Finance Bill (HC Bill 49)

(10) Condition E is that the expenditure is not replacement expenditure.

(11) “Replacement expenditure” means expenditure incurred on the
provision of plant or machinery (“new plant or machinery”)
30intended to perform the same or a similar function, for the purposes
of the qualifying activity of the company, as other plant or machinery
(“replaced plant or machinery”)—

(a) on which the company has previously incurred qualifying
expenditure, and

(b) 35which has been superseded by the new plant or machinery.

(12) But if and to the extent that—

(a) the expenditure is incurred on the provision of new plant or
machinery that is capable of and intended to perform a
significant additional function, when compared to the
40replaced plant or machinery, and

(b) the additional function enhances the capacity or productivity
of the qualifying activity in question,

so much of the expenditure as is attributable to the additional
function is not to be regarded as replacement expenditure.

(13) 45The part of the expenditure attributable to the additional function is
to be determined on a just and reasonable basis.

(14) In this section—

• “assisted area” means—

  (a)

  an area specified as a development area under section
  1 of the Industrial Development Act 1982, or

  (b)

  5Northern Ireland;

• “enterprise zone” means an area recognised by the Treasury as
  an area in respect of which there is a special focus on
  economic development and identified on a map published by
  the Treasury for the purposes of this section;

• 10“the responsible authority”, for an area, means—

  (a)

  if the area is in England, a local authority for all or
  part of the area or two or more such local authorities,

  (b)

  if the area is in Scotland, the Scottish Ministers,

  (c)

  if the area is in Wales, the Welsh Ministers, and

  (d)

  15if the area is in Northern Ireland, the Department of
  Enterprise, Trade and Investment in Northern
  Ireland.

(15) The Treasury may by order amend the definition of “assisted area”
in subsection (14) in consequence of any changes made to the areas
20in the United Kingdom granted assisted area status by virtue of
Article 107(3) of the Treaty on the Functioning of the European
Union.

(16) This section is subject to—

• section 45L (plant or machinery partly for use outside
  25designated assisted areas),

• section 45M (exclusions from section 45K allowances),

• section 45N (effect of plant or machinery subsequently being
  primarily used in an area other than a designated assisted
  area), and

• 30section 46 (general exclusions).

45L Exclusion of plant or machinery partly for use outside designated
assisted areas

(1) Expenditure on plant or machinery is not first-year qualifying
expenditure under section 45K if—

(a) 35at the time when it is incurred, the company incurring it
intends the plant or machinery to be used partly in a non-
designated area, and

(b) the main purpose, or one of the main purposes, for which any
person is a party to the relevant arrangements is the
40obtaining of a first-year allowance, or a greater first-year
allowance, in respect of the part of the expenditure that is
attributable to that intended use in a non-designated area.

(2) For the purposes of subsection (1)(b), the part of the expenditure that
is attributable to that intended use in a non-designated area is to be
45determined on a just and reasonable basis.

(3) In this section—

• “non-designated area” means an area which is not a designated
  assisted area within the meaning of section 45K;

Finance BillPage 288

• “the relevant arrangements” means—

  (a)

  the transaction under which the expenditure is
  incurred, and

  (b)

  any scheme or arrangements of which that
  5transaction forms part.

45M Exclusions from allowances under section 45K

(1) Expenditure incurred by a person is not first-year qualifying
expenditure under section 45K if it is within subsection (2), (4), (6) or
(7).

(2) 10Expenditure is within this subsection if, at the time a claim is made
under section 3 for a section 45K allowance in respect of the
expenditure, the person who incurred the expenditure is, or forms
part of, an undertaking within subsection (3).

(3) An undertaking is within this subsection if one or both of the
15following conditions are met—

(a) it is reasonable to assume that the undertaking would be
regarded as a firm in difficulty for the purposes of the
Community Guidelines on State Aid for Rescuing and
Restructuring Firms in Difficulty (2004/C 244/02);

(b) 20the undertaking is subject to an outstanding recovery order
made by virtue of Article 108(2) of the Treaty on the
Functioning of the European Union (Commission Decision
declaring aid illegal and incompatible with the common
market).

