(b) a business carried on by a company in partnership with one
or more other persons is to be treated as not being a trading
activity.

312E Section 312B: the indirect employee-ownership requirement

(1) 5For the purposes of section 312B, a company meets the indirect
employee-ownership requirement if—

(a) a settlement meets the controlling interest requirement in
respect of—

(i) the company, or

(ii) 10if the company is a member of a trading group, but
not the principal company, that principal company,
and

(b) the settlement meets the all-employee benefit requirement.

(2) For this purpose—

(a) 15section 236M of TCGA 1992 applies to determine if a
settlement meets the controlling interest requirement in
respect of the company mentioned in subsection (1)(a)(i) or
(ii) (as the case may be), and

(b) sections 236J and 236K of that Act apply to determine if the
20settlement meets the all-employee benefit requirement (but
see subsection (3)).

(3) If a settlement would not otherwise meet the all-employee benefit
requirement at any time during the qualifying period, section 236L
of TCGA 1992 applies for the purposes of subsection (1)(b), unless
25the all-employee benefit requirement has (ignoring that section)
previously been met at any time in the period—

(a) beginning with 10 December 2013, and

(b) ending immediately before that time.

(4) For the purposes of subsections (2) and (3)—

(a) 30in sections 236I to 236M of TCGA 1992 references to C are to
be read as references to the company in respect of which the
settlement is required to meet the controlling interest
requirement (see subsection (1)(a)), and

(b) section 236L of that Act applies as if the reference in
35subsection (1)(c) of that section to the period of 12 months
ending with the day of the disposal mentioned in section
236H(1) were a reference to the period of 12 months ending
with the date the payment is made (even if the qualifying
period is a period of less than 12 months by virtue of section
40312B(3)).

312F Section 312B: the office-holder requirement

(1) For the purposes of section 312B, a company meets the officer-holder
requirement if the appropriate fraction does not exceed 2/5.

(2) “The appropriate fraction” means—

45

312G “Service company”

(1) For the purposes of section 312B, “service company” means—

(a) a managed service company within the meaning of section
61B, or

(b) 5a company (“SC”) in respect of which Conditions A and B are
met.

(2) Condition A is that the business carried on by SC consists
substantially of the provision of the services of persons employed by
it.

(3) 10Condition B is that the majority of those services are provided to
persons—

(a) to whom subsection (4) applies, but

(b) who are not members of the same group as the company
which makes the payment.

(4) 15This subsection applies to—

(a) a person who controls or has controlled, or two or more
persons who together control or have controlled, SC or any
company of which SC is a 51% subsidiary at the time the
payment is made,

(b) 20a person who, or two or more persons who together, at any
time before the time the payment is made—

(i) employed all or a majority of the employees of SC, or

(ii) employed all or a majority of the employees of SC and
other companies which are members of the same
25group as SC at the time the payment is made (taken
together), and

(c) any company which is a 51% subsidiary of, controlled by or
connected or associated with, any person within paragraph
(a) or (b).

(b)(b)30a person who, or two or more persons who together, at any
time before the time the payment is made—

(i) employed all or a majority of the employees of SC, or

(ii) employed all or a majority of the employees of SC and
other companies which are members of the same
35group as SC at the time the payment is made (taken
together), and

(c) any company which is a 51% subsidiary of, controlled by or
connected or associated with, any person within paragraph
(a) or (b).

(5) 40For the purposes of subsection (4)—

(a) a partnership is to be treated as a single person, and

(b) where a partner (alone or together with others) has control of
a company, the partnership is to be treated as having (in the
same way) control of that company.

(6) 45The following provisions apply for the purposes of this section—

(a) section 449 of CTA 2010 (“associated company”);

(b) section 995 of ITA 2007 (meaning of “control”);

(c) section 286 of TCGA 1992 (connected persons:
interpretation).

312H Excluded payments

(1) For the purposes of section 312B, a payment is “excluded” if the
employee is a party to arrangements (whether made before or after
the beginning of the employee’s employment) under which—

(a) 5the employee gives up the right to receive an amount of
general earnings or specific employment income in return for
the provision of the payment, or

(b) the employee and employer agree that the employee is to
receive the payment rather than receive some other
10description of employment income.

(2) In this section references to an employee include a former employee.

