Finance (No. 2) Bill (HC Bill 155)

Deduction at source

39 Deduction of income tax at source

Schedule 6 contains provisions about deduction of income tax at source.

40 Deduction of income tax at source: tax avoidance

(1) 5In Part 15 of ITA 2007 (deduction of income tax at source), after section 917
insert—

““Tax avoidance

917A Tax avoidance arrangements

(1) This section applies if and to the extent that—

(a) 10a person (“the payer”) makes an intellectual property royalty
payment,

(b) the payment is received by a person (“the payee”) who is
connected with the payer, and

(c) the payment is made under DTA tax avoidance arrangements.

(2) 15Any duty under Chapter 6 or 7 to deduct a sum representing income
tax at any rate applies without regard to any double taxation
arrangements.

(3) Any income tax deducted by virtue of subsection (2) may not be set off
under section 967 or 968 of CTA 2010.

(4) 20In this section—

• “arrangements” (except in the phrase “double taxation
  arrangements”) includes any agreement, understanding,
  scheme, transaction or series of transactions, whether or not
  legally enforceable;

• 25“DTA tax avoidance arrangements” means arrangements where,
  having regard to all the circumstances, it is reasonable to
  conclude that—

  (a)

  the main purpose, or one of the main purposes, of the
  arrangements was to obtain a tax advantage by virtue of
  30any provisions of a double taxation arrangement, and

  (b)

  obtaining that tax advantage is contrary to the object
  and purpose of those provisions;

• “intellectual property royalty payment” means—

  (a)

  a payment of a royalty or other sum in respect of the use
  35of a patent,

  (b)

  a payment specified in section 906(1)(a), or

  (c)

  a payment which is a “qualifying annual payment” for
  the purposes of Chapter 6 by virtue of section
  899(3)(a)(ii) (royalties etc from intellectual property);

• 40“receive” means receive—

  (a)

  directly or indirectly;

  (b)

  by one payment or by a series of payments;

Finance (No. 2) BillPage 81

• “tax advantage” is to be construed in accordance with section 208
  of FA 2013.

(5) For the purposes of this section the payer is connected with the payee
if the participation condition is met as between them.

(6) 5Section 148 of TIOPA 2010 (when the participation condition is met)
applies for the purposes of subsection (5) as for the purposes of section
147(1)(b) of that Act, but as if references to the actual provision were to
the provision made or imposed between the payer and the payee in
respect of the arrangements under which the payment is made.”

(2) 10The amendment made by this section has effect in respect of a payment made
on or after 17 March 2016 under arrangements entered into at any time
(including arrangements entered into before that date).

Part 2 Corporation tax

15Charge and rates

41 Charge for financial year 2017

Corporation tax is charged for the financial year 2017.

42 Rate of corporation tax for financial year 2020

In section 7(2) of F(No.2)A 2015 (main rate of corporation tax for the financial
20year 2020) for “18%” substitute “17%”.

Research and development

43 Abolition of vaccine research relief

(1) CTA 2009 is amended in accordance with subsections (2) to (9).

(2) Omit Chapter 7 of Part 13 (vaccine research relief).

(3) 25In section 1039 (overview of Part 13) omit—

(a) subsection (6), and

(b) in subsection (8) “or 7”.

(4) In section 1042 (meaning of “relevant research and development”) omit
subsection (3).

(5) 30In section 1113 (cap on aid under Chapters 2 and 7)—

(a) in the heading omit “or 7”, and

(b) in subsection (4) omit—

(i) the “or” at the end of paragraph (a), and

(ii) paragraph (b).

(6) 35In section 1118(2) (meaning of “qualifying expenditure”) omit—

(a) the “or” at the end of paragraph (a), and

(b) paragraph (b).

(7) In section 1133(3) (sub-contractor payments) omit “and section 1102(2).”

(8) In section 1137(1)(b) (accounting periods) omit “or qualifying Chapter 7
expenditure”.

(9) In Schedule 4 (index of defined expressions) omit the entries for—

(a) 5qualifying Chapter 7 expenditure (in Part 13), and

(b) qualifying R&D activity (in Chapter 7 of Part 13).

(10) CTA 2010 is amended in accordance with subsections (11) to (13).