(4) 25Expenditure is within this subsection if it is incurred for the purposes
of a qualifying activity—

(a) in the fishery or aquaculture sector, as covered by Council
Regulation (EC) No 104/2000,

(b) in the coal sector, steel sector, shipbuilding sector or synthetic
30fibres sector,

(c) relating to the management of waste of undertakings, or

(d) relating to—

(i) the primary production of agricultural products,

(ii) on-farm activities necessary for preparing an animal
35or plant product for the first sale, or

(iii) the first sale of agricultural products by a primary
producer to wholesalers, retailers or processors, in
circumstances where that sale does not take place on
separate premises reserved for that purpose.

(5) 40In subsection (4)(c) the reference to waste of undertakings does not
include waste of the person who incurred the expenditure or of any
other person forming part of the same undertaking as that person.

(6) Expenditure is within this subsection if it is incurred on a means of
transport or transport equipment for the purposes of a qualifying
45activity in the road freight sector or the air transport sector.

(7) Expenditure is within this subsection if a relevant grant or relevant
payment is made towards—

(a) that expenditure, or

(b) any other expenditure which is incurred by any person in
respect of the same designated assisted area, and on the same
single investment project, as that expenditure.

(8) A section 45K allowance made in respect of first-year qualifying
5expenditure is to be withdrawn if—

(a) after it is made, a relevant grant or relevant payment is made
towards that expenditure, or

(b) within the period of 3 years beginning when that expenditure
was incurred, a relevant grant or relevant payment is made
10towards any other expenditure which is incurred by any
person in respect of the same designated assisted area, and on
the same single investment project, as that expenditure.

(9) All such assessments and adjustments of assessments are to be made
as are necessary to give effect to subsection (8).

(10) 15If a person who has made a return becomes aware that, after making
it, anything in it has become incorrect because of the operation of this
section, that person must give notice to an officer of Revenue and
Customs specifying how the return needs to be amended.

(11) The notice must be given within 3 months beginning with the day on
20which the person first became aware that anything in the return had
become incorrect because of the operation of this section.

(12) In this section—

• “agricultural product”, “coal sector”, “steel sector”,
  “shipbuilding sector” and “synthetic fibres sector” have the
  25same meaning as in the General Block Exemption Regulation;

• “General Block Exemption Regulation” means Commission
  Regulation (EC) No 800/2008 (General block exemption
  Regulation);

• “management” and “waste” have the meaning given by Article
  301 of Directive 2006/12/EC of the European Parliament and of
  the Council;

• “relevant grant or relevant payment” means a grant or payment
  which is—

  (a)

  a State aid, other than an allowance under this Part, or

  (b)

  35a grant or subsidy, other than a State aid, which the
  Treasury by order declares to be relevant for the
  purposes of the witholding of a section 45K
  allowance;

• “section 45K allowance” means a first-year allowance in respect
  40of expenditure that is first-year qualifying expenditure under
  section 45K;

• “single investment project” has the same meaning as in the
  General Block Exemption Regulation;

• “undertaking” means—

  (a)

  45an autonomous enterprise, or

  (b)

  an enterprise (not within paragraph (a)) and its
  partner enterprises (if any) and its linked enterprises
  (if any),

  Finance BillPage 290

  and for this purpose “enterprise”, “autonomous enterprise”,
  “partner enterprises” and “linked enterprises” have the
  meaning given by Annex 1 to the General Block Exemption
  Regulation.

(13) 5Nothing in this section limits references to “State aid” to State aid
which is required to be notified to and approved by the European
Commission.

(14) For the purposes of this section references to expenditure incurred in
respect of a designated assisted area includes expenditure incurred
10on the provision of things for use primarily in that area or on services
to be provided primarily in that area.

(15) The Treasury may by order make such provision amending this
section as appears to them appropriate for the purpose of giving
effect to any future amendments of or instruments replacing—

(a) 15the General Block Exemption Regulation,

(b) the Community Guidelines on State Aid for Rescuing and
Restructuring Firms in Difficulty (2004/C 244/02),

(c) Council Regulation (EC) No 104/2000,

(d) Directive 2006/12/EC of the European Parliament and of the
20Council, or

(e) the Treaty on the Functioning of the European Union.

