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Finance Bill
Schedule 11 — Deduction of income tax at source etc

230

 

Payment of interest in kind

6          

After section 370 of ITTOIA 2005 insert—

“370A   

Valuation of interest not paid in cash

(1)   

This section applies to the payment of an amount of interest in the

form of—

5

(a)   

goods or services, or

(b)   

a voucher.

(2)   

Where this section applies by virtue of subsection (1)(a), the amount

of the payment is to be taken to be equal to the market value, at the

time the payment is made, of the goods or services.

10

(3)   

Where this section applies by virtue of subsection (1)(b), the amount

of the payment is to be taken to be equal to whichever is the higher

of—

(a)   

the face value of the voucher,

(b)   

the amount of money for which the voucher is capable of

15

being exchanged, or

(c)   

the market value, at the time the payment is made, of any

goods or services for which the voucher is capable of being

exchanged.

(4)   

In this section references to a voucher are to a voucher, stamp or

20

similar document or token which is capable of being exchanged for

money, goods or services.”

7          

In section 380 of that Act (funding bonds), in subsection (3), at the end insert

“(but does not include any instrument providing for payment in the form of

goods or services or a voucher)”.

25

8          

In section 939 of ITA 2007 (duty to retain bonds where issue treated as

payment of interest), in subsection (6), at the end insert “(but does not

include any instrument providing for payment in the form of goods or

services or a voucher)”.

9          

In section 975 of that Act (statements about deduction of income tax), in

30

subsection (1)—

(a)   

after “if” insert “—

(a)   

”, and

(b)   

at the end insert “, and

(b)   

the person is not under a duty to provide a statement

35

under section 975A”.

10         

After section 975 of that Act insert—

“975A   

Statements about certain payments of interest

(1)   

Subsection (2) applies if a person makes a payment of interest of

which the whole or part is in the form of goods or services or a

40

voucher.

(2)   

The person must provide the recipient of the payment with a

statement showing—

(a)   

the gross amount of the payment,

 
 

Finance Bill
Schedule 11 — Deduction of income tax at source etc

231

 

(b)   

the amount of the sum deducted under any provision of

Chapters 2 to 7 or under section 919 or 928 (if any),

(c)   

the actual amount paid, and

(d)   

the date on which the payment was made.

(3)   

The amounts mentioned in paragraphs (a) to (c) of subsection (2) are

5

to be calculated in accordance with section 370A of ITTOIA 2005.

(4)   

Subsection (5) applies where a person—

(a)   

is treated as making a payment of an amount of interest (“the

deemed interest”) by virtue of section 413 of CTA 2009 or

section 380 of ITTOIA 2005 (funding bonds), and

10

(b)   

is under a duty under section 939(2) to retain funding bonds

equal in value to income tax on the deemed interest at the

basic rate.

(5)   

The person must provide the recipient of the funding bonds with a

statement showing—

15

(a)   

the gross amount of the deemed interest,

(b)   

the sum representing income tax which the person is treated

under section 939(3) as having deducted by retaining

funding bonds,

(c)   

the amount of the deemed interest after the deduction of that

20

sum, and

(d)   

the date on which the deemed interest is treated as being

paid.

(6)   

The amount of the deemed interest is to be calculated in accordance

with section 413 of CTA 2009 or section 380 of ITTOIA 2005, as the

25

case may require.

(7)   

A statement under this section must be provided in writing to the

recipient on the date that the payment is made or (as the case may be)

the date that the deemed interest is treated as being paid.

(8)   

The duty to comply with this section is enforceable by the recipient.

30

(9)   

In this section—

(a)   

references to a voucher are to a voucher, stamp or similar

document or token which is capable of being exchanged for

money, goods or services, and

(b)   

“funding bonds” has the same meaning as in Chapter 12 (see

35

section 939(6)).”

11         

In section 413 of CTA 2009 (issue of funding bonds), in subsection (3), at the

end insert “(but does not include any instrument providing for payment in

the form of goods or services or a voucher)”.

Commencement

40

12    (1)  

The amendments made by paragraphs 1 to 4 have effect—

(a)   

in relation to any payment of interest by a building society which is

made on or after 1 September 2013, and

(b)   

in relation to any other payment of interest which is made on or after

1 October 2013.

45

 
 

Finance Bill
Schedule 12 — Disguised interest

232

 

      (2)  

The amendments made by paragraphs 5 to 11 have effect in relation to any

payment of interest which is made on or after the day on which this Act is

passed.

Schedule 12

Section 28

 

Disguised interest

5

Key amendments to Part 4 of ITTOIA 2005

1          

Part 4 of ITTOIA 2005 (savings and investment income) is amended in

accordance with paragraphs 2 and 3.

2          

In section 365(1) (overview of Part 4)—

(a)   

after paragraph (a) insert—

10

“(aa)   

Chapter 2A (disguised interest),”, and

(b)   

omit paragraph (k).