(11) In section 357P (research and development expenditure: introduction and
interpretation)—

(a) 10in subsection (1) omit—

(i) the “and” at the end of paragraph (b), and

(ii) paragraph (c), and

(b) omit subsection (2)(d) and (e).

(12) Omit section 357PF (additional deduction under section 1087 CTA 2009).

(13) 15In Schedule 4 (index of defined expressions) omit the entries for—

(a) Northern Ireland qualifying Chapter 7 expenditure (in Chapter 9 of
Part 8B), and

(b) qualifying Chapter 7 expenditure (in Chapter 9 of Part 8B).

(14) In consequence of the amendments made by subsections (1) to (13)—

(a) 20in Schedule 3 to FA 2012 omit paragraphs 7, 12 to 14, 16(2), 17, 20 to 30,
and 31(2), and

(b) in FA 2015 omit section 28(4)(o) and (p).

(15) The amendments made by this section have effect in relation to expenditure
incurred on or after 1 April 2017.

44 25Cap on R&D aid

(1) CTA 2009 is amended as follows.

(2) In section 1114 (calculation of total R&D aid)—

(a) in the formula for “(N x CT)” substitute “N”, and

(b) in the definition of “N” for “relief” substitute “R&D expenditure credit”.

(3) 30In section 1118(1) (meaning of “notional relief”)—

(a) for “relief” in the first two places it occurs substitute “R&D expenditure
credit”,

(b) for “Chapter 5 (relief for large companies)” substitute “Chapter 6A of
Part 3 (trade profits: R&D expenditure credits)”, and

(c) 35in the heading for “relief” substitute “R&D expenditure credit”.

(4) The amendments made by this section have effect in relation to expenditure
incurred on or after 1 April 2016.

Loan relationships

45 Loan relationships and derivative contracts

Schedule 7 contains amendments relating to loan relationships and derivative
contracts.

46 5Loans to participators etc: rate of tax

(1) In section 455 of CTA 2010 (charge to tax in case of loan to participator), in
subsection (2), for “25% of the amount of the loan or advance” substitute “such
percentage of the amount of the loan or advance as corresponds to the
dividend upper rate specified in section 8(2) of ITA 2007 for the tax year in
10which the loan or advance is made”.

(2) The amendment made by subsection (1) has effect in relation to a loan or
advance made on or after 6 April 2016.

(3) In section 464A of CTA 2010 (charge to tax: arrangements conferring benefit on
participator), in subsection (3), for “25% of the value of the benefit conferred”
15substitute “such percentage of the value of the benefit conferred as corresponds
to the dividend upper rate specified in section 8(2) of ITA 2007 for the tax year
in which the benefit is conferred”.

(4) The amendment made by subsection (3) has effect in relation to a benefit
conferred on or after 6 April 2016.

47 20Loans to participators etc: trustees of charitable trusts

(1) In section 456 of CTA 2010 (exceptions to the charge to tax in case of loan to
participator), after subsection (2) insert—

“(2A) Section 455 does not apply to a loan or advance made to a trustee of a
charitable trust if the loan or advance is applied to the purposes of the
25charitable trust only.”

(2) The amendment made by subsection (1) has effect in relation to a loan or
advance made on or after 25 November 2015.

Intangible fixed assets

48 Intangible fixed assets: pre-FA 2002 assets

(1) 30Chapter 16 of Part 8 of CTA 2009 (pre-FA 2002 assets) is amended as follows.

(2) In section 882 (application of Part 8 to assets created or acquired on or after 1
April 2002), after subsection (5) insert—

“(5A) References in this section to one person being (or not being) a related
party in relation to another person are to be read as including
35references to the participation condition being met (or, as the case may
be, not met) as between those persons.

(5B) References in subsection (5A) to a person include a firm in a case where,
for section 1259 purposes, references in this section to a company are
read as references to the firm.

(5C) In subsection (5B) “section 1259 purposes” means the purposes of
determining under section 1259 the amount of profits or losses to be
allocated to a partner in a firm.

(5D) Section 148 of TIOPA 2010 (when the participation condition is met)
5applies for the purposes of subsection (5A) as it applies for the purposes
of section 147(1)(b) of TIOPA 2010.”

(3) In section 894 (preserved status condition etc), after subsection (6) insert—

“(6A) Section 882(5A) to (5D) applies for the purposes of section 893 and this
section.”

