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

Value of the counteracted advantage: basic rule

2 (1) The “value of the counteracted advantage” is the additional amount
due or payable in respect of tax as a result of the counteraction
mentioned in section 212A(1)(c).

(2) 5The reference in sub-paragraph (1) to the additional amount due and
payable includes a reference to—

(a) an amount payable to HMRC having erroneously been paid
by way of repayment of tax, and

(b) an amount which would be repayable by HMRC if the
10counteraction were not made.

(3) The following are ignored in calculating the value of the
counteracted advantage—

(a) group relief, and

(b) any relief under section 458 of CTA 2010 (relief in respect of
15repayment etc of loan) which is deferred under subsection (5)
of that section.

(4) This paragraph is subject to paragraphs 3 and 4.

Value of counteracted advantage: losses

3 (1) To the extent that the tax advantage mentioned in section 212A(1)(b)
20(“the tax advantage”) resulted in the wrong recording of a loss for the
purposes of direct tax and the loss has been wholly used to reduce
the amount due or payable in respect of tax, the value of the
counteracted advantage is determined in accordance with paragraph
2.

(2) 25To the extent that the tax advantage resulted in the wrong recording
of a loss for purposes of direct tax and the loss has not been wholly
used to reduce the amount due or payable in respect of tax, the value
of the counteracted advantage is—

(a) the value under paragraph 2 of so much of the tax advantage
30as results (or would in the absence of the counteraction
result) from the part (if any) of the loss which was used to
reduce the amount due or payable in respect of tax, plus

(b) 10% of the part of the loss not so used.

(3) Sub-paragraphs (1) and (2) apply both—

(a) 35to a case where no loss would have been recorded but for the
tax advantage, and

(b) to a case where a loss of a different amount would have been
recorded (but in that case sub-paragraphs (1) and (2) apply
only to the difference between the amount recorded and the
40true amount).

(4) To the extent that the tax advantage creates or increases (or would in
the absence of the counteraction create or increase) an aggregate loss
recorded for a group of companies—

(a) the value of the counteracted advantage is calculated in
45accordance with this paragraph, and

(b) in applying paragraph 2 in accordance with sub-paragraphs
(1) and (2), group relief may be taken into account (despite
paragraph 2(3)).

(5) To the extent that the tax advantage results (or would in the absence
5of the counteraction result) in a loss, the value of it is nil where,
because of the nature of the loss or the person’s circumstances, there
was no reasonable prospect of the loss being used to support a claim
to reduce a tax liability (of any person).

Value of counteracted advantage: deferred tax

4 (1) 10To the extent that the tax advantage mentioned in section 212A is a
deferral of tax, the value of the counteracted advantage is—

(a) 25% of the amount of the deferred tax for each year of the
deferral, or

(b) a percentage of the amount of the deferred tax, for each
15separate period of deferral of less than a year, equating to
25% per year,

or, if less, 100% of the amount of the deferred tax.

(2) This paragraph does not apply to a case to the extent that paragraph
3 applies.

20Assessment of penalty

5 (1) Where a person is liable for a penalty under section 212A, HMRC
must assess the penalty.

(2) Where HMRC assess the penalty, HMRC must—

(a) notify the person who is liable for the penalty, and

(b) 25state in the notice a tax period in respect of which the penalty
is assessed.

(3) A penalty under this paragraph must be paid before the end of the
period of 30 days beginning with the day on which notification of the
penalty is issued.

(4) 30An assessment—

(a) is to be treated for procedural purposes as if it were an
assessment to tax,

(b) may be enforced as if it were an assessment to tax, and

(c) may be combined with an assessment to tax.

(5) 35An assessment of a penalty under this paragraph must be made
before the end of the period of 12 months beginning with—

(a) the end of the appeal period for the assessment which gave
effect to the counteraction mentioned in section 212A(1)(b),
or

(b) 40if there is no assessment within paragraph (a), the date (or the
latest of the dates) on which that counteraction becomes final.

(6) The reference in sub-paragraph (5)(b) to the counteraction becoming
final is to be interpreted in accordance with section 210(8).

Alteration of assessment of penalty

6 (1) After notification of an assessment has been given to a person under
paragraph 5(2), the assessment may not be altered except in
accordance with this paragraph or paragraph 7, or on appeal.

(2) 5A supplementary assessment may be made in respect of a penalty if
an earlier assessment operated by reference to an underestimate of
the value of the counteracted advantage.