45N Effect of plant or machinery subsequently being primarily for use
outside designated assisted areas

(1) Expenditure on the provision of plant or machinery is to be treated
25as never having been first-year qualifying expenditure under section
45K if, at any relevant time—

(a) the primary use to which the plant and machinery is put is
other than in an area which was a designated assisted area
within the meaning of section 45K at the time the expenditure
30was incurred, or

(b) the plant or machinery is held for use otherwise than
primarily in an area which was such a designated assisted
area at that time.

(2)
“Relevant time” means a time which—

(a) 35falls within the relevant period, and

(b) is a time when the plant or machinery is owned by—

(i) the person who incurred the expenditure, or

(ii) a person who is, or at any time in that period has been,
connected with that person.

(3) 40“The relevant period” means the period of 5 years beginning with—

(a) the day on which the plant or machinery in question is first
brought into use for the purposes of a qualifying activity
carried on by the company, or

(b) if earlier, the day on which it is first held for such use.

(4) 45All such assessments and adjustments of assessments are to be made
as are necessary to give effect to subsection (1).

(5) If a person who has made a return becomes aware that, after making
it, anything in it has become incorrect because of the operation of this
section, that person must give notice to an officer of Revenue and
Customs specifying how the return needs to be amended.

(6) 5The notice must be given within 3 months beginning with the day on
which the person first became aware that anything in the return had
become incorrect because of the operation of this section.”

4 In section 46 (general exclusions applying to first-year qualifying
expenditure), in subsection (1), at the appropriate place in the list insert—

5 (1) Section 52 (first-year allowances) is amended as follows.

(2) 15In subsection (3), at the appropriate place in the Table insert—

(3) In subsection (5)—

(a) omit the “and” at the end of the entry for section 212T, and

(b) after that entry insert—

• 30“section 212U (cap on first-year allowances: expenditure
  on plant and machinery for use in designated assisted
  areas), and”.

6 In section 52A (prevention of double relief) for the words after “not”
substitute “claim—

“(a) 35an annual investment allowance and a first-year allowance in
respect of the same expenditure, or

(b) first-year allowances under two or more of the provisions
listed in section 39 in respect of the same expenditure.”

7 (1) In Chapter 16B (cap on first-year allowances: zero-emission goods vehicles),

after section 212T insert—

“212U Cap on first-year allowances: expenditure on plant and machinery for
use in designated assisted areas

(1) A section 45K allowance is not available in respect of expenditure
(“the current expenditure”) incurred by a person (“the investor”) in
5respect of a particular designated assisted area—

(a) if section 45K allowances have previously been made to any
person in respect of P&M expenditure of 125 million euros
incurred in respect of that area and on the same single
investment project as the current expenditure, or

(b) 10(where paragraph (a) does not apply) if, and to the extent
that, the aggregate of—

(i) the P&M expenditure incurred by any person in
respect of that area, and on the same single
investment project as the current expenditure, in
15respect of which section 45K allowances have
previously been made, and

(ii) the current expenditure,

exceeds 125 million euros.

(2) For the purposes of subsection (1), any reference to P&M
20expenditure incurred in respect of a designated assisted area is a
reference to expenditure incurred on the provision of plant or
machinery for use primarily in that area.

(3) For the purposes of subsection (1), expenditure incurred in a
currency other than the euro is to be converted into its equivalent in
25euros using the spot rate of exchange for the day on which the
expenditure is incurred.

(4) The Treasury may by regulations increase the amount specified in
subsection (1)(a) and (b).

(5) In this section—

• 30“designated assisted area” has the meaning given by section
  45K;

• “section 45K allowance” means a first-year allowance in respect
  of expenditure that is first-year qualifying expenditure under
  section 45K;

• 35“single investment project” has the same meaning as in
  Commission Regulation (EC) No 800/2008 (General block
  exemption Regulation).”

(2) Accordingly, in the heading for that Chapter omit “: zero-emission goods
vehicles”.

8 40The amendments made by this Schedule have effect for chargeable periods
ending on or after 1 April 2012.

Section 47

SCHEDULE 12 Foreign income and gains

Part 1 Increased remittance basis charge

5Increased charge

1 Chapter A1 of Part 14 of ITA 2007 (remittance basis) is amended as follows.

2 (1) Section 809C (claim for remittance basis by long-term UK resident:
nomination of foreign income and gains to which section 809H(2) is to
apply) is amended as follows.

