Finance (No. 2) Bill (HC Bill 154)

(3) In particular, in relation to awards of shares on or after that day, such a SIP
has effect with the omission of any provision falling within a provision of
Schedule 2 to ITEPA 2003 omitted by paragraph 47 above.

SAYE option schemes

58 5Part 4 of Schedule 3 (shares to which schemes can apply) is amended as
follows.

59 In paragraph 17 (introduction) in sub-paragraph (1)—

(a) after the entry for paragraph 20 insert “and”, and

(b) omit the entry for paragraph 21 and the “and” after it.

60 10Omit paragraph 21 (only certain kinds of restrictions allowed).

61 In Part 6 of Schedule 3 (requirements etc relating to share options) in
paragraph 28 (requirements as to price of acquisition of shares) after sub-
paragraph (4) insert—

“(5) At the time a share option is granted—

(a) 15it must be stated whether or not the shares which may be
acquired by the exercise of the option may be subject to any
restriction, and

(b) if so, the details of the restriction must also be stated.

(6) For the purposes of this paragraph the market value of shares
20subject to a restriction is to be determined as if they were not
subject to the restriction.”

62 In Part 7 of Schedule 3 (exchange of share options) in paragraph 39
(requirements about share options granted in exchange) after sub-
paragraph (6) insert—

“(7) 25For the purposes of this paragraph the market value of shares
subject to a restriction is to be determined as if they were not
subject to the restriction.”

63 Part 9 of Schedule 3 (supplementary provisions) is amended as follows.

64 In paragraph 48 (minor definitions) after sub-paragraph (2) insert—

“(3) 30For the purposes of the SAYE code—

(a) shares are subject to a “restriction” if there is any contract,
agreement, arrangement or condition which makes
provision to which any of subsections (2) to (4) of section
423 (restricted securities) would apply if the references in
35those subsections to the employment-related securities
were to the shares, and

(b) the “restriction” is that provision.”

65 In paragraph 49 (index of defined expressions) at the appropriate place
insert—

66 (1) The amendments made by paragraphs 58 to 61 above have effect in relation
to options granted on or after the day on which this Act is passed.

(2) The amendment made by paragraph 62 above has effect for cases where the
45old options are granted on or after that day.

(3) A SAYE option scheme approved before that day has effect with any
modifications needed to reflect the amendments made by paragraphs 58 to
65 above.

(4) In particular, in relation to options granted on or after that day, such a SAYE
50option scheme has effect with the omission of any provision falling within a
provision of Schedule 3 to ITEPA 2003 omitted by paragraph 60 above.

CSOP schemes

67 In Part 2 of Schedule 4 (general requirements for approval) in paragraph 6
(limit on value of shares subject to options) after sub-paragraph (3) insert—

“(4) 55For the purposes of this paragraph the market value of shares
subject to a restriction is to be determined as if they were not
subject to the restriction.”

68 Part 4 of Schedule 4 (shares to which schemes can apply) is amended as
follows.

69 60In paragraph 15 (introduction)—

(a) after the entry for paragraph 18 insert “and”, and

(b) omit the entry relating to paragraph 19 and the “and” after it.

70 Omit paragraph 19 (only certain kinds of restrictions allowed).

71 In Part 5 of Schedule 4 (requirements etc relating to share options) in
65paragraph 22 after sub-paragraph (4) insert—

“(5) At the time a share option is granted—

(a) it must be stated whether or not the shares which may be
acquired by the exercise of the option may be subject to any
restriction, and

(b) 70if so, the details of the restriction must also be stated.

(6) For the purposes of this paragraph the market value of shares
subject to a restriction is to be determined as if they were not
subject to the restriction.”

72 In Part 6 of Schedule 4 (exchange of share options) in paragraph 27
75(requirements about share options granted in exchange) after sub-
paragraph (6) insert—

“(7) For the purposes of this paragraph the market value of shares
subject to a restriction is to be determined as if they were not
subject to the restriction.”

73 80Part 8 of Schedule 4 (supplementary provisions) is amended as follows.

74 In paragraph 36 (minor definitions) after sub-paragraph (2) insert—

“(3) For the purposes of the CSOP code—

(a) shares are subject to a “restriction” if there is any contract,
agreement, arrangement or condition which makes
provision to which any of subsections (2) to (4) of section
423 (restricted securities) would apply if the references in
5those subsections to the employment-related securities
were to the shares, and

(b) the “restriction” is that provision.”