(4) 10In section 895 (assets acquired in connection with disposals of pre-FA 2002
assets), at the end insert—

“(5) Section 882(5A) to (5D) applies for the purposes of this section.”

(5) The amendments made by this section have effect in relation to accounting
periods beginning on or after 25 November 2015.

(6) 15For the purposes of subsection (5), an accounting period beginning before and
ending on or after 25 November 2015 is to be treated as if so much of the
accounting period as falls before that date, and so much of the accounting
period as falls on or after that date, were separate accounting periods.

(7) An apportionment for the purposes of subsection (6) must be made—

(a) 20in accordance with section 1172 of CTA 2010 (time basis), or

(b) if that method produces a result that is unjust or unreasonable, on a just
and reasonable basis.

49 Intangible fixed assets: transfers treated as at market value

(1) In section 845 of CTA 2009 (transfer between company and related party
25treated as at market value), after subsection (4) insert—

“(4A) References in subsection (1) to a related party in relation to a company
are to be read as including references to a person in circumstances
where the participation condition is met as between that person and the
company.

(4B) 30References in subsection (4A) to a company include a firm in a case
where, for section 1259 purposes, references in subsection (1) to a
company are read as references to the firm.

(4C) Section 148 of TIOPA 2010 (when the participation condition is met)
applies for the purposes of subsection (4A) as it applies for the purposes
35of section 147(1)(b) of TIOPA 2010.

(4D) Subsection (4E) applies where—

(a) a gain on the disposal of an intangible asset by a firm is a gain
to be taken into account for section 1259 purposes, and

(b) for those purposes, references in subsection (1) to a company
40are read as references to the firm.

(4E) Where this subsection applies, the gain referred to in subsection (4D)(a)
is to be treated for the purposes of this section as if it were a chargeable
realisation gain for the purposes of section 741(1) (meaning of
“chargeable intangible asset”).

(4F) In this section, “section 1259 purposes” means the purposes of
determining under section 1259 the amount of profits or losses to be
allocated to a partner in a firm.”

(2) The amendment made by this section applies in relation to a transfer which
5takes place on or after 25 November 2015, unless it takes place pursuant to an
obligation, under a contract, that was unconditional before that date.

(3) For the purposes of subsection (2), an obligation is “unconditional” if it may not
be varied or extinguished by the exercise of a right (whether under the contract
or otherwise).

10Creative industry reliefs

50 Tax relief for production of orchestral concerts

Schedule 8 contains provision about relief in respect of the production of
orchestral concerts.

51 Television and video games tax relief: consequential amendments

15In the following provisions, for “section 1218” substitute “section 1218B”—

(a) paragraph 8(2)(c) of Schedule 7A to TCGA 1992,

(b) section 63(1) of CTA 2010, and

(c) section 729 of CTA 2010.

Banking companies

52 20Banking companies: excluded entities

(1) Section 133F of CTA 2009 (“excluded company”) has effect, and is to be deemed
always to have had effect, with the amendments set out in subsections (2) to (4).

(2) After subsection (2) insert—

“(2A) A company is also an “excluded company” at any time (in an
25accounting period) if—

(a) the company would fall within a relevant relieving provision
but for one (and only one) line of business which it carries on,

(b) that line of business does not involve the relevant regulated
activity described in the provision mentioned in section
30133G(1)(a), and

(c) the company’s activities in that line of business would not, on
their own, result in it being both a 730k firm and a full scope
investment firm.

(2B) For the purposes of subsection (2A) the “relevant relieving provisions”
35are paragraphs (b), (c), (e), (g) and (h) of subsection (2).”

(3) In subsection (7), before the definition of “authorised corporate director”
insert—

• “““730k firm”—

  (a)

  in relation to any time on or after 1 January 2014, means
  40an IFPRU 730k firm,

  Finance (No. 2) BillPage 86

  (b)

  in relation to any time before that date, means a BIPRU
  730k firm;”.

(4) In subsection (7), at the appropriate places insert—

• “““BIPRU 730k firm” and “full scope BIPRU investment firm” have
  5the same meaning as in subsections (2) to (4) of section 133H;”

• ““IFPRU 730k firm” and full scope IFPRU investment firm” have
  the meaning given by the FCA Handbook at the time in
  question;”

• ““full scope investment firm”—

  (a)

  10in relation to any time on or after 1 January 2014, means
  a full scope IFPRU investment firm,

  (b)

  in relation to any time before that date, means a full
  scope BIPRU investment firm;”.