(2) 10In subsection (1), for paragraph (b) substitute—

“(b) meets the 12-year residence test or the 7-year residence test
for that year.”

(3) After that subsection insert—

“(1A) An individual meets the 12-year residence test for a tax year if the
15individual has been UK resident in at least 12 of the 14 tax years
immediately preceding that year.

(1B) An individual meets the 7-year residence test for a tax year if the
individual—

(a) does not meet the 12-year residence test for that year, but

(b) 20has been UK resident in at least 7 of the 9 tax years
immediately preceding that year.”

(4) In subsection (4), for “£30,000” substitute “—

“(a) for an individual who meets the 12-year residence test for
that year, £50,000;

(b) 25for an individual who meets the 7-year residence test for that
year, £30,000.”

3 (1) Section 809H (claim for remittance basis by long-term UK resident: charge)
is amended as follows.

(2) In subsection (1), for paragraph (c) substitute—

“(c) 30the individual meets the 12-year residence test or the 7-year
residence test for the relevant tax year.”

(3) After that subsection insert—

“(1A) See section 809C(1A) and (1B) for when an individual meets the 12-
year residence test or the 7-year residence test for a tax year.”

(4) 35In subsection (4), for “£30,000”, in each place it occurs, substitute “the
applicable amount”.

(5) After subsection (5A) insert—

“(5B) The applicable amount” is—

(a) if the individual meets the 12-year residence test for the
40relevant tax year, £50,000;

(b) if the individual meets the 7-year residence test for the
relevant tax year, £30,000.”

4 For section 809V substitute—

“809V Money paid to the Commissioners

(1) 5Subsection (2) applies to income or chargeable gains of an individual
if—

(a) the income or gains would (but for subsection (2)) be
regarded as remitted to the United Kingdom by virtue of the
bringing of money to the United Kingdom,

(b) 10the money is brought to the United Kingdom by way of one
or more direct payments to the Commissioners, and

(c) the payments are made in relation to a tax year to which
section 809H applies as regards the individual.

(2) The income or chargeable gains are to be treated as not remitted to
15the United Kingdom to the extent that the payments do not exceed
the applicable amount (as defined in section 809H).

(3) Subsection (2) does not apply to payments if or to the extent that they
are repaid by the Commissioners.”

Application of Part 1

5 20The amendments made by this Part of this Schedule have effect for the tax
year 2012-13 and subsequent tax years.

Part 2 Remittance for investment purposes

Relief for investments

6 25For the italic heading preceding section 809V substitute “Relief for money used
to pay tax etc”.

7 After section 809V insert—

“Business investment relief

809VA Money or other property used to make investments

(1) Subsection (2) applies if—

(a) 30a relevant event occurs,

(b) but for subsection (2), income or chargeable gains of an
individual would be regarded as remitted to the United
Kingdom by virtue of that event, and

(c) the individual makes a claim for relief under this section.

(2) 35The income or gains are to be treated as not remitted to the United
Kingdom.

(3) A “relevant event” occurs if money or other property—

(a) is used by a relevant person to make a qualifying investment,
or

(b) is brought to or received in the United Kingdom in order to
be used by a relevant person to make a qualifying
investment.

(4) Subsection (1)(b) includes a case where income or gains would be
5treated under section 809Y as remitted to the United Kingdom by
virtue of the relevant event.

(5) Subsection (2) applies by virtue of subsection (3)(b) to the extent only
that the investment is made within the period of 45 days beginning
with the day on which the money or other property is brought to or
10received in the United Kingdom.

(6) Where some but not all of the money or other property is used to
make the investment within that 45-day period, the part of the
income or gains to which subsection (2) applies is to be determined
on a just and reasonable basis.

(7) 15Subsection (2) does not apply if the relevant event occurs, or the
investment is made, as part of or as a result of a scheme or
arrangement the main purpose or one of the main purposes of which
is the avoidance of tax.

(8) A claim for relief under this section must be made on or before the
20first anniversary of the 31 January following the tax year in which the
income or gains would, but for subsection (2), be regarded as
remitted to the United Kingdom by virtue of the relevant event.

809VB Failure to invest within 45 days

(1) This section applies to any portion of the income or gains to which
25section 809VA(2) does not apply because the investment was not
made within the period mentioned in section 809VA(5) (“the 45-day
period”).