(3) An assessment may be revised as necessary if operated by reference
to an overestimate of the value of the counteracted advantage.

10Revision of assessment following consequential relieving adjustment

7 (1) Sub-paragraph (2) applies where a person—

(a) is notified under section 210(7) of a consequential adjustment
relating to a counteraction under section 209, and

(b) an assessment to a penalty in respect of that counteraction of
15which the person has been notified under paragraph 5(2)
does not take account of that consequential adjustment.

(2) HMRC must make any alterations of the assessment that appear to
HMRC to be just and reasonable in connection with the
consequential amendment.

(3) 20Alterations under this paragraph may be made despite any time
limit imposed by or under an enactment.

Aggregate penalties

8 (1) Sub-paragraph (3) applies where—

(a) two or more penalties are incurred by the same person and
25fall to be determined by reference to an amount of tax to
which that person is chargeable,

(b) one of those penalties is incurred under section 212A, and

(c) one or more of the other penalties are incurred under a
relevant penalty provision.

(2) 30But sub-paragraph (3) does not apply if section 212(2) of FA 2014
(follower notices: aggregate penalties) applies in relation to the
amount of tax in question.

(3) The aggregate of the amounts of the penalties mentioned in
subsection (1)(b) and (c), so far as determined by reference to that
35amount of tax, must not exceed—

(a) the relevant percentage of that amount, or

(b) in a case where at least one of the penalties is under
paragraph 5(2)(b) of, or sub-paragraph (3)(b), (4)(b) or (5)(b)
of paragraph 6 of, Schedule 55 to FA 2009, £300 (if greater).

(4) 40In the application of section 97A of TMA 1970 (multiple penalties) no
account shall be taken of a penalty under section 212A.

(5) “Relevant penalty provision” means—

(a) Schedule 24 to FA 2007 (penalties for errors),

(b) Schedule 41 to FA 2008 (penalties: failure to notify etc),

(c) Schedule 55 to FA 2009 (penalties for failure to make returns
etc), or

(d) Part 4 of Schedule 18 to FA 2016 (penalty under Serial
5Avoiders Regime).

(6) “The relevant percentage” means—

(a) 200% in a case where at least one of the penalties is
determined by reference to the percentage in—

(i) paragraph 4(4)(c) of Schedule 24 to FA 2007,

(ii) 10paragraph 6(4)(a) of Schedule 41 to FA 2008, or

(iii) paragraph 6(3A)(c) of Schedule 55 to FA 2009,

(b) 150% in a case where paragraph (a) does not apply and at
least one of the penalties is determined by reference to the
percentage in—

(i) 15paragraph 4(3)(c) of Schedule 24 to FA 2007,

(ii) paragraph 6(3)(a) of Schedule 41 to FA 2008, or

(iii) paragraph 6(3A)(b) of Schedule 55 to FA 2009,

(c) 140% in a case where neither paragraph (a) nor paragraph (b)
applies and at least one of the penalties is determined by
20reference to the percentage in—

(i) paragraph 4(4)(b) of Schedule 24 to FA 2007,

(ii) paragraph 6(4)(b) of Schedule 41 to FA 2008, or

(iii) paragraph 6(4A)(c) of Schedule 55 to FA 2009,

(d) 105% in a case where at none of paragraphs (a), (b) and (c)
25applies and at least one of the penalties is determined by
reference to the percentage in—

(i) paragraph 4(3)(b) of Schedule 24 to FA 2007,

(ii) paragraph 6(3)(b) of Schedule 41 to FA 2008, or

(iii) paragraph 6(4A)(b) of Schedule 55 to FA 2009, and

(e) 30in any other case, 100%.

Appeal against penalty

9 (1) A person may appeal against—

(a) the imposition of a penalty under section 212A, or

(b) the amount assessed under paragraph 5.

(2) 35An appeal under sub-paragraph (1)(a) may only be made on the
grounds that the arrangements were not abusive or there was no tax
advantage to be counteracted.

(3) An appeal under sub-paragraph (1)(b) may only be made on the
grounds that the assessment was based on an overestimate of the
40value of the counteracted advantage (whether because the estimate
was made by reference to adjustments which were not just and
reasonable or for any other reason).

(4) An appeal under this paragraph must be made within the period of
30 days beginning with the day on which notification of the penalty
45is given under paragraph 5(2).

(5) An appeal under this paragraph is to be treated in the same way as
an appeal against an assessment to the tax concerned (including by
the application of any provision about bringing the appeal by notice
to HMRC, about HMRC’s review of the decision or about
5determination of the appeal by the First-tier Tribunal or Upper
Tribunal).

