 to the Finance Act 1965 (continuity of elections for purposes of corporation tax);

(g) paragraph 7 of Schedule 16 to the Finance Act 1965 (overseas trade corporations);

in so far as those enactments may be relevant to tax for any chargeable period to which this Act applies.

7 (1) This paragraph shall apply with respect to claims for group relief in respect of any amount which is attributable —

(a) to writing-down allowances, within the meaning of Chapter II of Part I of the 1968 Act, or, as the case may require, Chapter I of Part III of the Finance Act 1971[1971 c. 68.] , in respect of expenditure incurred by the surrendering company on the provision of machinery or plant; or

(b) to initial allowances under section 56 of the 1968 Act (expenditure in connection with mines etc.) in respect of expenditure incurred by the surrendering company and falling within section 52(1) of that Act of 1971 (works in a development area or in Northern Ireland); or

(c) to allowances under section 91 of the 1968 Act in respect of expenditure incurred by the surrendering company on scientific research;

where the expenditure is incurred under a contract entered into by the surrendering company before 6th March 1973.

(2) Notwithstanding anything in section 410(1) to (6) or 413(7) to (10) or in Schedule 18 but subject to sub-paragraph (5) below, group relief may be claimed in respect of any such amount as is referred to in sub-paragraph (1) above if —

(a) immediately before 6th March 1973 —

(i) the surrendering company and the company claiming relief were members of a group of companies, and

(ii) throughout the period beginning on that date and ending at the end of the accounting period in respect of which the claim is made, there is no reduction in the rights of the parent company with respect to the matters specified in section 413(7)(a) and (b); or

(b) immediately before 6th March 1973 the company claiming relief was a member of a consortium and, throughout the period beginning on that date and ending at the end of the accounting period in respect of which the claim is made, there is

(i) no variation in the percentage of the ordinary share capital of the company owned by the consortium which is beneficially owned by that member, and

(ii) no reduction in the rights of that member (in respect of the company owned by the consortium) with respect to the matters specified in section 413(7)(a) and (b);

and in either case no such arrangements as are specified in section 410(1) or (2) have come into existence after 5th March 1973 with respect to any of the companies concerned and no variation is made in any such arrangements which are in existence on that date with respect to any of those companies.

(3) For the purposes of sub-paragraph (2)(a) above, “the parent company” means the company of which another member of the group referred to in that sub-paragraph was, immediately before 6th March 1973, a 75 per cent subsidiary, and the rights of the parent company referred to in that paragraph are —

(a) if the parent company is either the surrendering company or the company claiming relief, its rights in the other company; and

(b) in any other case, its rights in both the surrendering company and the company claiming relief.

(4) For the purposes of this paragraph an amount which the claimant company claims by way of group relief shall be treated as attributable to an allowance falling within any of paragraphs (a) to (c) of sub-paragraph (1) above to the extent that that amount would not have been available for surrender by the surrendering company if no such allowance had been available to the surrendering company in respect of the expenditure concerned.

(5) Sub-paragraph (2) above shall not apply if, during the period referred to in that sub-paragraph —

(a) there is a major change in the nature or conduct of a trade or business carried on by the relevant company; or

(b) the relevant company sets up and commences a trade or business which it did not carry on immediately before 6th March 1973.

(6) In sub-paragraph (5) above —“a major change in the nature or conduct of a trade or business” has the same meaning as in section 245(1); and “the relevant company” means, if the machinery or plant to which the allowance relates was brought into use on or before 6th March 1978, the company claiming group relief and in any other case either that company or the company which if sub-paragraph (5) did not apply would be the surrendering company.

(7) This paragraph shall be construed as if it were contained in Chapter IV of Part X.

Capital allowances U.K.

8 U.K. Without prejudice to paragraphs 6 and 7 above, where a person is, immediately before the commencement of this Act, entitled to a capital allowance by virtue of any enactment repealed by this Act, he shall not cease to be so entitled by reason only of that repeal, notwithstanding that the enactment in question is not re-enacted by this Act; and accordingly the provisions of this Act shall apply, with any necessary modifications, so far as may be necessary to give effect to any such entitlement.

Social security benefits U.K.

9 (1) In relation to any period before regulations containing the first schemes under section 20 of the Social Security Act 1986[1986 c. 50.] and Article 21 of the Social Security (Northern Ireland) Order 1986 [S.I. 1986/1888 (N.I.18).] providing for income support come into force —

(a) the repeal by this Act of sections 27 and 28 of the Finance Act 1981[1981 c. 35.] shall not have effect;

(b) sections 151 and 152 of this Act shall not have effect;

(c) section 204 of this Act shall have effect with the substitution for paragraph (b) of the following paragraph —

“(b) he has claimed a payment of supplementary allowance under the Supplementary Benefits Act 1976 or the Supplementary Benefits (Northern Ireland) Order 1977 in respect of a period including that time and his right to the allowance is subject to any condition contained in section 5 of the said Act of 1976 or, in Northern Ireland, Article 7 of the said Order (requirements as to registration and availability for employment)”and with the addition at the end of the following —