(5) Section 133M of CTA 2009 has effect, and is to be deemed always to have had
15effect, with the amendment set out in subsection (6).

(6) For subsection (5)(b)(ii) substitute—

“(“ii) the firm would not (if references in section 133F(2) and
(3) to companies included firms) be an excluded
company for the purposes of section 133E.”

(7) 20Part 7A of CTA 2010 has effect, and is to be deemed always to have had effect,
with the amendments set out in subsections (8) and (9).

(8) In section 269BA (excluded entities), after subsection (1) insert—

“(1A) For the purposes of section 269B an entity is also an “excluded entity”
if—

(a) 25the entity would fall within a relevant relieving provision but
for one (and only one) line of business which it carries on,

(b) that line of business does not involve the relevant regulated
activity described in the provision mentioned in section
269BB(a), and

(c) 30the entity’s activities in that line of business would not, on their
own, result in it being both a 730k firm and a full scope
investment firm.

(1B) For the purposes of subsection (1A) the “relevant relieving provisions”
are paragraphs (b), (c), (e), (g) and (h) of subsection (1).”

(9) 35In section 269DO (interpretation)—

(a) after subsection (5) insert—

“(5A) For the purposes of section 269BA(1A) (extension of certain
exclusions under subsection (1) of that section) a line of business
carried on by a company is not regarded as involving the
40relevant regulated activity described in the provision
mentioned in section 269BB(a) if—

(a) the carrying on of that activity is ancillary to asset
management activities the company carries on, and

(b) the company would not carry that activity on but for the
45fact that it carries on asset management activities.”;

(b) in subsection (6) for “subsection (5)” substitute “subsections (5) and
(5A)”.

(10) In Schedule 19 to FA 2011 (the bank levy), paragraph 73 is amended in
accordance with subsections (11) and (12).

(11) In sub-paragraph (1), omit “or” at the end of paragraph (j) and after paragraph
(k) insert “, or

(l) 5an entity falling within sub-paragraph (1A).”

(12) After sub-paragraph (1) insert—

“(1A) An entity falls within this sub-paragraph if—

(a) it would fall within a relevant relieving provision but for one
(and only one) line of business which it carries on,

(b) 10that line of business does not involve the relevant regulated
activity described in the provision mentioned in paragraph
79(a), and

(c) the entity’s activities in that line of business would not, on
their own, result in it being both a 730k firm and a full scope
15investment firm.

(1B) For the purposes of sub-paragraph (1A) the “relevant relieving
provisions” are paragraphs (b), (c), (e), (g) and (h) of sub-paragraph
(1).”

(13) Subsections (10) to (12) have effect in relation to chargeable periods beginning
20on or after the day on which this Act is passed.

(14) But for the purposes of determining what groups and entities must be listed
under subsection (4) of section 285 of FA 2014 (Code of Practice on Taxation for
Banks: HMRC reports) in any relevant report under that section—

(a) subsection (13) is to be disregarded, and

(b) 25Schedule 19 to FA 2011 is to be deemed to have effect, and always to
have had effect, with the amendments set out in subsections (10) to (12).

(15) In subsection (14) “relevant report” means a report for the reporting period
beginning with 1 April 2015 or any subsequent reporting period.

53 Banking companies: restrictions on loss relief etc

(1) 30Chapter 3 of Part 7A of CTA 2010 (restrictions on banking companies obtaining
certain deductions) is amended as follows.

(2) In section 269CA (restriction on deductions for trading losses), in subsection
(2), for “50%” substitute “25%”.

(3) In section 269CB (restriction on deductions for non-trading deficits from loan
35relationships), in subsection (2), for “50%” substitute “25%”.

(4) In section 269CC (restriction on deductions for management expenses etc), in
step 1 in subsection (7), for “50%” substitute “25%”.

(5) The amendments made by this section have effect for the purposes of
determining the taxable total profits of companies for accounting periods
40beginning on or after 1 April 2016.

