Finance (No. 3) Bill (HC Bill 200)

is to be apportioned between the relevant persons on a just and
reasonable basis with subsections (3) to (5) applying accordingly.

554Z13 Subsequent income tax liability

(1) This section applies if—

(a) 5after the relevant step is taken, another event (“the later
event”) occurs,

(b) other than by virtue of—

(i) this Chapter,

(ii) Chapters 2 to 5 of Part 7, or

(iii) 10Part 9,

the later event would (apart from this section) give rise to a
liability for income tax of A or any other person on an amount
(“the later amount”), and

(c) it is just and reasonable for this section to apply in order to
15avoid a double charge to income tax in respect of the sum of
money or asset which is the subject of the relevant step.

(2) So far as it is just and reasonable in order to avoid a double charge to
income tax as mentioned in subsection (1)(c), there is to be no liability
to income tax on the later amount by virtue of the later event.

554Z14 20 Relief where earmarking not followed by further relevant step

(1) An application for relief may be made by A (or, if A has died, A’s
personal representatives) to an officer of Revenue and Customs if—

(a) this Chapter has applied by reason of a relevant step (“the
original relevant step”) within section 554B taken by a person
25(“P”),

(b) there occurs an event (“the relevant event”) which is not a
relevant step in relation to a relevant sum or asset,

(c) by reason of the relevant event no further relevant step is or
will be taken by P or any other person in relation to any
30relevant sum or asset, and

(d) there is no connection (direct or indirect) between the
relevant event and a tax avoidance arrangement.

(2) In section 554Z(15) the reference to the avoidance of tax includes (in
particular) a reference to the avoidance of tax by way of obtaining
35relief under this section.

(3) In subsection (1) “relevant sum or asset” means—

(a) the sum of money or asset which is the subject of the original
relevant step, or

(b) a sum of money or asset which (directly or indirectly) has
40arisen or derived, or may arise or derive, from the sum of
money or asset mentioned in paragraph (a).

(4) The application for relief must be made within four years from the
time when the relevant event occurs.

(5) If an officer of Revenue and Customs is satisfied that the
45requirements in subsection (1) are met, the officer must give such
relief as the officer considers just and reasonable (if any) in respect of
income tax paid on any previously charged amount.

(6) In subsection (5) “previously charged amount” means—

(a) the amount which counted as employment income of A
under this Chapter as a result of this Chapter applying by
reason of the original relevant step, or

(b) 5any amount treated by section 222 as earnings of A in relation
to the notional payment (within the meaning of that section)
which B is treated as having made by virtue of the original
relevant step.

(7) Subsection (8) applies if, by virtue of this Chapter having applied by
10reason of the original relevant step, any tax liability of A or any other
person arising from another event is reduced (including to nil) by
virtue of section 554Z5 or 554Z13 or otherwise.

(8) In determining what is a just and reasonable amount of relief, the
officer of Revenue and Customs must have regard (in particular) to
15the reduction in the tax liability and reduce the amount of relief
which would otherwise have been given accordingly (including to
nil).

(9) The relief is to be given by repayment or otherwise as appropriate.

(10) In relation to times after the relief is given, the Tax Acts have effect
20as if this Chapter had never applied by reason of the original relevant
step.

554Z15 Location of employment duties

The following provisions apply for the purposes of this Chapter—

(a) section 38 (but as if references to general earnings were to the
25value of the relevant step or a part of it),

(b) section 39(1) and (2),

(c) section 40 (but as if in subsections (3) and (4) references to
section 24(1)(b) were to section 554Z9(4)(b)), and

(d) section 41 (but as if references to general earnings were to the
30value of the relevant step or a part of it).

CHAPTER 3 Undertakings given by employers etc in relation to retirement
benefits etc

554Z16 Application etc

(1) This Chapter applies if there is an undertaking (“the relevant
35undertaking”) that a contribution to which subsection (2) would
apply will be paid.

(2) This subsection applies to a contribution if—

(a) the contribution is paid to an arrangement which is not a
registered pension scheme,

(b) 40in connection with that arrangement (directly or indirectly),
relevant benefits are to be provided (directly or indirectly)
out of the contribution by a relevant third person,

(c) the provision of the relevant benefits would be a relevant
step, and

(d) the contribution is neither a tax-relieved contribution nor tax-
exempt provision.