“(2) Any reference in this section to section 5 of the Supplementary Benefits Act 1976 or to Article 7 of the Supplementary Benefits (Northern Ireland) Order 1977 includes a reference to that section or Article as amended by any other enactment including an enactment passed or made after the passing of this Act”; and

(2) In relation to any period before regulations containing the first schemes under section 20 of theSocial Security Act 1986[1986 c. 50.] and Article 21 of the Social Security (Northern Ireland) Order 1986 [S.I. 1986/1888 (N.I.18).] providing for family credit come into force, section 617(2) of this Act shall have effect with the addition after paragraph (b) of the following paragraph —

“(bb) payments in respect of family income supplement under the Family Income Supplements Act 1970 or the Family Income Supplements Act (Northern Ireland) 1970;.”

Children's settlements: irrevocable dispositions made before 22nd April 1936 U.K.

10 (1) Sub-paragraph (2) below applies to any disposition which —

(a) was made, directly or indirectly, by any person (“the settlor”) after 5th April 1914 and before 22nd April 1936, and

(b) immediately before 22nd April 1936, was an irrevocable settlement within the meaning of Chapter II of Part XV.

(2) Subject to the provisions of this paragraph, any income which, by virtue or in consequence of any disposition to which this sub-paragraph applies, is payable to or applicable for the benefit of a child of the settlor for some period less than the life of the child, shall, if and so long as the child is an infant and unmarried, be deemed for all purposes of the Income Tax Acts to be the income of the settlor, if living and not to be the income of any other person.

(3) Sub-paragraph (2) above shall not apply as regards any income —

(a) which is derived from capital which, at the end of the period during which that income is payable to or applicable for the benefit of the child, is required by the disposition to be held on trust absolutely for, or to be transferred to, the child; or

(b) which is payable to or applicable for the benefit of a child during the whole period of the life of the settlor.

(4) Income shall not be deemed, for the purposes of this paragraph, to be payable to or applicable for the benefit of a child for some period less than its life by reason only that the disposition contains a provision for the payment to some other person of the income in the event of the bankruptcy of the child, or of an assignment thereof, or a charge thereon, being executed by the child.

(5) In this paragraph, unless the context otherwise requires —

“child” includes a step-child or an illegitimate child, and

“disposition” includes any trust, covenant, agreement or arrangement.

(6) Sections 661 and 662 shall apply as if this paragraph were contained in Chapter I of Part XV, and this paragraph, notwithstanding that it is referred to in Chapter II of that Part, shall not be construed as one with that Chapter.

Pre-1959 settlements U.K.

11 (1) Where, in the case of any settlement made before 16th April 1958, any sums payable by the settlor or by the wife or husband of the settlor would, by virtue only of section 671(3), fall to be treated as the income of the settlor and not as the income of any other person, the sums shall not be so treated if —

(a) no power by reason of which they would fall to be so treated has been exercised after 15th April 1958, or is or can become exercisable after 5th April 1959, or such later date as the Board may in any particular case allow, and

(b) neither the settlor nor the wife or husband of the settlor has received or is entitled to any consideration or benefit in connection with the fulfilment of the condition set out in paragraph (a) above,

or if the settlement was entered into in connection with any judicial separation or any agreement between spouses to live separate and apart, or with the dissolution or annulment of a marriage.

(2) Where, in the case of any settlement made before 16th April 1958, any income arising under the settlement would, by virtue only of section 672(3), fall to be treated as the income of the settlor and not as the income of any other person, the income shall not be so treated if —

(a) no power by reason of which it would fall to be so treated has been exercised after 15th April 1958 or is or can become exercisable after 5th April 1959, or such later date as the Board may in any particular case allow; and

(b) neither the settlor nor the wife or husband of the settlor has received or is entitled to any consideration or benefit in connection with the fulfilment of the condition set out in paragraph (a) above.

12 Where, in the case of any settlement made before 9th July 1958, any income arising under the settlement would, by virtue only of section 674, fall to be treated as the income of the settlor and not as the income of any other person, it shall not be so treated if —

(a) no power by reason of which it would fall to be so treated has been exercised after 8th July 1958, or is or can become exercisable after 5th April 1959, or such later date as the Board may in any particular case allow; and

(b) neither the settlor nor the wife or husband of the settlor has received or is entitled to any consideration or benefit in connection with the fulfilment of the condition set out in paragraph (a) above.

General powers of amendment in Acts relating to overseas countries U.K.

13 U.K. Where under any Act passed before this Act and relating to a country or territory outside the United Kingdom there is a power to affect Acts passed or in force before a particular time, or instruments made or having effect under such Acts, and the power would but for the passing of this Act have included power to change the law which is reproduced in, or is made or has effect under, this Act, then that power shall include power to make such provision as will secure the like change in the law reproduced in, or made or having effect under, this Act notwithstanding that it is not an Act passed or in force before that time.