312I Interpretation of Chapter 10A

(1) In this Chapter—

• “company” has the meaning given by section 170(9) of TCGA
  151992;

• “trade” means any trade which is conducted on a commercial
  basis and with a view to the realisation of profits.

(2) In this Chapter—

(a) references to a group, to membership of a group, to the
20principal company of a group or to being members of the
same group, are to be construed in accordance with section
170 of TCGA 1992, and

(b) references to a group are to be construed with any necessary
modifications where applied to a company incorporated
25under the law of a country or territory outside the United
Kingdom.

(3) For the purposes of this Chapter, a payment is treated as made when
it would be treated as received for the purposes of Chapter 4 of Part
2 if it were not a qualifying bonus payment (see section 18).

(4) 30In this Chapter references to a payment to an employee or former
employee include a payment to the personal representatives of an
employee or former employee who has died if the payment is made
within the period of 12 months beginning with the date of death.”

5 In section 717 (orders and regulations made by Treasury etc), in subsection
35(4) (instruments not subject to negative resolution procedure), after “to
which” insert “section 312A(10) (reduction of tax-exempt amount in respect
of certain bonus payments) or”.

6 In Part 2 of Schedule 1 (index of defined expressions), at the appropriate
places insert—

7 The amendment made by paragraph 4 has effect in relation to payments
received on or after 1 October 2014.

Part 3 Inheritance tax relief

8 50IHTA 1984 is amended as follows.

9 (1) After section 13 insert—

“13A Dispositions by close companies to employee-ownership trusts

(1) A disposition of property made to trustees by a close company (“C”)
whereby the property is to be held on trusts of the description
55specified in section 86(1) is not a transfer of value if—

(a) C meets the trading requirement,

(b) the trusts are of a settlement which meets the all-employee
benefit requirement, and

(c) the settlement does not meet the controlling interest
60requirement immediately before the beginning of the tax year
in which the disposition of property occurs but does meet it
at the end of that year.

(2) Sections 236I, 236J, 236K, 236M and 236R (but not 236L) of the 1992
Act apply to determine whether—

(a) 65C meets the trading requirement;

(b) the settlement meets the all-employee benefit requirement;

(c) the settlement meets the controlling interest requirement;

with references in those sections to “C” being read accordingly.

(3) In this section—

• 70“close company” has the same meaning as in Part 4 of this Act;

• “tax year” means a year beginning on 6 April and ending on the
  following 5 April.”

(2) The amendment made by this paragraph has effect in relation to dispositions
of property made on or after 6 April 2014.

10 (1) 75After section 28 insert—

“28A Employee-ownership trusts

(1) A transfer of value made by an individual who is beneficially
entitled to shares in a company (“C”) is an exempt transfer to the
extent that the value transferred is attributable to shares in or
80securities of C which become comprised in a settlement if—

(a) C meets the trading requirement,

(b) the settlement meets the all-employee benefit requirement,
and

(c) the settlement does not meet the controlling interest
85requirement immediately before the beginning of the tax year
in which the transfer of value is made but does meet it at the
end of that year.

(2) Sections 236I, 236J, 236K, 236M and 236R (but not 236L) of the 1992
Act apply to determine whether—

(a) C meets the trading requirement;

(b) the settlement meets the all-employee benefit requirement;

(c) 5the settlement meets the controlling interest requirement;

with references in those sections to “C” being read accordingly.

(3) In this section “tax year” means a year beginning on 6 April and
ending on the following 5 April.”

(2) The amendment made by this paragraph has effect in relation to transfers of
10value made on or after 6 April 2014.

11 (1) In section 29A (abatement of exemption where claim settled out of
beneficiary’s own resources), in subsection (6)—

(a) for “to 28” substitute “to 28A”, and

(b) for “or 28” substitute “, 28 or 28A”.

(2) 15The amendment made by this paragraph has effect in relation to transfers of
value made on or after 6 April 2014.

12 (1) Section 72 (property leaving employee trusts and newspaper trusts) is
amended as follows.

(2) In subsection (2), after “Subject to subsections” insert “(3A),”.

(3) 20After subsection (3) insert—

“(3A) Where settled property ceases to be property to which this section
applies because paragraph (d) of section 86(3) no longer applies, tax
is not chargeable under this section by virtue of subsection (2)(a) if
the only reason that paragraph no longer applies is that one or both
25of the trading requirement and the controlling interest requirement
mentioned in that paragraph are no longer met with respect to the
company so mentioned.”