(6) Sub-paragraph (5) does not apply—

(a) so as to require a person to pay a penalty before an appeal
against the assessment of the penalty is determined, or

(b) 10in respect of any other matter expressly provided for by this
Part.

(7) On an appeal against the penalty the tribunal may affirm or cancel
HMRC’s decision.

(8) On an appeal against the amount of the penalty the tribunal may—

(a) 15affirm HMRC’s decision, or

(b) substitute for HMRC’s decision another decision that HMRC
has power to make.

(9) In this paragraph “tribunal” means the First-tier Tribunal or Upper
Tribunal (as appropriate by virtue of sub-paragraph (5)).

20Mitigation of penalties

10 (1) The Commissioners may in their discretion mitigate a penalty under
section 212A, or stay or compound any proceedings for such a
penalty.

(2) They may also, after judgment, further mitigate or entirely remit the
25penalty.

Interpretation

11 In this Schedule—

(a) a reference to an “assessment” to tax is to be interpreted, in
relation to inheritance tax, as a reference to a determination;

(b) 30“direct tax” means—

(i) income tax,

(ii) capital gains tax,

(iii) corporation tax, and

(iv) petroleum revenue tax;

(c) 35a reference to a loss includes a reference to a charge, expense,
deficit and any other amount which may be available for, or
relied on to claim, a deduction or relief;

(d) a reference to a repayment of tax includes a reference to
allowing a credit against tax or to a payment of a corporation
40tax credit;

(e) “corporation tax credit” means—

(i) an R&D tax credit under Chapter 2 or 7 of Part 13 of
CTA 2009,

(ii) an R&D expenditure credit under Chapter 6A of Part
453 of CTA 2009,

(iii) a land remediation tax credit or life assurance
company tax credit under Chapter 3 or 4 respectively
of Part 14 of CTA 2009,

(iv) a film tax credit under Chapter 3 of Part 15 of CTA
52009,

(v) a television tax credit under Chapter 3 of Part 15A of
CTA 2009,

(vi) a video game tax credit under Chapter 3 of Part 15B of
CTA 2009,

(vii) 10a theatre tax credit under section 1217K of CTA 2009,

(viii) an orchestra tax credit under Chapter 3 of Part 15D of
CTA 2009, or

(ix) a first-year tax credit under Schedule A1 to CAA 2001;

(f) “tax period” means a tax year, accounting period or other
15period in respect of which tax is charged;

(g) a reference to giving a document to HMRC includes a
reference to communicating information to HMRC in any
form and by any method (whether by post, fax, email,
telephone or otherwise),

(h) 20a reference to giving a document to HMRC includes a
reference to making a statement or declaration in a
document.”

(4) In section 209 (counteracting the tax advantages), after subsection (7) insert—

“(8) Where a matter is referred to the GAAR Advisory Panel under
25paragraph 5 or 6 of Schedule 43, the taxpayer (as defined in paragraph
3 of that Schedule) must not make any GAAR-related adjustments in
relation to the taxpayer’s tax affairs in the period (the “closed period”)
which—

(a) begins with the 31st day after the end of the 45 day period
30mentioned in paragraph 4(1) of that Schedule, and

(b) ends immediately before the day on which the taxpayer is given
the notice under paragraph 12 of Schedule 43 (notice of final
decision after considering opinion of GAAR advisory panel).

(9) Where a person has been given a notice of binding under paragraph 1
35of Schedule 43A in relation to any tax arrangements, the person must
not make any GAAR-related adjustments in the period (“the closed
period”) that—

(a) begins with the 31st day after that on which that notice is given,
and

(b) 40ends—

(i) immediately before the day on which the person is
given a notice under paragraph 5(2) or 6(2) of Schedule
43A, or a notice under paragraph 9(2) of Schedule 43B,
in relation to the tax arrangements (notice of final
45decision after considering opinion of GAAR Advisory
Panel), or

(ii) (in a case where the notice of binding is given by virtue
of Condition 2 in Schedule 43A) with the 30th day after
the day on which the notice of binding is given.

(10) 50In this section “GAAR-related adjustments” means—

(a) for the purposes of subsection (8), adjustments which give effect
(wholly or in part) to the proposed counteraction set out in the
notice under paragraph 3 of Schedule 43;

(b) for the purposes of subsection (9), adjustments which give effect
5(wholly or partly) to the proposed counteraction set out in the
notice of binding.”

