Finance (No. 2) Bill (HC Bill 190)

(3) After sub-paragraph (7) insert—

“(8) For the purposes of this paragraph the market value of any shares
is to be determined using a methodology agreed by Her Majesty’s
Revenue and Customs.”

178 5For Part 7 substitute—

“ Part 7 Notification of schemes, annual returns and enquiries

28A Notice of scheme to be given to HMRC

(1) For a CSOP scheme to be a Schedule 4 CSOP scheme, notice of the
10scheme must be given to Her Majesty’s Revenue and Customs
(“HMRC”).

(2) The notice must—

(a) be given by the scheme organiser,

(b) contain, or be accompanied by, such information as HMRC
15may require, and

(c) contain a declaration within sub-paragraph (3) made by
such persons as HMRC may require.

(3) A declaration within this sub-paragraph is a declaration—

(a) that the requirements of Parts 2 to 6 of this Schedule are
20met in relation to the scheme, and

(b) if the declaration is made after the first date on which share
options are granted under the scheme (“the first grant
date”), that those requirements—

(i) were met in relation to those grants of share
25options, and

(ii) have otherwise been met in relation to the scheme
at all times on or after the first grant date when
share options granted under the scheme are
outstanding.

(4) 30If notice is given under this paragraph in relation to a CSOP
scheme, for the purposes of the CSOP code the scheme is to be a
Schedule 4 CSOP scheme at all times on and after the relevant date
(but not before that date).

(5) But if the notice is given after the initial notification deadline, the
35scheme is to be a Schedule 4 CSOP scheme only from the
beginning of the relevant tax year.

(6) For the purposes of this Part—

• “the initial notification deadline” is 6 July in the tax year
  following that in which the first grant date falls,

• 40“outstanding”, in relation to a share option, means that the
  option—

  (a)

  has not been exercised, but

  (b)

  is capable of being exercised in accordance with the
  scheme (whether on the meeting of any condition or
  45otherwise),

Finance (No. 2) BillPage 281

• “the relevant date” is—

  (a)

  the date on which the declaration within sub-
  paragraph (3) is made, or

  (b)

  if that declaration is made after the first grant date,
  5the first grant date, and

• “the relevant tax year” is—

  (a)

  the tax year in which the notice under this paragraph
  is given, or

  (b)

  if that notice is given on or before 6 July in that tax
  10year, the preceding tax year.

(7) Sub-paragraph (4) is subject to the following paragraphs of this
Part.

28B Annual returns

(1) This paragraph applies if notice is given in relation to a CSOP
15scheme under paragraph 28A.

(2) The scheme organiser must give to HMRC a return for the tax year
in which the relevant date falls and for each subsequent tax year
(subject to sub-paragraph (9)).

(3) If paragraph 28A(5) applies in relation to the scheme, in sub-
20paragraph (2) the reference to the tax year in which the relevant
date falls is to be read as a reference to the relevant tax year.

(4) A return for a tax year must—

(a) contain, or be accompanied by, such information as HMRC
may require, and

(b) 25be given on or before 6 July in the following tax year.

(5) The information which may be required under sub-paragraph
(4)(a) includes (in particular) information to enable HMRC to
determine the liability to tax, including capital gains tax, of—

(a) any person who has participated in the scheme, or

(b) 30any other person whose liability to tax the operation of the
scheme is relevant to.

(6) If during a tax year—

(a) an alteration is made in a key feature of the scheme, or

(b) variations are made under a provision made under
35paragraph 22(3) to take account of a variation in any share
capital,

the return for the tax year must contain a declaration within sub-
paragraph (7) made by such persons as HMRC may require.

(7) A declaration within this sub-paragraph is a declaration, as the
40case may be—

(a) that the alteration has, or

(b) that the variations have,

not caused the requirements of Parts 2 to 6 of this Schedule not to
be met in relation to the scheme.

(8) For the purposes of sub-paragraph (6)(a) a “key feature” of a
scheme is a provision of the scheme which is necessary in order for
the requirements of Parts 2 to 6 of this Schedule to be met in
relation to the scheme.

(9) 5A return is not required for any tax year following that in which
the termination condition is met in relation to the scheme.