(4) The amendments made by this paragraph are treated as having come into
force on 6 April 2014.

13 (1) 30After section 75 insert—

“75A Property becoming subject to employee-ownership trust

(1) Tax is not charged under section 65 in respect of shares in or
securities of a company (“C”) which cease to be relevant property on
becoming held on trusts of the description specified in section 86(1)
35if the conditions in subsection (2) are satisfied.

(2) The conditions referred to in subsection (1) are—

(a) that C meets the trading requirement,

(b) that the trusts are of a settlement which meets the all-
employee benefit requirement, and

(c) 40that the settlement does not meet the controlling interest
requirement immediately before the beginning of the tax year
in which the shares or securities cease to be relevant property
but does meet it at the end of that year.

(3) Sections 236I, 236J, 236K, 236M and 236R (but not 236L) of the 1992
Act apply to determine whether—

(a) C meets the trading requirement;

(b) the settlement meets the all-employee benefit requirement;

(c) 5the settlement meets the controlling interest requirement;

with references in those sections to “C” being read accordingly.

(4) In this section “tax year” means a year beginning on 6 April and
ending on the following 5 April.”

(2) The amendment made by this paragraph is treated as having come into force
10on 6 April 2014.

14 (1) Section 86 (trusts for benefit of employees) is amended as follows.

(2) In subsection (3), after paragraph (c) insert “, or

(d) the settled property consists of or includes ordinary share
capital of a company which meets the trading requirement
15and the trusts on which the settled property is held are those
of a settlement which—

(i) meets the controlling interest requirement with
respect to the company, and

(ii) meets the all-employee benefit requirement with
20respect to the company.”

(3) After that subsection insert—

“(3A) For the purpose of determining whether subsection (3)(d) is satisfied
in relation to settled property which consists of or includes ordinary
share capital of a company—

(a) 25section 236I of the 1992 Act applies to determine whether the
company meets the trading requirement (with references to
“C” being read as references to that company),

(b) sections 236J, 236K, 236M and 236R (but not 236L) of the 1992
Act apply to determine whether the settlement meets the all-
30employee benefit requirement and the controlling interest
requirement (with references in those sections to “C” being
read as references to that company), and

(c) “ordinary share capital” has the meaning given by section
1119 of the Corporation Tax Act 2010.”

(4) 35The amendments made by this paragraph are treated as having come into
force on 6 April 2014.

15 (1) In section 144 (distribution etc from property settled by will), in subsection
(1)(b), after “section 75” insert “, 75A”.

(2) The amendment made by this section is treated as having come into force on
406 April 2014.

Part 4 Miscellaneous amendments

Finance Act 1986

16 (1) In section 102 of FA 1986 (gifts with reservation), in subsection (5) omit the
5“and” after paragraph (h) and after paragraph (i) insert “; and

(j) section 28A (employee-ownership trusts).”

(2) The amendment made by this paragraph has effect in relation to disposals
made on or after 6 April 2014.

Taxation of Chargeable Gains Act 1992

17 (1) 10In section 104 of TCGA 1992 (share pooling: general interpretative
provisions), after subsection (4) insert—

“(4A) For the purposes of this Chapter, securities of a company which are
held by the trustees of a settlement, having been last acquired or
deemed to be acquired by them in circumstances where section 236H
15or 236P applied, shall (notwithstanding that they would otherwise
fall to be treated as of the same class) be treated as of a different class
from any other securities of the company acquired by those trustees.”

(2) The amendment made by this paragraph has effect in relation to any
disposal on or after 6 April 2014 of any securities (whenever acquired).

20Income Tax (Earnings and Pensions) Act 2003

18 (1) Paragraph 27 of Schedule 2 to ITEPA 2003 (share incentive plans:
requirement as to listing etc) is amended as follows.

(2) In sub-paragraph (1), omit the “or” at the end of paragraph (b) and after that
paragraph insert—

“(ba) 25shares in a company which is subject to an employee-
ownership trust, or”.

(3) After sub-paragraph (2) insert—

“(3) But a company is not a close company for the purposes of sub-
paragraph (2) if it is subject to an employee-ownership trust.