(3) In subsection (2)—

• “relevant benefits” has the same meaning as in Chapter 2 of Part
  56, but ignoring section 393B(2)(a),

• “relevant third person” means a person within section
  554A(7)(a) to (c) (ignoring this Chapter), and

• “tax-exempt provision” and “tax-relieved contribution” have
  the meaning given by paragraph 3(3) and (4) of Schedule 34
  10to FA 2004.

(4) In this Chapter references to an undertaking include references to—

(a) an undertaking which is not legally enforceable, and

(b) an undertaking which is to be performed only on or
following the meeting of a condition (including a condition
15which might never be met).

554Z17 Employer etc to be treated as relevant third person etc

(1) If B takes a step within section 554Z18 or 554Z19, Chapters 1 and 2
have effect in relation to the step—

(a) as if B were a relevant third person for the purposes of section
20554A(1)(d), and

(b) as if the step were a relevant step within section 554B (if it
would not otherwise be).

(2) For the purpose of determining whether Chapter 2 applies by reason
of the step, Chapter 1 has effect—

(a) 25as if sections 554F to 554O, 554S to 554U, 554W and 554X were
omitted,

(b) if the step is within section 554Z18, as if sections 554Q(2)(d), (3) and (4) and 554R(1)(c) and (d), (2) and (3) were omitted,
and

(c) if the step is within section 554Z19, as if sections 554Q and
30554R were omitted.

(3) If Chapter 2 applies by reason of the step, Chapter 2 has effect as if
sections 554Z7 to 554Z12 were omitted.

(4) If Chapter 2 does not apply by reason of the step by virtue of section
554E(3) or (6), section 554E(10) and (11) does not apply in relation to
35the step.

(5) For further modifications of Chapters 1 and 2, see sections 554Z18(3)
and (4), 554Z19(5) and (6), 554Z20 and 554Z21.

(6) Regulations under section 554Y may (in particular) make provision
covering cases in which Chapters 1 and 2 have effect as provided for
40by this section.

(7) In this Chapter—

(a) references to B do not include references to B acting as a
trustee,

(b) if B is a company and is a member of a group of companies,
references to B are to be read as including references to any
other company which is a member of that group, and

(c) if B is a limited liability partnership, references to B are to be
5read as including references to any company which is a
wholly-owned subsidiary (as defined in section 1159(2) of the
Companies Act 2006) of B.

554Z18 Earmarking etc

(1) B takes a step within this section if—

(a) 10a sum of money or asset held by or on behalf of B is
earmarked (however informally) by B with a view to the
relevant undertaking being performed at a later time (wholly
or partly) out of—

(i) that sum of money or asset, or

(ii) 15any sum of money or asset which may arise or derive
(directly or indirectly) from it, or

(b) a sum of money or asset otherwise starts being held by or on
behalf of B, specifically with a view, so far as B is concerned,
to the relevant undertaking being performed at a later time
20(wholly or partly) out of—

(i) that sum of money or asset, or

(ii) any sum of money or asset which may arise or derive
(directly or indirectly) from it.

(2) For the purposes of subsection (1)(b) it does not matter whether or
25not the sum of money or asset in question has previously been held
by or on behalf of B on a basis which is different to that mentioned in
subsection (1)(b).

(3) Subsection (4) applies if, in the application of section 554Q or 554R in
any case, the relevant step mentioned in section 554Q(2)(a) or
30554R(6)(a) is a step within this section taken by B.

(4) In section 554Q(2)(c) or 554R(6)(c) (as the case may be) the reference
to section 554B(1)(a) or (b) is to be read as a reference to subsection
(1)(a) or (b) above.

554Z19 Provision of security

(1) 35B takes a step within this section if B provides security for the
performance of the relevant undertaking.

(2) For the purposes of this Part, the sum of money or asset which is the
subject of the step is to be taken to be—

(a) any sums of money which, as at the time the step is taken, are
40the subject of the security, and

(b) any assets which, as at that time, are the subject of the
security,

and references to the sum of money or asset which is the subject of a
relevant step are to be read accordingly.

(3) 45If, when the step is taken, the security covers other undertakings as
well as the relevant undertaking, the sums of money and assets
within subsection (2)(a) and (b) are to be apportioned between the

relevant undertaking and the other undertakings on a just and
reasonable basis.

(4) Subsections (2) and (3) are subject to section 554Z20(7).

(5) Section 554Q does not apply in any case in which the relevant step
5mentioned in section 554Q(2)(a) would be a step within this section
taken by B.

(6) Section 554R(6) does not apply in any case in which the relevant step
mentioned in section 554R(6)(a) would be a step within this section
taken by B.

(7) 10In this Chapter references to providing security for the performance
of an undertaking are references to providing such security in any
way, however informal.