(6) For the purposes of subsection (5), where a company has an accounting period
beginning before 1 April 2016 and ending on or after that date (“the straddling
period”)—

(a) so much of the straddling period as falls before 1 April 2016, and so
much of that period as falls on or after that date, are treated as separate
accounting periods, and

(b) profits or losses of the company for the straddling period are
5apportioned to the two separate accounting periods—

(i) in accordance with section 1172 of CTA 2010 (time basis), or

(ii) if that method would produce a result that is unjust or
unreasonable, on a just and reasonable basis.

Oil and gas

54 10Reduction in rate of supplementary charge

(1) In section 330 of CTA 2010 (supplementary charge in respect of ring fence
trades), in subsection (1), for “20%” substitute “10%”.

(2) The amendment made by subsection (1) has effect in relation to accounting
periods beginning on or after 1 January 2016 (but see also subsection (3)).

(3) 15Subsections (4) and (5) apply where a company has an accounting period
beginning before 1 January 2016 and ending on or after that date (“the
straddling period”).

(4) For the purpose of calculating the amount of the supplementary charge on the
company for the straddling period—

(a) 20so much of that period as falls before 1 January 2016, and so much of
that period as falls on or after that date, are treated as separate
accounting periods, and

(b) the company’s adjusted ring fence profits for the straddling period are
apportioned to the two separate accounting periods in proportion to
25the number of days in those periods.

(5) The amount of the supplementary charge on the company for the straddling
period is the sum of the amounts of supplementary charge that would, in
accordance with subsection (4), be chargeable on the company for those
separate accounting periods.

(6) 30In this section—

• “adjusted ring fence profits” has the same meaning as in section 330 of
  CTA 2010;

• “supplementary charge” means any sum chargeable under section 330(1)
  of CTA 2010 as if it were an amount of corporation tax.

55 35Investment allowance: disqualifying conditions

(1) Section 332D of CTA 2010 (expenditure on acquisition of asset: disqualifying
conditions) is amended as follows.

(2) In subsection (1) after “an asset” insert “(“the acquisition concerned”)”.

(3) In subsection (2)—

(a) 40for “acquisition,” substitute “acquisition concerned,” and

(b) after “acquiring,” insert “leasing,”.

(4) In subsection (3)(b)—

(a) for “acquisition,” substitute “acquisition concerned,”, and

(b) after “acquiring,” insert “leasing,”.

(5) After subsection (4) insert—

“(5) In subsection (3)(c) “this Chapter” means the provisions of this Chapter,
5and of any regulations made under this Chapter, as those provisions
have effect at the time when the investment expenditure mentioned in
subsection (1) is incurred.

(6) Subsections (7) and (8) apply where investment expenditure mentioned
in subsection (1) would, in the absence of this section, be relievable
10under section 332C by reason of section 332CA (treatment of
expenditure incurred before field is determined).

(7) Where this subsection applies—

(a) subsection (2) is to be read as if after “was” there were inserted
“, or has become,”, and

(b) 15in determining for the purposes of subsection (2) or (3)(b)
whether particular expenditure was incurred “before” the
acquisition concerned—

(i) paragraph (b) of section 332CA(3) is to be ignored, and

(ii) accordingly, that expenditure is to be taken (for the
20purposes of determining whether it was incurred before
the acquisition concerned) to have been incurred when
it was actually incurred.

(8) Where this subsection applies, in determining whether the second
disqualifying condition applies to the asset—

(a) 25the reference in subsection (3)(a)(i) to a qualifying oil field is to
be read as including an area which, at the time of the acquisition
concerned, had not been determined to be an oil field but which
has subsequently become a qualifying oil field,

(b) the reference in subsection (3)(a)(ii) to a qualifying oil field is to
30be read as including an area which, at the time of the transfer,
had not been determined to be an oil field but which has
subsequently become a qualifying oil field,

(c) the reference in subsection (3)(c)(i) to “the qualifying oil field” is
to be read accordingly, and

(d) 35the following sub-paragraph is to be treated as substituted for
subsection (3)(c)(ii)—

“(“ii) would have been relievable under section 332C
if this Chapter had been fully in force and had
applied to expenditure incurred at the time
40when that expenditure was actually incurred
and the area in question had been a qualifying
oil field at that time.”

(9) In subsection (8)(a) and (b) “determined” means determined under
Schedule 1 to OTA 1975.

(10) 45In this section any reference to expenditure which was incurred by a
company in “leasing” an asset is to expenditure incurred by the
company under an agreement under which the asset was leased to the
company.”