(4) 30A company (“C”) is “subject to an employee-ownership trust” if—

(a) C meets the trading requirement set out in section 312D,

(b) C meets the indirect employee-ownership requirement,

(c) neither C, nor any other company which is a member of the
same group of companies as C, is a service company, and

(d) 35C is not under the control of another company (ignoring
for this purpose another company acting in its capacity as
the trustee of the settlement by virtue of which C meets the
indirect employee-ownership requirement).

(5) Section 312E (the indirect employee-ownership requirement)
40applies for the purposes of sub-paragraph (4), subject to the
following modifications—

(a) subsection (3) of that section has effect as if—

(i) the words “during the qualifying period” were
omitted, and

(ii) in paragraph (a) for “10 December 2013” there were
substituted “1 October 2014”, and

(b) 5subsection (4) has effect as if for paragraph (b) there were
substituted—

“(b) section 236L of that Act applies as if the reference in
subsection (1)(c) of that section to the period of 12
months ending with the date of the disposal
10mentioned in section 236H(1) were a reference to any
time on or after 1 October 2014.”

(6) Section 312G (meaning of “service company”) applies for the
purposes of sub-paragraph (4)(c), subject to the following
modifications—

(a) 15in subsection (3)(b), the reference to the company which
makes the payment is to be read as a reference to C,

(b) in subsection (4)(a), the reference to the time the payment
is made is to be read as a reference to any time, and

(c) in subsection (4)(b), the reference to any time before the
20time the payment is made is to be read as a reference to any
time.”

(4) The amendments made by this paragraph come into force on 1 October 2014.

19 (1) Paragraph 19 of Schedule 3 to ITEPA 2003 (SAYE option schemes:
requirements as to listing) is amended as follows.

(2) 25In sub-paragraph (1), omit the “or” at the end of paragraph (b) and after that
paragraph insert—

“(ba) shares in a company which is subject to an employee-
ownership trust (within the meaning of paragraph 27(4) to
(6) of Schedule 2), or”.

(3) 30After sub-paragraph (2) insert—

“(3) But a company is not a close company for the purposes of sub-
paragraph (2) if it is subject to an employee-ownership trust
(within the meaning of paragraph 27(4) to (6) of Schedule 2).”

(4) The amendments made by this paragraph come into force on 1 October 2014.

20 (1) 35In paragraph 17 of Schedule 4 to ITEPA 2003 (CSOP schemes: requirements
as to eligible shares), in sub-paragraph (1), omit the “or” after paragraph (a)
and after paragraph (b) insert “, or

(ba) shares in a company which is subject to an employee-
ownership trust (within the meaning of paragraph 27(4) to
40(6) of Schedule 2).”

(2) The amendment made by this paragraph come into force on 1 October 2014.

21 (1) In paragraph 9 of Schedule 5 to ITEPA 2003 (enterprise management
incentives: the independence requirement), after sub-paragraph (4) insert—

“(5) But the independence requirement is treated as met if the
45company is subject to an employee-ownership trust (within the
meaning of paragraph 27(4) to (6) of Schedule 2).”

(2) The amendment made by this paragraph comes into force in accordance
with provision contained in an order made by the Treasury.

(3) Section 1014(4) of ITA 2007 (orders etc subject to annulment) does not apply
in relation to an order under sub-paragraph (2).

5Corporation Tax Act 2009

22 (1) In section 1292 of CTA 2009 (employee benefit contributions: provision of
qualifying benefits), after subsection (6A) insert—

“(6B) For those purposes qualifying benefits are also provided, where a
payment of money is made to a person, if and to the extent that the
10payment is exempt from income tax by virtue of section 312A of
ITEPA 2003.”

(2) The amendment made by this paragraph has effect in relation to payments
made on or after 1 October 2014.

Section 289

SCHEDULE 34 15Scottish basic, higher and additional rates of income tax

Part 1 Amendments of ITA 2007

1 ITA 2007 is amended as follows.

2 In section 6 (the basic rate, higher rate and additional rate)—

(a) 20omit subsections (2A) to (2C), and

(b) in subsection (3), after “see—” insert—

“(za) section 6A (Scottish basic, higher and additional
rates),”.

3 After section 6 insert—

“6A 25The Scottish basic, higher and additional rates

(1) The Scottish basic rate, the Scottish higher rate and the Scottish
additional rate for a tax year are calculated as follows.