554Z20 Valuation of step within section 554Z19

(1) This section applies if, by virtue of section 554Z17, Chapter 2 applies
15by reason of a step taken by B within section 554Z19.

(2) Section 554Z3 has effect as if subsections (3) and (4) below were
substituted for subsections (1) to (6) of that section.

(3) The value of the relevant step is—

(a) the amount to be paid as a contribution under the relevant
20undertaking determined, as at the time the step is taken, on a
just and reasonable basis assuming that any condition to be
met before any payment is made will be met, or

(b) if lower, the value of the security.

(4) For the purposes of subsection (3)(b) the value of the security—

(a) 25consists of—

(i) the total amount of the sums of money included in the
subject of the step (see section 554Z19(2)(a)), and

(ii) the total market value, as at the time the step is taken,
of the assets included in the subject of the step (see
30section 554Z19(2)(b)), but

(b) is to be subject to a just and reasonable reduction to take
account of any term of the security which limits the total
amount which may be made available under the security for
the performance of the relevant undertaking to an amount
35which is lower than the amount determined under paragraph
(a).

(5) The following subsections apply if, as at the end of the day of an
anniversary of the taking of the step (“the anniversary day”), B
continues to provide the security for the performance of the relevant
40undertaking.

(6) This Part has effect as if B’s continuing to provide the security were
a new step (“the anniversary step”) within section 554Z19—

(a) which is taken by B at the end of the anniversary day, and

(b) by reason of which Chapter 2 is to apply by virtue of section
45554Z17 (subject only to section 554A(4)).

(7) If the total amount of the sums of money which are the subject of the
security (“the security sums”) varies from time to time, for the
purpose of determining the sums of money included in the subject of
the anniversary step, in section 554Z19(2)(a) the reference to the time
5the step is taken is to be read as a reference to the time during the
preceding year at which the total amount of the security sums is at
its highest.

(8) For the purposes of subsection (4)(a)(ii) the market value of any asset
included in the subject of the anniversary step may be determined as
10at any time during the preceding year (so long as the asset is the
subject of the security, or one of the assets which is the subject of the
security, as at that time).

(9) In subsections (7) and (8) “the preceding year” means the year ending
with the anniversary day.

554Z21 15 Relief for earmarking or security not followed by contribution or
relevant benefit

(1) This section applies if, by virtue of section 554Z17, Chapter 2 applies
by reason of a step taken by B within section 554Z18 or 554Z19.

(2) Section 554Z14 has effect in relation to the step with the following
20modifications.

(3) Subsection (1)(b) has effect as if for “not a relevant step in relation to
a relevant sum or asset” there were substituted “neither the payment
of the relevant contribution (or any part of it) nor the provision of any
relevant benefit”.

(4) 25Subsection (1)(c) has effect as if for the words from “no further
relevant step” to “any relevant sum or asset” there were substituted
“the relevant contribution (or any part of it) will not be paid or a
relevant benefit will not be provided”.

(5) Subsection (1) has effect as if subsection (6) below were substituted
30for subsection (3).

(6) In subsection (1)—

(a) “the relevant contribution” means the contribution to be paid
under the relevant undertaking (within the meaning of
Chapter 3), and

(b) 35“relevant benefit” means a relevant benefit to be provided out
of the relevant contribution as mentioned in section
554Z16(2)(b) and (c).”

Other amendments to ITEPA 2003

2 ITEPA 2003 is amended as follows.

3 40In section 1(1)(a) (overview of contents of Act) for “7” substitute “7A”.

4 (1) Amend section 3 (structure of employment income Parts) as follows.

(2) At the end of subsection (1) insert—

“(None) Part 7A deals with employment income provided through
third parties.”

(3) In subsection (2) for “7” substitute “7A”.

5 For the “or” after section 7(6)(b) (meaning of “specific employment income”)
substitute—

“(ba) Part 7A (employment income provided through third
5parties), or”.

6 (1) Amend section 10 (provision relating to “taxable specific income”) as
follows.

(2) In subsection (3) for “or 7” substitute “, 7 or 7A”.

(3) After subsection (4) insert—

“(5) 10Subsection (3) is also subject to sections 554Z9 to 554Z11
(employment income under Part 7A: remittance basis).”

7 (1) Amend section 13 (person liable for tax) as follows.

(2) In subsection (3) for “or 7” substitute “, 7 or 7A”.