(2) That portion is to be treated as not remitted to the United Kingdom
to the extent that the remaining money or other property is taken
30offshore within the 45-day period.

(3) Where some but not all of the remaining money or other property is
taken offshore within the 45-day period, the part of the income or
gains to which subsection (2) applies is to be determined on a just
and reasonable basis.

(4) 35If any remaining money or other property is taken offshore within
the 45-day period, nothing in subsection (2) prevents anything
subsequently done in relation to it (or anything deriving from it)
from counting as a remittance of the underlying income or gains to
the United Kingdom at the time when the thing is subsequently
40done.

(5) A reference to the “remaining” money or other property is to so
much of the money or other property brought to or received in the
United Kingdom as is not used within the 45-day period to make the
investment (which may in some cases be all of it).

809VC Qualifying investments

(1) For the purposes of section 809VA, a person makes an investment
if—

(a) shares in a company are issued to the person, or

(b) 5the person makes a loan (secured or unsecured) to a
company.

(2) The company is referred to as “the target company”.

(3) The shares or the person’s rights under the loan (or both) forming the
subject of the investment are referred to as “the holding”.

(4) 10The investment counts as a “qualifying investment” if conditions A
and B are met when the investment is made.

(5) Conditions A and B are defined in sections 809VD and 809VF.

(6) A reference in this section to “shares” includes any securities.

(7) If a loan agreement authorises a company to draw down amounts of
15a loan over a period of time—

(a) entry into the agreement does not count for the purposes of
this section as the making of a loan, but

(b) a separate loan is to be treated as made each time an amount
is drawn down under the agreement.

(8) 20Accordingly—

(a) a separate investment is treated as made each time an amount
is drawn down under the agreement, and

(b) the reference in subsection (3) to the person’s rights under the
loan applies only to so much of the person’s rights as relate
25to the drawdown of that particular amount.

809VD Condition A

(1) Condition A is that the target company is—

(a) an eligible trading company,

(b) an eligible stakeholder company, or

(c) 30an eligible holding company.

(2) A company is an “eligible trading company” if—

(a) it is a private limited company,

(b) it carries on one or more commercial trades or is preparing to
do so within the next 2 years, and

(c) 35carrying on commercial trades is all or substantially all of
what it does (or of what it is reasonably expected to do once
it begins trading).

(3) A company is an “eligible stakeholder company” if—

(a) it is a private limited company,

(b) 40it exists wholly for the purpose of making investments in
eligible trading companies (ignoring any minor or incidental
purposes), and

(c) it holds one or more such investments or is preparing to do
so within the next 2 years.

(4) The reference in subsection (3) to making investments is to be read in
accordance with section 809VC.

(5) A company is an “eligible holding company” if—

(a) it is a member of an eligible trading group or of an eligible
5group that is reasonably expected to become an eligible
trading group within the next 2 years,

(b) an eligible trading company in the group is a 51% subsidiary
of it, and

(c) if the ordinary share capital that it owns in the eligible
10trading company is owned indirectly, each intermediary in
the series is also a member of the group.

(6) “Group” means a parent company and its 51% subsidiaries.

(7) “Parent company” means a company that—

(a) has one or more 51% subsidiaries, but

(b) 15is not itself a 51% subsidiary of any company.

(8) A group is an “eligible group” if the parent company and each of its
51% subsidiaries are private limited companies.

(9) A group is an “eligible trading group” if—

(a) it is an eligible group, and

(b) 20carrying on commercial trades is all or substantially all of
what the group does (taking the activities of its members as a
whole).

(10) The reference in subsection (5) to owning ordinary share capital
indirectly is to be read in accordance with section 1155 of CTA 2010.

(11) 25A company is a “private limited company” if—

(a) it is a body corporate whose liability is limited,

(b) it is not a limited liability partnership, and

(c) none of its shares are listed on a recognised stock exchange.

809VE Commercial trades

(1) 30Section 809VD is to be read in accordance with this section.

(2) A reference to a “trade” also includes—

(a) anything that is treated for corporation tax purposes as if it
were a trade, and

(b) a business carried on for generating income from land (as
35defined in section 207 of CTA 2009).

(3) A trade is a “commercial trade” if it is conducted on a commercial
basis and with a view to the realisation of profits.