(10) For the purposes of this Part “the termination condition” is met in
relation to a scheme when—

(a) all share options granted under the scheme—

(i) 10have been exercised, or

(ii) are no longer capable of being exercised in
accordance with the scheme (because, for example,
they have lapsed or been cancelled), and

(b) no more share options will be granted under the scheme.

(11) 15If the scheme organiser becomes aware that—

(a) anything which should have been included in, or should
have accompanied, a return for a tax year was not included
in, or did not accompany, the return,

(b) anything which should not have been included in, or
20should not have accompanied, a return for a tax year was
included in, or accompanied, the return, or

(c) any other error or inaccuracy has occurred in relation to a
return for a tax year,

the scheme organiser must give an amended return correcting the
25position to HMRC without delay.

(1) This paragraph applies if the scheme organiser fails to give a
return for a tax year (containing, or accompanied by, all required
information and declarations) on or before the date mentioned in
paragraph 28B(4)(b) (“the date for delivery”).

(2) 30The scheme organiser is liable for a penalty of £100.

(3) If the scheme organiser’s failure continues after the end of the
period of 3 months beginning with the date for delivery, the
scheme organiser is liable for a further penalty of £300.

(4) If the scheme organiser’s failure continues after the end of the
35period of 6 months beginning with the date for delivery, the
scheme organiser is liable for a further penalty of £300.

(5) The scheme organiser is liable for a further penalty under this sub-
paragraph if—

(a) the scheme organiser’s failure continues after the end of
40the period of 9 months beginning with the date for
delivery,

(b) HMRC decide that such a penalty should be payable, and

(c) HMRC give notice to the scheme organiser specifying the
period in respect of which the penalty is payable.

45(The scheme organiser may be liable for more than one penalty
under this sub-paragraph.)

(6) The penalty under sub-paragraph (5) is £10 for each day that the
failure continues during the period specified in the notice under
sub-paragraph (5)(c).

(7) The period specified in the notice under sub-paragraph (5)(c)—

(a) 5may begin earlier than the date on which the notice is
given, but

(b) may not begin until after the end of the period mentioned
in sub-paragraph (5)(a) or, if relevant, the end of any
period specified in any previous notice under sub-
10paragraph (5)(c) given in relation to the failure.

(8) Liability for a penalty under this paragraph does not arise if the
scheme organiser satisfies HMRC (or, on an appeal under
paragraph 28K, the tribunal) that there is a reasonable excuse for
its failure.

(9) 15For the purposes of sub-paragraph (8)—

(a) an insufficiency of funds is not a reasonable excuse, unless
attributable to events outside the scheme organiser’s
control,

(b) where the scheme organiser relies on any other person to
20do anything, that is not a reasonable excuse unless the
scheme organiser took reasonable care to avoid the failure,
and

(c) where the scheme organiser had a reasonable excuse for
the failure but the excuse ceased, the scheme organiser is to
25be treated as having continued to have the excuse if the
failure is remedied without unreasonable delay after the
excuse ceased.

28D Notices and returns to be given electronically etc

(1) A notice under paragraph 28A, and any information
30accompanying the notice, must be given electronically.

(2) A return under paragraph 28B, and any information
accompanying the return, must be given electronically.

(3) But, if HMRC consider it appropriate to do so, HMRC may allow
the scheme organiser to give a notice or return or any
35accompanying information in another way; and, if HMRC do so,
the notice, return or information must be given in that other way.

(4) The Commissioners for Her Majesty’s Revenue and Customs—

(a) must prescribe how notices, returns and accompanying
information are to be given electronically;

(b) 40may make different provision for different cases or
circumstances.

(1) This paragraph applies if a return under paragraph 28B, or any
information accompanying such a return—

(a) is given otherwise than in accordance with paragraph 28D,
45or

(b) contains a material inaccuracy—

(i) which is careless or deliberate, or

(ii) which is not corrected as required by paragraph
28B(11).

(2) The scheme organiser is liable for a penalty of an amount decided
by HMRC.

(3) 5The penalty must not exceed £5,000.