(3) After subsection (4A) insert—

“(4B) 15Subject to section 554Z12, if—

(a) the tax is on specific employment income under Chapter 2 of
Part 7A, and

(b) the relevant step is taken, or (if relevant) the income is
remitted to the United Kingdom, after the death of A,

20A’s personal representatives are liable for the tax.

(4C) Terms used in subsection (4B) have the same meaning as in Part 7A.”

(4) In subsection (5) for “or (4A)” substitute “, (4A) or (4B) or section 554Z12(3)”.

8 After section 63(4) (the benefits code) insert—

“(5) The benefits code has effect subject to section 554Z2(2).”

9 25Under Step 1 in section 218(1) (exclusion of lower-paid employments from
benefits code: calculation of earnings rate for tax year)—

(a) omit the “and” after paragraphs (c) and (d), and

(b) after paragraph (e) insert “, and

(f) the total amount which counts as employment
30income in respect of the employment for the year
under Chapter 2 of Part 7A.”

10 In section 222(1)(a) and (3) (payments treated as earnings: payments by
employer on account of tax where deduction not possible) after “687,” insert
“687A,”.

11 35After section 227(4) (scope of exemptions to income tax under Part 4)
insert—

“(5) In relation to the interaction between this Part and Part 7A, see
section 554P(1).”

12 (1) Amend section 271 (income tax exemptions: removal benefits and expenses)
40as follows.

(2) In subsection (1) after “earnings” insert “or by virtue of Part 7A”.

(3) In subsection (2) for “Subsection” substitute “In relation to earnings,
subsection”.

(4) After subsection (2) insert—

“(2A) In relation to Part 7A, subsection (1) does not apply to any amount so
5far as the amount (disregarding this section and section 554P) would
count as employment income to which section 554Z9 or 554Z10
would apply.”

13 (1) Amend section 287 (income tax exemptions: limit on exemption for removal
benefits and expenses) as follows.

(2) 10In subsection (2)—

(a) omit the “and” after paragraph (a), and

(b) after paragraph (b) insert “, and

(c) the Part 7A employment income”.

(3) After subsection (5) insert—

“(6) 15In this section “the Part 7A employment income” means the amount
in respect of which section 271 (when read with section 554P) would
prevent liability to income tax arising if this section were to be
disregarded.”

14 (1) Amend section 394 (employer-financed retirement benefits: charge on
20benefit received) as follows.

(2) After subsection (4) insert—

“(4A) Subsection (4B) applies if the receipt of a benefit to which this
Chapter applies gives rise to other relevant income of the employee,
or the former employee, to or in respect of whom the benefit is
25provided.

(4B) Subsection (1) or (2) (as the case may be) applies to the amount of the
benefit only so far as that amount exceeds the other relevant income.

(4C) In subsections (4A) and (4B) “other relevant income” means—

(a) general earnings of the employee or former employee which
30are chargeable to income tax,

(b) an amount which counts as employment income of the
employee or former employee under Chapter 2 of Part 7A, or

(c) an amount which would be within paragraph (a) or (b) apart
from the employee or former employee having been non-UK
35resident for any tax year.”

(3) After subsection (5) insert—

“(6) Subsection (5) does not affect—

(a) any liability to income tax on general earnings, or

(b) any liability to income tax on an amount which counts as
40employment income under Chapter 2 of Part 7A.”

15 After section 428(6) (restricted employment-related securities: amount of
charge) insert—

“(6A) CE also includes any amount that has counted as employment
income of the employee in respect of the employment under Chapter

2 of Part 7A in relation to the employment-related securities where
the relevant step (within the meaning of that Part) was taken before
the chargeable event occurred.”

16 In section 431(3) (restricted employment-related securities: election for
5disapplication of Chapter 2 of Part 7)—

(a) omit the “and” after paragraph (c), and

(b) after paragraph (d) insert “, and

(e) determining any amount that counts as employment
income of the employee in respect of the employment
10under Chapter 2 of Part 7A (employment income
provided through third parties)”.

17 In section 437(1)(a) (convertible employment-related securities: market
value) after “option)” insert “or Chapter 2 of Part 7A (employment income
provided through third parties)”.

18 15After section 441(9) (convertible employment-related securities: amount of
gain realised) insert—

“(10) Subsection (11) applies for the purposes of subsection (2) or (3) if—

(a) prior to the acquisition, the employment-related securities
were the subject of a relevant step within the meaning of Part
207A by reason of which Chapter 2 of that Part applied in
respect of the employment, and

(b) the amount mentioned in subsection (11)(a) is higher than the
amount mentioned in subsection (11)(b).