75 In paragraph 37 (index of defined expressions) at the appropriate place
insert—

76 (1) The amendment made by paragraph 67 above has effect for the purpose of
determining whether options may be granted to an individual on or after the
day on which this Act is passed; but the amendment is to be ignored in
15determining the market value of any shares to which an option granted
before that day relates.

(2) The amendments made by paragraphs 68 to 71 above have effect in relation
to options granted on or after that day.

(3) The amendment made by paragraph 72 above has effect for cases where the
20old options are granted on or after that day.

(4) A CSOP scheme approved before that day has effect with any modifications
needed to reflect the amendments made by paragraphs 67 to 75 above.

(5) In particular, in relation to options granted on or after that day, such a CSOP
scheme has effect with the omission of any provision falling within a
25provision of Schedule 4 to ITEPA 2003 omitted by paragraph 70 above.

Part 5 Share incentive plans: partnership shares

77 Schedule 2 to ITEPA 2003 is amended as follows.

78 (1) In Part 6 (partnership shares) paragraph 52 (application of money deducted
30in accumulation period) is amended as follows.

(2) After sub-paragraph (2) insert—

“(2A) The number of shares awarded to the employee must be
determined in accordance with one of sub-paragraphs (3), (3A)
and (3B) and the partnership share agreement must specify which
35one of those sub-paragraphs is to apply for the purposes of the
agreement.”

(3) In sub-paragraph (3) for “The number of shares awarded to each” substitute
“If the agreement specifies that this sub-paragraph is to apply, the number
of shares awarded to the”.

(4) After sub-paragraph (3) insert—

“(3A) If the agreement specifies that this sub-paragraph is to apply, the
number of shares awarded to the employee must be determined in
accordance with the market value of the shares at the beginning of
5the accumulation period.

(3B) If the agreement specifies that this sub-paragraph is to apply, the
number of shares awarded to the employee must be determined in
accordance with the market value of the shares on the acquisition
date.”

(5) 10In sub-paragraphs (4) and (5) for “and (3)” substitute “to (3B)”.

79 In Part 9 (trustees) in paragraph 75 (duty to give notice of award of shares
etc) in sub-paragraph (3) for paragraph (c) substitute—

“(c) stating the market value in accordance with which the
number of shares awarded to the employee was
15determined.”

80 (1) The amendments made by paragraphs 78 and 79 above have effect in
relation to partnership share agreements made on or after the day on which
this Act is passed.

(2) A trust instrument made before that day has effect with any modifications
20needed to reflect the amendment made by paragraph 79 above.

Part 6 Share incentive plans: dividend shares

Introduction

81 Part 8 of Schedule 2 to ITEPA 2003 (cash dividends and dividend shares) is
25amended as follows.

Company’s power to direct reinvestment of cash dividends

82 (1) Paragraph 62 (reinvestment of dividends) is amended as follows.

(2) In sub-paragraph (1) after “apply” insert “the specified percentage of”.

(3) After sub-paragraph (1) insert—

“(1A) 30In sub-paragraph (1) “the specified percentage” means the
percentage specified in the company’s direction (which may be
100%), subject to sub-paragraph (1B).

(1B) The company may from time to time modify the specified
percentage.”

83 35In paragraph 68 (reinvestment: amounts to be carried forward) for sub-
paragraph (1) substitute—

“(1) This paragraph applies where an amount is not reinvested
because it is not sufficient to acquire a share.”

84 In paragraph 69 (cash dividends with no requirement to reinvest) in sub-
40paragraph (2) for “which” substitute “so far as they”.

85 (1) A SIP approved before the day on which this Act is passed which contains
provision under paragraph 62(1) of Schedule 2 to ITEPA 2003 has effect with
any modifications needed to reflect the amendments made by paragraphs 82
to 84 above.

(2) 5In relation to any direction requiring the reinvestment of cash dividends
given before that day, the specified percentage is to be taken to be 100%
subject to any modification on or after that day under paragraph 62(1B) of
Schedule 2 of ITEPA 2003.

Removal of limit on amount reinvested

86 10In paragraph 63 (requirements to be met as regards cash dividends) in sub-
paragraph (1) omit the entry for paragraph 64.

87 Omit paragraph 64 (limit on amount reinvested).

88 (1) The amendments made by paragraphs 86 and 87 above have effect in
relation to the tax year 2013-14 and subsequent tax years.