(4) For the purposes of sub-paragraph (1)(b)(i) an inaccuracy is
careless if it is due to a failure by the scheme organiser to take
reasonable care.

28F Enquiries

(1) 10This paragraph applies if notice is given in relation to a CSOP
scheme under paragraph 28A.

(2) HMRC may enquire into the scheme if HMRC give notice to the
scheme organiser of HMRC’s intention to do so no later than—

(a) 6 July in the tax year following that in which the initial
15notification deadline falls, or

(b) if the notice under paragraph 28A is given after the initial
notification deadline, 6 July in the second tax year
following the relevant tax year.

(3) HMRC may enquire into the scheme if HMRC give notice to the
20scheme organiser of HMRC’s intention to do so no later than 12
months after the date on which a declaration within paragraph
28B(7) is given to HMRC.

(4) Sub-paragraph (5) applies if (at any time) HMRC have reasonable
grounds for believing that requirements of Parts 2 to 6 of this
25Schedule—

(a) are not met in relation to the scheme, or

(b) have not been met in relation to the scheme.

(5) HMRC may enquire into the scheme if HMRC give notice to the
scheme organiser of HMRC’s intention to do so.

(6) 30Notice may be given, and an enquiry may be conducted, under
sub-paragraph (2), (3) or (5) even though the termination
condition is met in relation to the scheme.

(1) An enquiry under paragraph 28F(2), (3) or (5) is completed when
HMRC give the scheme organiser a notice (a “closure notice”)
35stating—

(a) that HMRC have completed the enquiry, and

(b) that—

(i) paragraph 28H is to apply,

(ii) paragraph 28I is to apply, or

(iii) 40neither paragraph 28H nor paragraph 28I is to
apply.

(2) If the scheme organiser receives notice under paragraph 28F(2), (3)
or (5), the scheme organiser may make an application to the
tribunal for a direction requiring a closure notice for the enquiry
45to be given within a specified period.

(3) The application is to be subject to the relevant provisions of Part 5
of TMA 1970 (see, in particular, section 48(2)(b) of that Act).

(4) The tribunal must give a direction unless satisfied that HMRC
have reasonable grounds for not giving the closure notice within
5the specified period.

(1) This paragraph applies if HMRC decide—

(a) that requirements of Parts 2 to 6 of this Schedule—

(i) are not met in relation to the scheme, or

(ii) have not been met in relation to the scheme, and

(b) 10that the situation is, or was, so serious that this paragraph
should apply.

(2) If this paragraph applies—

(a) the scheme is not to be a Schedule 4 CSOP scheme with
effect from—

(i) 15such relevant time as is specified in the closure
notice, or

(ii) if no relevant time is specified, the time of the
giving of the closure notice, and

(b) the scheme organiser is liable for a penalty of an amount
20decided by HMRC.

(3) The penalty under sub-paragraph (2)(b) must not exceed an
amount equal to twice HMRC’s reasonable estimate of—

(a) the total income tax for which persons who have been
granted share options under the scheme have not been
25liable, or will not be liable in the future, and

(b) the total contributions under Part 1 of SSCBA 1992 or
SSCB(NI)A 1992 for which any persons have not been
liable, or will not be liable in the future,

in consequence of the scheme having been a Schedule 4 CSOP
30scheme at any relevant time before the time mentioned in sub-
paragraph (2)(a)(i) or (ii) (as the case may be).

(4) In this paragraph “relevant time” means any time before the
giving of the closure notice when requirements of Parts 2 to 6 of
this Schedule were not met in relation to the scheme.

(1) 35This paragraph applies if HMRC decide—

(a) that requirements of Parts 2 to 6 of this Schedule—

(i) are not met in relation to the scheme, or

(ii) have not been met in relation to the scheme, but

(b) that the situation is not, or was not, so serious that
40paragraph 28H should apply.

(2) If this paragraph applies, the scheme organiser—

(a) is liable for a penalty of an amount decided by HMRC, and

(b) must, no later than 90 days after the relevant day, secure
that the requirements of Parts 2 to 6 of this Schedule are
45met in relation to the scheme.

(3) The penalty under sub-paragraph (2)(a) must not exceed £5,000.