Double taxation agreements U.K.

14 The repeal by this Act of section 16 of the Finance (No.2) Act 1979[1979 c. 47.] shall not prejudice the effect of any Order in Council which gives effect to arrangements contained in the Convention mentioned in that section and is made under section 497 of the 1970 Act.

Securities U.K.

15 The repeal by this Act of Schedule 22 to the Finance Act 1985[1985 c. 54.] shall not affect the continued operation of paragraph 6 of that Schedule in relation to the holding of securities by any person at any time during the year (within the meaning of that Schedule).

Building societies U.K.

16 U.K. Any enactment relating to building societies contained in this Act which re-enacts an enactment which was an existing enactment for the purposes of section 121 of the Building Societies Act 1986[1986 c. 53.] shall continue to be an existing enactment for those purposes.

Pension business U.K.

17 U.K. Any reference to pension business in any enactment (other than an enactment repealed by this Act) which immediately before the commencement of this Act was such a reference by virtue of paragraph 11(3) of Part III of Schedule 5 to the Finance Act 1970[1970 c. 24.] shall not be affected by the repeal by this Act of that paragraph and accordingly the business in question shall continue to be known as pension business.

Stock relief U.K.

18 Schedule 9 to the Finance Act 1981[1981 c. 35.] shall continue to have effect in relation to any relief to which paragraph 9 or 17(1) of that Schedule applied immediately before the commencement of this Act notwithstanding the repeal by this Act of that Schedule F419 .

Textual Amendments

F419 For 1981 Sch. 9 see 1987 edition.

18A (1) This paragraph applies in any case where a person is entitled to a relief to which Part II of Schedule 9 to the Finance Act 1981 applies (income tax: stock relief) for a year of assessment and —

(a) he and the inspector have come to an agreement, in writing, as to the extent to which the relief is to be given effect in that year (whether by deduction from profits or gains or by discharge or repayment of tax, or both); and

(b) no assessment giving effect to the relief is made for that year.

(2) In a case to which this paragraph applies the relief shall be taken to have been given effect in the year of assessment in question, as if an assessment had been made, to the extent set out in the agreement mentioned in subsection (1) above.

Modifications etc. (not altering text)

C133 Sch. 30 para. 18A continued (with effect in accordance with s. 579 of the amending Act) by Capital Allowances Act 2001 (c. 2), Sch. 3 para. 114

Schedule E emoluments U.K.

19 The repeal by this Act of section 21 of the Finance Act 1974[1974 c. 30.] shall not affect the taxation of emoluments which if that section had been in force before 1973-74 would have fallen within Case I or Case II of Schedule E, and, accordingly, any such emoluments shall not be chargeable under Case III of Schedule E.

Unitary states U.K.

20 The repeal by this Act of section 54 of and Schedule 13 to the Finance Act 1985 shall not prevent the Treasury making an order under subsection (7) of section 54 exercising the powers conferred on the Treasury by that subsection in relation to distributions made in chargeable periods ending before 6th April 1988 and, accordingly, subsections (7) and (8) of section 54 shall continue to have effect in later chargeable periods for that purpose.

Continuity and construction of references to old and new law U.K.

21 (1) The continuity of the operation of the Tax Acts and of the law relating to chargeable gains shall not be affected by the substitution of this Act for the enactments repealed by this Act and earlier enactments repealed by and corresponding to any of those enactments (“the repealed enactments”). U.K.

(2) Any reference, whether express or implied, in any enactment, instrument or document (including this Act and any Act amended by this Act) to, or to things done or falling to be done under or for the purposes of, any provision of this Act shall, if and so far as the nature of the reference permits, be construed as including, in relation to the times, years or periods, circumstances or purposes in relation to which the corresponding provision in the repealed enactments has or had effect, a reference to, or as the case may be to things done or falling to be done under or for the purposes of, that corresponding provision.

(3) Any reference, whether express or implied, in any enactment, instrument or document (including the repealed enactments and enactments, instruments and documents passed or made after the passing of this Act) to, or to things done or falling to be done under or for the purposes of, any of the repealed enactments shall, if and so far as the nature of the reference permits, be construed as including, in relation to the times, years or periods, circumstances or purposes in relation to which the corresponding provision in this Act has effect, a reference to, or as the case may be to things done or falling to be done under or for the purposes of, that corresponding provision.

(4) Any reference to Case VIII of Schedule D, whether a specific reference or one imported by more general words, in any enactment, instrument or document shall, in relation to the chargeable periods to which section 843(1) applies, be construed as a reference to Schedule A, and for the purposes of sub-paragraph (2) above, Schedule A in this Act shall be treated as corresponding to Case VIII of Schedule D in the repealed enactments, and any provision of this Act or of any Act passed after 12th March 1970 and before this Act referring to Schedule A shall be construed accordingly.

Section 844.

SCHEDULE 31 U.K. REPEALS