(5) Schedule 43 (general anti-abuse rule: procedural requirements) is amended in
accordance with subsections (6) to (9).

(6) After paragraph 1 insert—

10““Meaning of “tax appeal”

1A In this Part “tax appeal” means—

(a) an appeal under section 31 of TMA 1970 (income tax: appeals
against amendments of self-assessment, amendments made
by closure notices under section 28A or 28B of that Act, etc),
15including an appeal under that section by virtue of
regulations under Part 11 of ITEPA 2003 (PAYE),

(b) an appeal under paragraph 9 of Schedule 1A to TMA 1970
(income tax: appeals against amendments made by closure
notices under paragraph 7(2) of that Schedule, etc),

(c) 20an appeal under section 705 of ITA 2007 (income tax: appeals
against counteraction notices),

(d) an appeal under paragraph 34(3) or 48 of Schedule 18 to FA
1998 (corporation tax: appeals against amendment of a
company‘s return made by closure notice, assessments other
25than self-assessments, etc),

(e) an appeal under section 750 of CTA 2010 (corporation tax:
appeals against counteraction notices),

(f) an appeal under section 222 of IHTA 1984 (appeals against
HMRC determinations) other than an appeal made by a
30person against a determination in respect of a transfer of
value at a time when a tax enquiry is in progress in respect of
a return made by that person in respect of that transfer,

(g) an appeal under paragraph 35 of Schedule 10 to FA 2003
(stamp duty land tax: appeals against amendment of self-
35assessment, discovery assessments, etc),

(h) an appeal under paragraph 35 of Schedule 33 to FA 2013
(annual tax on enveloped dwellings: appeals against
amendment of self-assessment, discovery assessments, etc),

(i) an appeal under paragraph 14 of Schedule 2 to the Oil
40Taxation Act 1975,

(j) an appeal under section 102 of FA 2015, or

(k) an appeal against any determination of—

(i) an appeal within paragraphs (a) to (j), or

(ii) an appeal within this paragraph.”

(7) 45In paragraph 3(2)(e), for “of paragraphs 5 and 6” substitute “of—

(i) paragraphs 5 and 6, and

(ii) sections 209(8) and (9) and 212A.”

(8) After paragraph 4 insert—

““Corrective action by taxpayer

4A (1) If the taxpayer takes the relevant corrective action before the
beginning of the closed period mentioned in section 209(8), the
5matter is not to be referred to the GAAR Advisory Panel.

(2) For the purposes of this Schedule the “relevant corrective action” is
taken if (and only if) the taxpayer takes the steps set out in sub-
paragraphs (3) and (4).

(3) The first step is that—

(a) 10P amends a return or claim to counteract the tax advantage
specified in the notice under paragraph 3, or

(b) if the taxpayer has made a tax appeal (by notifying HMRC or
otherwise) on the basis that the tax advantage specified in the
notice under paragraph 3 arises from the tax arrangements
15specified in that notice, P takes all necessary action to enter
into an agreement with HMRC (in writing) for the purpose of
relinquishing that advantage.

(4) The second step is that P notifies HMRC—

(a) that P has taken the first step, and

(b) 20of any additional amount which has or will become due and
payable in respect of tax by reason of the first step being
taken.

(5) In determining the additional amount which has or will become due
and payable in respect of tax for the purposes of sub-paragraph
25(4)(b), it is to be assumed that, where P takes the necessary action as
mentioned in sub-paragraph (4)(b), the agreement is then entered
into.

(6) No enactment limiting the time during which amendments may be
made to returns or claims operates to prevent P taking the first step
30mentioned in sub-paragraph (3)(a) before the tax enquiry is closed
(whether or not before the specified time).

(7) No appeal may be brought, by virtue of a provision mentioned in
sub-paragraph (8), against an amendment made by a closure notice
in respect of a tax enquiry to the extent that the amendment takes
35into account an amendment made by the taxpayer to a return or
claim in taking the first step mentioned in sub-paragraph (3)(a).

(8) The provisions are—

(a) section 31(1)(b) or (c) of TMA 1970,

(b) paragraph 9 of Schedule 1A to TMA 1970,

(c) 40paragraph 34(3) of Schedule 18 to FA 1998,paragraph 35(1)(b)
of Schedule 10 to FA 2003, and

(d) paragraph 35(1)(b) of Schedule 33 to FA 2013.”