(4) In sub-paragraph (2)(b) “the relevant day” means—

(a) the last day of the period in which notice of an appeal
under paragraph 28K(2)(b) may be given, or

(b) if notice of such an appeal is given, the day on which the
5appeal is determined or withdrawn.

(5) Sub-paragraph (2)(b) does not apply if the termination condition
was met in relation to the scheme before the closure notice was
given or is met before the end of the 90 day period mentioned in
sub-paragraph (2)(b).

(6) 10If the scheme organiser fails to comply with sub-paragraph (2)(b),
HMRC may give the scheme organiser a notice stating that that is
the case (a “default notice”).

(7) If the scheme organiser is given a default notice—

(a) the scheme is not to be a Schedule 4 CSOP scheme with
15effect from—

(i) such relevant time as is specified in the default
notice, or

(ii) if no relevant time is specified, the time of the
giving of the default notice, and

(b) 20the scheme organiser is liable for a further penalty of an
amount decided by HMRC.

(8) The penalty under sub-paragraph (7)(b) must not exceed an
amount equal to twice HMRC’s reasonable estimate of—

(a) the total income tax for which persons who have been
25granted share options under the scheme have not been
liable, or will not be liable in the future, and

(b) the total contributions under Part 1 of SSCBA 1992 or
SSCB(NI)A 1992 for which any persons have not been
liable, or will not be liable in the future,

30in consequence of the scheme having been a Schedule 4 CSOP
scheme at any relevant time before the time mentioned in sub-
paragraph (7)(a)(i) or (ii) (as the case may be).

(9) In this paragraph “relevant time” means any time before the
giving of the default notice when requirements of Parts 2 to 6 of
35this Schedule were not met in relation to the scheme.

28J Assessment of penalties

(1) This paragraph applies if the scheme organiser is liable for a
penalty under this Part.

(2) HMRC must assess the penalty and notify the scheme organiser of
40the assessment.

(3) Subject to sub-paragraphs (4) and (5), the assessment must be
made no later than 12 months after the date on which the scheme
organiser becomes liable for the penalty.

(4) In the case of a penalty under paragraph 28E(1)(b), the assessment
45must be made no later than—

(a) 12 months after the date on which HMRC become aware of
the inaccuracy, and

(b) 6 years after the date on which the scheme organiser
becomes liable for the penalty.

(5) 5In the case of a penalty under paragraph 28H(2)(b) or 28I(2)(a) or
(7)(b) where notice of appeal is given under paragraph 28K(2) or
(3), the assessment must be made no later than 12 months after the
date on which the appeal is determined or withdrawn.

(6) A penalty payable under this Part must be paid—

(a) 10no later than 30 days after the date on which the notice
under sub-paragraph (2) is given to the scheme organiser,
or

(b) if notice of appeal is given against the penalty under
paragraph 28K(1) or (4), no later than 30 days after the date
15on which the appeal is determined or withdrawn.

(7) The penalty may be enforced as if it were corporation tax or, if the
scheme organiser is not within the charge to corporation tax,
income tax charged in an assessment and due and payable.

(8) Sections 100 to 103 of TMA 1970 do not apply to a penalty under
20this Part.

28K Appeals

(1) The scheme organiser may appeal against a decision of HMRC
that the scheme organiser is liable for a penalty under paragraph
28C or 28E.

(2) 25The scheme organiser may appeal against—

(a) a decision of HMRC mentioned in paragraph 28H(1) or a
decision of HMRC to specify, or not to specify, a relevant
time in the closure notice;

(b) a decision of HMRC mentioned in paragraph 28I(1).

(3) 30The scheme organiser may appeal against a decision of HMRC—

(a) to give the scheme organiser a default notice under
paragraph 28I;

(b) to specify, or not to specify, a relevant time in the default
notice.

(4) 35The scheme organiser may appeal against a decision of HMRC as
to the amount of a penalty payable by the scheme organiser under
this Part.

(5) Notice of appeal must be given to HMRC no later than 30 days
after the date on which—

(a) 40in the case of an appeal under sub-paragraph (1) or (4), the
notice under paragraph 28J(2) is given to the scheme
organiser;

(b) in the case of an appeal under sub-paragraph (2), the
closure notice is given;

(c) 45in the case of an appeal under sub-paragraph (3), the
default notice is given.

