Finance Bill

House of Commons

Session 2013 - 14
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Other Bills before Parliament

Finance Bill

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.

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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