(2) 15A SIP approved before 6 April 2013 has effect accordingly with the omission
of any provision falling within a provision of Schedule 2 to ITEPA 2003
omitted by paragraph 87 above.

Amounts to be carried forward

89 (1) Paragraph 68 (reinvestment: amounts to be carried forward) is amended as
20follows.

(2) In sub-paragraph (4)—

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

(b) in paragraphs (b) and (c) omit “during that period”.

(3) Omit sub-paragraph (6).

(4) 25The amendments made by this paragraph have effect in relation to amounts
held by trustees on or after 6 April 2013 (including amounts originally
retained before that date in relation to which an event falling within
paragraph 68(4)(a) to (c) of Schedule 2 to ITEPA 2003 did not occur before
that date).

(5) 30A SIP approved before 6 April 2013 has effect accordingly with the omission
of any provision falling within a provision of Schedule 2 to ITEPA 2003
omitted by this paragraph.

Part 7 Share incentive plans: employee share ownership trusts

90 35Part 9 of Schedule 2 to ITEPA 2003 (trustees) is amended as follows.

91 In paragraph 70 (introduction) in sub-paragraph (2)—

(a) after the entry for paragraph 77 insert “and”, and

(b) omit the entry for paragraph 78.

92 (1) Omit paragraph 78 (acquisition of shares from employee share ownership
40trusts).

(2) A trust instrument made before the day on which this Act is passed has
effect with the omission of any provision falling within a provision of
Schedule 2 to ITEPA 2003 omitted by this paragraph.

Part 8 5Enterprise management incentives: consequences of disqualifying events

93 (1) In section 532 of ITEPA 2003 (modified tax consequences following
disqualifying events) in subsection (1)(b) for “40” substitute “90”.

(2) The amendment made by this paragraph has effect in relation to
disqualifying events occurring on or after the day on which this Act is
10passed.

Section 16

SCHEDULE 3 Limit on income tax reliefs

The limit

1 In Chapter 3 of Part 2 of ITA 2007 (calculation of income tax liability) after
15section 24 insert—

“24A Limit on Step 2 deductions

(1) If the taxpayer is an individual, there is a limit on certain deductions
which may be made for the tax year at Step 2.

(2) The limit is determined as follows.

(3) 20Amount A must not exceed amount B.

(4) Amount A is—

(a) the deductions for the tax year at Step 2 for the reliefs listed
in subsection (6) taken together, less

(b) so much of those deductions as fall within subsection (7).

(5) 25Amount B is—

(a) £50,000, or

(b) if more, 25% of the taxpayer’s adjusted total income for the
tax year (see subsection (8)).

(6) The reliefs are—

(a) 30relief under section 64 (trade loss relief against general
income);

(b) relief under section 72 (early trade losses relief);

(c) relief under section 96 (post-cessation trade relief);

(d) relief under section 120 (property loss relief against general
35income);

(e) relief under section 125 (post-cessation property relief);

(f) relief under section 128 (employment loss relief against
general income);

(g) relief under Chapter 6 of Part 4 (share loss relief);

(h) relief under Chapter 1 of Part 8 (interest payments);

(i) relief under section 555 of ITEPA 2003 (deduction for
liabilities relating to former employment);

(j) relief under section 446 of ITTOIA 2005 (strips of government
5securities: relief for losses);

(k) relief under section 454(4) of ITTOIA 2005 (listed securities
held since 26 March 2003: relief for losses: persons other than
trustees).

(7) The deductions falling within this subsection are—

(a) 10deductions for amounts of relief so far as attributable to
allowances under Part 3A of CAA 2001 (business premises
renovation allowances);

(b) deductions for amounts of relief under a provision
mentioned in subsection (6)(a) to (e) so far as made from
15profits of the trade or business to which the relief in question
relates;

(c) deductions for amounts of relief under the provision
mentioned in subsection (6)(a) or (b) so far as attributable to
a deduction allowed under section 205 or 220 of ITTOIA 2005
20(deduction for overlap profit in final tax year or on change of
accounting date);

(d) deductions for amounts of relief under the provision
mentioned in subsection (6)(g)—

(i) where the shares in question fall within section
25131(2)(a) (qualifying shares to which EIS relief is
attributable), or

(ii) where SEIS relief is attributable to the shares in
question as determined in accordance with Part 5A
(seed enterprise investment scheme).