(6) On an appeal under sub-paragraph (1) or (3)(a) which is notified
to the tribunal, the tribunal may affirm or cancel the decision.

(7) On an appeal under sub-paragraph (2) or (3)(b) which is notified
to the tribunal, the tribunal may—

(a) 5affirm or cancel the decision, or

(b) substitute for the decision another decision which HMRC
had power to make.

(8) On an appeal under sub-paragraph (4) which is notified to the
tribunal, the tribunal may—

(a) 10affirm the amount of the penalty decided, or

(b) substitute another amount for that amount.

(9) Subject to this paragraph and paragraph 28J, the provisions of Part
5 of TMA 1970 relating to appeals have effect in relation to an
appeal under this paragraph as they have effect in relation to an
15appeal against an assessment to corporation tax or, if the scheme
organiser is not within the charge to corporation tax, income tax.”

179 (1) Paragraph 33 (power to require information) is amended as follows.

(2) For sub-paragraph (1) substitute—

“(1) An officer of Revenue and Customs may by notice require a
20person to provide the officer with any information—

(a) which the officer reasonably requires for the performance
of any functions of Her Majesty’s Revenue and Customs or
an officer of Revenue and Customs under the CSOP code,
and

(b) 25which the person to whom the notice is addressed has or
can reasonably obtain.”

(3) In sub-paragraph (2)(a)—

(a) for sub-paragraph (i) substitute—

“(i) to check anything contained in a notice
30under paragraph 28A or a return under
paragraph 28B or to check any information
accompanying such a notice or return, or”,
and”

(b) in sub-paragraph (ii) after “scheme” insert “or any other person
35whose liability to tax the operation of a scheme is relevant to”.

180 After paragraph 35 insert—

“Non-UK company reorganisation arrangements

35ZA (1) For the purposes of the CSOP code a “non-UK company
reorganisation arrangement” is an arrangement made in relation
40to a company under the law of a territory outside the United
Kingdom—

(a) which gives effect to a reorganisation of the company’s
share capital by the consolidation of shares of different
classes, or by the division of shares into shares of different
45classes, or by both of those methods, and

(b) which is approved by a resolution of members of the
company.

(2) A resolution does not count for the purposes of sub-paragraph
(1)(b) unless the members who vote in favour of approving the
5arrangement represent more than 50% of the total voting rights of
all the members having the right to vote on the issue.”

181 In paragraph 37 (index of defined expressions)—

(a) omit the entry for “approved”, and

(b) at the appropriate places insert—

Other amendments: TCGA 1992

182 TCGA 1992 is amended as follows.

183 20In section 238A (share schemes and share incentives) in subsection (2)(c) for
“approved” substitute “Schedule 4”.

184 Part 3 of Schedule 7D (CSOP schemes) is amended as follows.

185 In the title for “Approved” substitute “Schedule 4”.

186 (1) Paragraph 11 (introduction) is amended as follows.

(2) 25In sub-paragraphs (1) and (2) omit “approved”.

(3) In sub-paragraph (3)(a)(i) for “an approved” substitute “a Schedule 4”.

187 In paragraph 12 (relief where income tax charged in respect of grant of
option) in sub-paragraph (4)(b) for “approved” substitute “a Schedule 4
CSOP scheme”.

188 30In paragraph 13 (market value rule not to apply) in sub-paragraphs (1)(a)
and (3) for “approved” substitute “a Schedule 4 CSOP scheme”.

Other amendments: ITEPA 2003

189 ITEPA 2003 is amended as follows.

190 In section 227 (scope of Part 4) in subsection (4)(g) omit “approved”.

191 35In section 417 (scope of Part 7) in subsection (2), in the entry for Chapter 8,
omit “approved”.

192 In section 431A (which makes provision relating to restricted securities etc)
in subsection (2)(c) for “an approved” substitute “a Schedule 4”.

193 In section 473 (introduction to taxation of securities options) in subsection
40(4)(b) for “approved” substitute “Schedule 4”.