Step 1

Take the basic rate, higher rate or additional rate.

30Step 2

Deduct 10 percentage points.

Step 3

Add the Scottish rate (if any) set by the Scottish Parliament for that
year.

35Add the Scottish rate (if any) set by the Scottish Parliament for that
year.

(2) For provision about the setting of the Scottish rate, see Chapter 2 of
Part 4A of the Scotland Act 1998.”

4 In section 10 (income charged at the basic, higher and additional rates:
40individuals)—

(a) omit subsections (3B) and (3C), and

(b) in subsection (4), at the appropriate place, insert—

“section 11A (income charged at the Scottish basic, higher
and additional rates),”.

5 5After section 11 insert—

“11A Income charged at the Scottish basic, higher and additional rates

(1) Income tax is charged at the Scottish basic rate on the income of a
Scottish taxpayer which—

(a) is non-savings income, and

(b) 10would otherwise be charged at the basic rate.

(2) Income tax is charged at the Scottish higher rate on the income of a
Scottish taxpayer which—

(a) is non-savings income, and

(b) would otherwise be charged at the higher rate.

(3) 15Income tax is charged at the Scottish additional rate on the income of
a Scottish taxpayer which—

(a) is non-savings income, and

(b) would otherwise be charged at the additional rate.

(4) For the purposes of this section, “non-savings income” means
20income which is not savings income.

(5) This section is subject to—

• section 13 (income charged at the dividend ordinary, upper and
  additional rates: individuals), and

• any provisions of the Income Tax Acts (apart from section 10)
  25which provide for income of an individual to be charged at
  different rates of income tax in some circumstances.

(6) Section 16 has effect for determining the extent to which the non-
savings income of a Scottish taxpayer would otherwise be charged at
the basic, higher or additional rate.”

6 30In section 13 (income charged at the dividend ordinary, upper and
additional rates)—

(a) in subsection (1)(b), after “the basic rate,” insert “or the Scottish basic
rate,”,

(b) in subsection (2)(b), after “the higher rate,” insert “or the Scottish
35higher rate,”,

(c) in subsection (2A)(b), after “the additional rate,” insert “or the
Scottish additional rate,”,

(d) in subsection (3), after “section 10” insert “or 11A”, and

(e) in subsection (4), after “the basic, higher or additional rate” insert “or
40the Scottish basic, higher or additional rate”.

7 In section 16 (savings and dividend income to be treated as highest part of
total income), in subsection (1), for paragraph (za) substitute—

“(za) the rate at which income tax would be charged on the non-
savings income of a Scottish taxpayer apart from section
4511A,”.

8 In section 809H (charge on nominated income of long-term UK resident), for
subsection (3A) substitute—

“(3A) If the individual is a Scottish taxpayer for the relevant tax year, the
individual is to be treated for the purpose of calculating income tax
5charged by virtue of subsection (2) as if the individual were not a
Scottish taxpayer for that year.”

9 In section 828B (conditions to be met for exemption where individual
resident but not domiciled in the UK), in subsection (5), after “the basic rate”
insert “, the Scottish basic rate”.

10 10In section 989 (definitions for the purposes of the Income Tax Acts)—

(a) in the definitions of “additional rate”, “basic rate” and “higher rate”,
omit “or (2B)”, and

(b) at the appropriate place, insert—

• ““Scottish additional rate” means the rate of income tax
  15of that name calculated in accordance with section
  6A,”,

• ““Scottish basic rate” means the rate of income tax of
  that name calculated in accordance with section 6A,”,

• ““Scottish higher rate” means the rate of income tax of
  20that name calculated in accordance with section 6A,”,

• ““Scottish taxpayer” has the same meaning as in
  Chapter 2 of Part 4A of the Scotland Act 1998”.

11 In Schedule 4 (index of defined expressions), at the appropriate place,
insert—

12 The amendments made by this Part have effect in relation to the tax year
appointed by the Treasury under section 25(5) of the Scotland Act 2012 and
subsequent tax years.

35Part 2 Consequential amendments

13 In section 1 of the Provisional Collection of Taxes Act 1968 (temporary
statutory effect of resolutions of House of Commons), omit subsection (3A).

14 (1) In section 7 of TMA 1970 (notice of liability to income tax and capital gains
40tax), in subsection (6), after “the basic rate,” insert “the Scottish basic rate,”.