3          

After Chapter 2 insert—

“Chapter 2A

Disguised interest

15

381A    

Charge to tax on disguised interest

(1)   

This Chapter applies where a person is party to an arrangement

which produces for the person a return in relation to any amount

which is economically equivalent to interest.

(2)   

Income tax is charged on the return if the return is not charged to

20

income tax under or as a result of any other provision of this Act or

any other Act.

(3)   

Subsection (2) does not apply to a return that would be charged to

income tax under or as a result of another provision but for an

exemption.

25

(4)   

For the purposes of this Chapter a return produced for a person by

an arrangement in relation to any amount is “economically

equivalent to interest” if (and only if)—

(a)   

it is reasonable to assume that it is a return by reference to the

time value of that amount of money,

30

(b)   

it is at a rate reasonably comparable to what is (in all the

circumstances) a commercial rate of interest, and

(c)   

at the relevant time there is no practical likelihood that it will

cease to be produced in accordance with the arrangement

unless the person by whom it falls to be produced is

35

prevented (by reason of insolvency or otherwise) from

producing it.

(5)   

In subsection (4)(c) “the relevant time” means the time when the

person becomes party to the arrangement or, if later, when the

arrangement begins to produce a return for the person.

40

 
 

Finance Bill
Schedule 12 — Disguised interest

233

 

(6)   

In this Chapter “arrangement” includes any agreement,

understanding, scheme, transaction or series of transactions

(whether or not legally enforceable).

381B    

Income charged

   

Tax is charged under this Chapter on the full amount of the return,

5

or any part of the return, arising in the tax year.

381C    

Person liable

   

The person liable for any tax charged under this Chapter is the

person receiving or entitled to the return or the part of the return.

381D    

Avoidance of double taxation

10

(1)   

This section applies if at any time a tax other than income tax (“the

other tax”) is charged in relation to a return on which income tax is

charged under this Chapter.

(2)   

In order to avoid a double charge to tax in respect of the return, a

person may make a claim for one or more consequential adjustments

15

to be made in respect of the other tax.

(3)   

On a claim under this section an officer of Revenue and Customs

must make such of the consequential adjustments claimed (if any) as

are just and reasonable.

(4)   

Consequential adjustments may be made—

20

(a)   

in respect of any period,

(b)   

by way of an assessment, the modification of an assessment,

the amendment of a claim, or otherwise, and

(c)   

despite any time limit imposed by or under any enactment.

381E    

Exception for returns from certain shares

25

(1)   

This Chapter does not apply in relation to an arrangement that

produces a return for a person, in relation to an amount, which is

economically equivalent to interest where—

(a)   

the arrangement involves only excluded shares, and

(b)   

no relevant arrangement has been made (by any person) in

30

relation to those excluded shares.

(2)   

For the purposes of this section shares are excluded shares if they are

admitted to trading on a regulated market and—

(a)   

they were issued before 6 April 2013, or

(b)   

if issued on or after that date, at the time of issue no

35

arrangements involving only the shares would produce a

return, in relation to an amount, which is economically

equivalent to interest.

(3)   

In subsection (2) “regulated market” has the same meaning as in

Directive 2004/39/EC of the European Parliament and of the

40

Council on markets in financial instruments (see Article 4.1(14)).

(4)   

For the purposes of this section an arrangement is relevant, in

relation to excluded shares, where—

(a)   

the arrangement is made on or after 6 April 2013, and

 
 

Finance Bill
Schedule 12 — Disguised interest

234

 

(b)   

it is reasonable to assume that the main purpose, or one of the

main purposes, of the arrangement is to secure that

arrangements involving only the shares produce a return, in

relation to an amount, which is economically equivalent to

interest.”

5

Consequential amendments

4          

The following amendments are in consequence of the amendments made by

paragraphs 2(a) and 3.

TCGA 1992

5          

TCGA 1992 is amended as follows.

10

6          

In section 37 (consideration chargeable to tax on income), after subsection (2)

insert—

“(2A)   

Subsection (1) is not to be taken as excluding from the consideration

so taken into account any money or money’s worth which is, or is

taken into account in computing, a return on which income tax is

15

charged under Chapter 2A of Part 4 of ITTOIA 2005 (disguised

interest) (but see section 381D of that Act).”

7          

In section 39 (exclusion of expenditure by reference to tax on income), after

subsection (3) insert—

“(3A)   

This section is not to be taken as excluding, from the sums allowable

20

under section 38 as a deduction in the computation of the gain,

expenditure allowable as a deduction in computing a return on

which income tax is charged under Chapter 2A of Part 4 of ITTOIA

2005 (disguised interest) (but see section 381D of that Act).”

8          

Omit sections 148A to 148C (provision dealing with the capital gains tax

25

consequences of Chapter 12 of Part 4 of ITTOIA 2005).