(8) 30The taxpayer’s “adjusted total income” for the tax year is calculated
as follows.

Step 1

Take the amount of the taxpayer’s total income for the tax year.

Step 2

35Add back the amounts of any deductions allowed under Part 12 of
ITEPA 2003 (payroll giving) in calculating the taxpayer’s income
which is charged to tax for the tax year.

Step 3

If the taxpayer is given relief in accordance with section 192 of FA
402004 (pension schemes: relief at source) in respect of any contribution
paid in the tax year under a pension scheme, deduct the gross
amount of the contribution.

The “gross” amount of a contribution is the amount of the
contribution before deduction of tax under section 192(1) of FA 2004.

45Step 4

If the taxpayer is entitled to a deduction for relief under section
193(4) or 194(1) of FA 2004 (pension schemes: excess relief under net
payment arrangements or relief on making a claim) for the tax year,
deduct the amount of the excess or contribution (as the case may be).

50The result is the taxpayer’s adjusted total income for the tax year.”

Consequential amendments

2 (1) ITA 2007 is amended as follows.

(2) In section 23 (calculation of income tax liability) at step 2 for “section 25”
substitute “sections 24A and 25”.

(3) 5In the following provisions (which explain how certain reliefs work) for
“section 25(4) and (5)” substitute “sections 24A and 25(4) and (5)”—

(a) section 65(1),

(b) section 73,

(c) section 121(1),

(d) 10section 129(1), and

(e) section 133(1).

(4) In section 148 (share loss relief: disposal of shares forming part of mixed
holding) in subsection (3)(b) before sub-paragraph (i) insert—

“(ai) shares to which SEIS relief is attributable (as
15determined in accordance with Part 5A),”.

Commencement and transitional provision

3 The amendments made by paragraphs 1 and 2 above have effect for the tax
year 2013-14 and subsequent tax years.

4 (1) Sub-paragraph (2) applies to a claim which relates to the tax year 2013-14 or
20a subsequent tax year by virtue of paragraph 2 of Schedule 1B to TMA 1970
where the earlier year is a tax year before the tax year 2013-14.

(2) The amount of the claim is to be determined as if the amendments made by
paragraphs 1 and 2 above also have effect for tax years before the tax year
2013-14.

(3) 25For this purpose, section 24A(6) of ITA 2007 (as inserted by paragraph 1
above) is treated as having effect for tax years before the tax year 2013-14 as
if—

(a) in paragraphs (a), (b), (f) and (g) the references to relief were limited
to relief in respect of a loss made in the tax year 2013-14 or a
30subsequent tax year, and

(b) all the other paragraphs were omitted.

5 In section 24A(6)(d) of ITA 2007 (as inserted by paragraph 1 above) the
reference to relief does not include relief in respect of a loss made in the tax
year 2012-13.

Section 17

SCHEDULE 4 Cash basis for small businesses

Part 1 Main provisions

5Introductory

1 Part 2 of ITTOIA 2005 (trading income) is amended as follows.

Eligibility to calculate profits on cash basis

2 Chapter 3 (trade profits: basic rules) is amended as follows.

3 In section 25(3) (exception to requirement to use generally accepted
10accounting practice), for “section 160 (barristers and advocates in early years
of practice)” substitute “section 25A (cash basis for small businesses)”.

4 After section 25 insert—

“25A Cash basis for small businesses

(1) A person who is or has been carrying on a trade may elect for the
15profits of the trade to be calculated on the cash basis (instead of in
accordance with generally accepted accounting practice).

(2) References in this Part to calculating the profits of a trade on the cash
basis are references to doing so in accordance with this section.

(3) Chapter 3A contains provision about—

(a) 20when a person may make an election under this section, and

(b) the effect of such an election.

(4) Where an election under this section has effect in relation to a trade,
sections 27, 28 and 30 do not apply in relation to the calculation of the
profits of the trade.”

5 25After Chapter 3 insert—

“CHAPTER 3A Trade profits: cash basis

Eligibility

31A Conditions to be met for profits to be calculated on cash basis

(1) A person may make an election under section 25A for a tax year if
30conditions A to C are met.

(2) Condition A is that the aggregate of the cash basis receipts of each
trade, profession or vocation carried on by the person during that tax
year does not exceed any relevant maximum applicable for that tax
year (see section 31B).