(4) The carrying on of activities of research and development from
which it is intended that a commercial trade will be derived, or will
40benefit, is to be treated as the carrying on of a commercial trade.

(5) But preparing to carry on activities within subsection (4) is not to be
treated as the carrying on of a commercial trade.

809VF Condition B

(1) Condition B is that no relevant person has (directly or indirectly)
obtained or become entitled to obtain any related benefit, and no
relevant person expects to obtain any such benefit.

(2) 5A “benefit”—

(a) includes the provision of anything that would not be
provided to the relevant person in the ordinary course of
business, or would be provided but on less favourable terms,
but

(b) 10does not include the provision of anything provided to the
relevant person in the ordinary course of business and on
arm’s length terms.

(3) A benefit is “related” if—

(a) it is directly or indirectly attributable to the making of the
15investment (whether it is obtained before or after the
investment is made), or

(b) it is reasonable to assume that the benefit would not be
available in the absence of the investment.

(4) For the purposes of subsection (2)—

(a) 20a reference to the provision of anything is to the provision of
anything in money or money’s worth, including property,
capital, goods or services of any kind, and

(b) “provision” includes any arrangement that allows a person to
enjoy or benefit from the thing in question (whether
25temporarily or permanently).

809VG Income or gains treated as remitted following certain events

(1) Subsection (2) applies if—

(a) income or chargeable gains are treated under section
809VA(2) as not remitted to the United Kingdom as a result
30of a qualifying investment,

(b) a potentially chargeable event occurs after the investment is
made, and

(c) the appropriate mitigation steps are not taken within the
grace period allowed for each step.

(2) 35The affected income or gains are to be treated as having been
remitted to the United Kingdom immediately after the end of the
relevant grace period.

(3) Where the step required by section 809VI(2)(a) is not taken within the
grace period allowed for that step, “the relevant grace period” is the
40grace period allowed for that step.

(4) Otherwise, “the relevant grace period” is the grace period allowed
for the step required by section 809VI(1) or (2)(b).

(5) “The affected income or gains” means such portion of the income or
gains mentioned in subsection (1)(a) as reflects the portion of the
45investment affected by the potentially chargeable event.

(6) The portion of the investment affected is—

(a) if the potentially chargeable event is a disposal of a part of the
holding (or a part of the remaining holding), a portion equal
to the portion of the holding (or remaining holding) being
disposed of, and

(b) 5otherwise, the whole of the investment.

(7) Sections 809VN (order of disposals etc) and 809VO (investments
made from mixed funds) make further provision for the purposes of
this section.

(8) If a qualifying investment is made using the money or other property
10mentioned in section 809VA(3) together with other funds—

(a) that investment is to be treated as two separate investments,
one made using the money or other property mentioned in
section 809VA(3) and one made using the other funds, and

(b) references in the business investment provisions to “the
15investment” and “the holding” relate only to the investment
made using the money or other property mentioned in
section 809VA(3).

(9) If the potentially chargeable event mentioned in subsection (1)(b) is
not the first such event to affect the investment, the income or gains
20mentioned in subsection (1)(a) do not include, as respects that
investment—

(a) any part already treated under subsection (2) as remitted to
the United Kingdom as a result of an earlier event,

(b) any part contained in amounts already taken offshore or re-
25invested by way of appropriate mitigation steps following an
earlier event, or

(c) any part contained in amounts already used to make a tax
deposit without which an amount mentioned in paragraph
(b) would not have been enough to satisfy section 809VI(1) or
30(2)(b) (see section 809VK).

809VH Meaning of “potentially chargeable event”

(1) For the purposes of section 809VG, a “potentially chargeable event”
occurs if—

(a) the target company is for the first time neither an eligible
35trading company nor an eligible stakeholder company nor an
eligible holding company,

(b) the relevant person who made the investment (“P”) disposes
of all or part of the holding,

(c) the extraction of value rule is breached, or

(d) 40the 2-year start-up rule is breached.

(2) The extraction of value rule is breached if—

(a) value (in money or money’s worth) is received by or for the
benefit of P or another relevant person,

(b) the value is received—

(i) 45from an involved company, or

(ii) from anyone else but in circumstances that are
directly or indirectly attributable to the investment or
to any other investment made by a relevant person in
an involved company, and