9     (1)  

Section 263A (agreements for sale and repurchase of securities) is amended

as follows.

      (2)  

Before subsection (1) insert—

“(A1)   

For the purposes of this section there is a repo in respect of securities

30

if—

(a)   

a person (“the original owner”) has agreed to sell the

securities to another person (“the interim holder”), and

(b)   

the original owner or a person connected with the original

owner—

35

(i)   

is required to buy back the securities by the

agreement or a related agreement,

(ii)   

is required to buy back the securities as a result of the

exercise of an option acquired under the agreement or

a related agreement, or

40

(iii)   

exercises an option to buy back the securities which

was acquired under the agreement or a related

agreement.”

 
 

Finance Bill
Schedule 12 — Disguised interest

235

 

      (3)  

In subsection (1), for the words from “falling” to “repos)” substitute “where

under a repo in respect of securities the original owner has transferred the

securities to the interim holder”.

      (4)  

Omit subsection (5).

10         

After section 263A insert—

5

“263AA  

Section 263A: interpretation

(1)   

Subsections (2) to (7) apply for the purposes of section 263A.

(2)   

References to buying back securities include references to—

(a)   

buying similar securities, and

(b)   

in the case of a person connected with the person who is the

10

original owner under the repo, buying the securities sold by

the original owner or similar securities.

(3)   

Subsection (2) applies even if the person buying the securities has not

held them before.

(4)   

References to repurchase or a repurchaser are to be read accordingly.

15

(5)   

For the purposes of subsection (2) securities are similar if they give

their holders—

(a)   

the same rights against the same persons as to capital and

distributions, interest and dividends, and

(b)   

the same remedies to enforce those rights.

20

(6)   

Subsection (5) applies even if there is a difference in—

(a)   

the total nominal amounts of the securities,

(b)   

the form in which they are held, or

(c)   

the manner in which they can be transferred.

(7)   

Agreements are related if they are entered into in pursuance of the

25

same arrangement (regardless of the date on which either agreement

is entered into).

(8)   

In section 263A and this section “securities” means—

(a)   

shares in a company wherever resident,

(b)   

loan stock or other securities of—

30

(i)   

the government of the United Kingdom,

(ii)   

a local authority in the United Kingdom,

(iii)   

another public authority in the United Kingdom,

(iv)   

a company resident in the United Kingdom or other

body resident in the United Kingdom, or

35

(c)   

shares, loan stock, stock or other securities issued by—

(i)   

a government, local authority or other public

authority of a territory outside the United Kingdom,

or

(ii)   

another body of persons not resident in the United

40

Kingdom.”

11    (1)  

Section 263F (power to modify repo provisions: non-standard repo cases) is

amended as follows.

 
 

Finance Bill
Schedule 12 — Disguised interest

236

 

      (2)  

In subsection (2), for the words from “cases” to the end substitute “any case

mentioned in section 263A(1).”

      (3)  

For subsection (9) substitute—

“(9)   

“Post-agreement fluctuations” are fluctuations in the value of—

(a)   

securities transferred in pursuance of the original sale, or

5

(b)   

representative securities,

   

which occur in the period after the making of the agreement for the

original sale.

(10)   

“Representative securities” are securities which, for the purposes of

the repurchase, are to represent securities transferred in pursuance

10

of the original sale.”

12         

In section 263G (power to modify repo provisions: redemption

arrangements)—

(a)   

in subsection (2), for the words from “cases” to the end substitute

“any case mentioned in section 263A(1).”, and

15

(b)   

omit subsection (4).

ITTOIA 2005

13    (1)  

ITTOIA 2005 is amended as follows.

      (2)  

Omit Chapter 12 of Part 4 (disposals of futures and options involving

guaranteed returns).

20

      (3)  

In section 687(2) (application of charge to tax), at the end insert “or to income

falling within Chapter 2A of Part 4”.

      (4)  

In Schedule 1 (consequential amendments), omit paragraph 435.

      (5)  

In Schedule 2 (transitionals and savings), omit paragraph 95.

      (6)  

In Schedule 4 (abbreviations and defined expressions), omit the entry for

25

“future (in Chapter 12 of Part 4)”.

FA 2007

14         

In Schedule 14 of FA 2007 (sale and repurchase of securities: minor and

consequential amendments), omit paragraphs 22 and 23.

ITA 2007

30

15    (1)  

ITA 2007 is amended as follows.

      (2)  

Omit the following provisions (which deal with deemed manufactured

payments and repos)—

(a)   

section 596(5),

(b)   

sections 597 to 605,

35

(c)   

section 606(1) to (7) and (9) and (10), and

(d)   

sections 607 to 614.

      (3)  

In Schedule 1 (minor and consequential amendments), omit paragraphs 310,

543 and 544.

      (4)  

In Schedule 2 (transitionals and savings), omit paragraphs 112 to 124.

40

 
 

 
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