(9) Before paragraph 5 (but after the heading “Referral to GAAR Advisory Panel”)

insert—

“4B Paragraphs 5 and 6 apply if the taxpayer does not take the relevant
corrective action (see paragraph 4A) by the beginning of the closed
period mentioned in section 209(8).”

(10) 5In section 103ZA of TMA 1970 (disapplication of sections 100 to 103 in the case
of certain penalties) (as amended by Schedule 18)—

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

(b) after paragraph (i) insert “or

(i) section 212A of FA 2013 (general anti-abuse rule).”

(11) 10In section 212 of FA 2014 (follower notices: aggregate penalties) (as amended
by Schedule 18), in subsection (4)—

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

(b) after paragraph (d) insert “, or

(e) section 212A of FA 2013 (general anti-abuse rule).”

(12) 15FA 2015 is amended in accordance with subsections (13) and (14).

(13) In section 120 (penalties in connection with offshore matters and offshore
transfers), in subsection (1), omit “and” before paragraph (c) and after
paragraph (c) insert— “, and

“(d) Schedule 43C to FA 2013 (as amended by FA 2016).”

(14) 20In Schedule 20 to that Act, after paragraph 19 insert—

““General anti-abuse rule: aggregate penalties

20 (1) In Schedule 43C to FA 2013 (general anti-abuse rule: supplementary
provision about penalty), sub-paragraph (6) of paragraph 7 is
amended as follows.

(2) 25After paragraph (b) insert—

“(ba) 125% in a case where neither paragraph (a) nor paragraph (b)
applies and at least one of the penalties is determined by
reference to the percentage in—

(i) paragraph 4(2)(c) of Schedule 24 to FA 2007,

(ii) 30paragraph 6(2)(a) of Schedule 41 to FA 2008,

(iii) paragraph 6(3A)(a) of Schedule 55 to FA 2009,”.

(3) In sub-paragraph (c) for “neither paragraph (a) nor paragraph (b)
applies” substitute “none of paragraphs (a) to (ba) applies.

(4) In sub-paragraph (d) for “none of paragraphs (a), (b) and (c) applies”
35substitute “none of paragraphs (a) to (c) applies”.

(15) The amendments made by this section have effect in relation to tax
arrangements (within the meaning of Part 5 of FA 2013) entered into on or after
the day on which this Act is passed.

Tackling frequent avoidance

147 Serial tax avoidance

Schedule 18 contains provision about the issue of warning notices to,
and further sanctions for, persons who incur a relevant defeat in relation
5to arrangements.

148 Promoters of tax avoidance schemes

(1) Part 5 of FA 2014 (promoters of tax avoidance schemes) is amended as follows.

(2) After section 237 insert—

“237A Duty to give conduct notice: defeat of promoted arrangements

(1) 10If an authorised officer becomes aware at any time (“the relevant time”)
that a person (“P”) who is carrying on a business as a promoter meets
any of the conditions in subsections (6) to (8), the officer must
determine whether or not P’s meeting of that condition should be
regarded as significant in view of the purposes of this Part.

15But see also subsection (9).

(2) Subsection (1) does not apply if a conduct notice or monitoring notice
already has effect in relation to P.

(3) Subsection (1) does not apply if, at the relevant time, an authorised
officer is under a duty to make a determination under section 237(5) in
20relation to P.

But if this subsection prevents subsection (1) from applying, the
authorised officer making the determination required by section
237(5)(a) must take into account P’s meeting of the condition in
subsection (6), (7) or (8) of this section as if that condition were
25mentioned in subsection (1)(a) of section 237.

(4) If the authorised officer determines under subsection (1) that P’s
meeting of the condition in question should be regarded as significant,
the officer must give P a conduct notice, unless subsection (5) applies.

(5) This subsection applies if the authorised officer determines that, having
30regard to the extent of the impact that P’s activities as a promoter are
likely to have on the collection of tax, it is inappropriate to give P a
conduct notice.

(6) The condition in this subsection is that in the period of 3 years ending
with the relevant time at least 3 relevant defeats have occurred in
35relation to P.

(7) The condition in this subsection is that at least two relevant defeats
have occurred in relation to P at times when a single defeat notice
under section 241A(2) or (6) had effect in relation to P.

(8) The condition in this subsection is that at least one relevant defeat has
40occurred in relation to P at a time when a double defeat notice under
section 241A(3) had effect in relation to P.

(9) A determination that the condition in subsection (7) or (8) is met cannot
be made unless—