(3) Condition B is that, in a case where the person is either an individual
who controls a firm or a firm controlled by an individual—

(a) the aggregate of the cash basis receipts of each trade,
profession or vocation carried on by the individual or the
5firm during that tax year does not exceed any relevant
maximum applicable for that tax year, and

(b) the firm or the individual (as the case may be) has also made
an election under section 25A for that tax year.

(4) Condition C is that the person is not an excluded person in relation
10to the tax year (see section 31C).

(5) For the purposes of this section, the “cash basis receipts” of a trade,
profession or vocation, in relation to a tax year, are any receipts
that—

(a) are received during the basis period for the tax year, and

(b) 15would be brought into account in calculating the profits of
the trade, profession or vocation for that tax year on the cash
basis.

31B Relevant maximum

(1) For the purposes of section 31A there is a “relevant maximum”
20applicable for a tax year in relation to a trade, profession or vocation
carried on by a person if any of conditions A to C is met.

(2) Condition A is that an election under section 25A did not have effect
in relation to the trade, profession or vocation for the previous tax
year.

(3) 25Condition B is that the aggregate of the cash basis receipts of each
trade, profession or vocation carried on by the person during the
previous tax year is greater than an amount equal to twice the VAT
threshold for that previous tax year.

(4) Condition C is that, in a case where the person is either an individual
30who controls a firm or a firm controlled by an individual, the
aggregate of the cash basis receipts of each trade, profession or
vocation carried on by the individual or the firm during the previous
tax year is greater than an amount equal to twice the VAT threshold
for that previous tax year.

(5) 35If there is a relevant maximum applicable for a tax year, the amount
of the relevant maximum is—

(a) the VAT threshold, or

(b) in the case where the person is an individual who is a
universal credit claimant in the tax year, an amount equal to
40twice the VAT threshold.

(6) For the purposes of this section, where the basis period for a tax year
is less than 12 months, the VAT threshold is proportionately
reduced.

(7) In this section—

• 45“universal credit claimant”, in relation to a tax year, means a
  person who is entitled to universal credit under the relevant
  legislation for an assessment period (within the meaning of

  Finance (No. 2) BillPage 159

  the relevant legislation) that falls within the basis period for
  the tax year,

• “the relevant legislation” means—

  (a)

  Part 1 of the Welfare Reform Act 2012, or

  (b)

  5any provision made for Northern Ireland which
  corresponds to that Part of that Act, and

• “the VAT threshold”, in relation to a tax year, means the amount
  specified at the end of that tax year in paragraph 1(1)(a) of
  Schedule 1 to VATA 1994.

(8) 10The Treasury may by order amend this section.

(9) A statutory instrument containing an order under subsection (8) that
restricts the circumstances in which an election may be made under
section 25A may not be made unless a draft of the instrument
containing the order has been laid before, and approved by a
15resolution of, the House of Commons.

31C Excluded persons

(1) A person is an excluded person in relation to a tax year if the person
meets any of conditions A to H.

(2) Condition A is that—

(a) 20the person is a firm, and

(b) one or more of the persons who have been partners in the
firm at any time during the basis period for the tax year was
not an individual at that time.

(3) Condition B is that the person was a limited liability partnership at
25any time during the basis period for the tax year.

(4) Condition C is that the person is an individual who has been a
Lloyd’s underwriter at any time during the basis period for the tax
year.

(5) Condition D is that the person has made an election under Chapter 8
30(trade profits: herd basis rules) that has effect in relation to the tax
year.

(6) Condition E is that the person has made a claim under section 221
(claim for averaging of fluctuating profits) in relation to the tax year.

(7) Condition F is that, at any time within the period of 7 years ending
35immediately before the basis period for the tax year, the person
obtained an allowance under Part 3A of CAA 2001 (business
premises renovation allowances).

(8) Condition G is that the person has carried on a mineral extraction
trade at any time during the basis period for the tax year.

40In this subsection “mineral extraction trade” has the same meaning
as in Part 5 of CAA 2001 (see section 394(2) of that Act).

In this subsection “mineral extraction trade” has the same meaning
as in Part 5 of CAA 2001 (see section 394(2) of that Act).

(9) Condition H is that—

(a) 45at any time before the beginning of the basis period for the tax
year the person obtained an allowance under Part 6 of CAA
2001 (research and development allowances) in respect of
qualifying expenditure incurred by the person, and