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

(4) The information that may be published is—

(a) the person’s name (including any trading name, previous name or
pseudonym),

(b) the person’s address (or registered office),

(c) 5the nature of any business carried on by the person,

(d) information about the fiscal effect of the defeated arrangements (had
they not been defeated), for instance information about total
amounts of tax understated or total amounts by which claims, or
statements of losses, have been adjusted,

(e) 10the amount of any penalty to which the person is liable under
paragraph 30 in respect of the relevant defeat of any defeated
arrangements,

(f) the periods in which or times when the defeated arrangements were
used, and

(g) 15any other information the Commissioners may consider it
appropriate to publish in order to make clear the person’s identity.

(5) If the person mentioned in sub-paragraph (1) is a member of a group of
companies (as defined in paragraph 46(9)), the information which may be
published also includes—

(a) 20any trading name of the group, and

(b) information about other members of the group of the kind described
in sub-paragraph (4)(a), (b) or (c).

(6) The information may be published in any manner the Commissioners may
consider appropriate.

(7) 25Before publishing any information the Commissioners—

(a) must inform the person that they are considering doing so, and

(b) afford the person reasonable opportunity to make representations
about whether or not it should be published.

(8) Arrangements are “defeated arrangements” for the purposes of sub-
30paragraph (4) if the person used them in the warning period mentioned in
sub-paragraph (1) and a warning notice specifying the defeat of those
arrangements has been given to the person before the information is
published.

(9) If a person has been given a single warning notice in relation to two or more
35relevant defeats, the person is treated for the purposes of this paragraph as
having been given a separate warning notice in relation to each of those
relevant defeats.

(10) Nothing in this paragraph prevents the power under sub-paragraph (1)
from being exercised on a subsequent occasion in relation to arrangements
40used by the person in a different warning period.

Part 4 Restriction of reliefs

Duty to give a restriction relief notice

19 (1) HMRC must give a person a written notice (a “restriction of relief notice”)
45if—

(a) the person incurs a relevant defeat in relation to arrangements which
the person has used in a warning period,

(b) the person has been given at least two warning notices in respect of
other relevant defeats of arrangements which were used in that same
5warning period, and

(c) the defeats mentioned in paragraphs (a) and (b) meet the conditions
in sub-paragraph (2).

(2) The conditions are that—

(a) each of the relevant defeats is by virtue of Condition A, B or C,

(b) 10each of the relevant defeats relates to the misuse of a relief (see sub-
paragraph (5)), and

(c) in the case of each of the relevant defeats, either—

(i) that the relevant counteraction (see sub-paragraph (7)) was
made on the basis that a particular avoidance-related rule
15applies in relation to a person’s affairs, or

(ii) that the misused relief is a loss relief.

(3) In sub-paragraph (2)(c)—

(a) the “misused relief” means the relief mentioned in sub-paragraph
(5), and

(b) 20“loss relief” means any relief under Part 4 of ITA 2007 or Part 4 or 5
of CTA 2010.

(4) A restriction of relief notice must—

(a) explain the effect of paragraphs 20, 21 and 22, and

(b) set out when the restricted period is to begin and end.

(5) 25For the purposes of this Part of this Schedule, a relevant defeat by virtue of
Condition A, B or C “relates to the misuse of a relief” if—

(a) the tax advantage in question, or part of the tax advantage in
question, is or results from (or would but for the counteraction be or
result from) a relief or increased relief from tax, or

(b) 30it is reasonable to conclude that the making of a particular claim for
relief, or the use of a particular relief, is a significant component of
the arrangements in question.

(6) In sub-paragraph (5) “the tax advantage in question” means—

(a) in relation to a defeat by virtue of Condition A, the tax advantage
35mentioned in paragraph 12(1)(a),

(b) in relation to a defeat by virtue of Condition B, the denied advantage
(as defined in paragraph 13(3)), or

(c) in relation to a defeat by virtue of Condition C—

(i) the tax advantage mentioned in paragraph 14(2)(a), or, as the
40case requires,

(ii) the absence of the relevant obligation (as defined in
paragraph 14(4)).

(7) In this paragraph “the relevant counteraction”, in relation to a relevant
defeat means—

(a) 45in the case of a defeat by virtue of Condition A, the counteraction
referred to in paragraph 12(1)(c);

(b) in the case of a defeat by virtue of Condition B, the action referred to
in paragraph 13(1);

(c) in the case of a defeat by virtue of Condition C, the counteraction
referred to in paragraph 14(1)(d).

(8) If a person has been given a single warning notice in relation to two or more
relevant defeats, the person is treated for the purposes of this paragraph as
5having been given a separate warning notice in relation to each of those
relevant defeats.

Restriction of relief

20 (1) Sub-paragraphs (2) to (15) have effect in relation to a person to whom a relief
restriction notice has been given.

(2) 10The person may not, in the restricted period, make any claim for relief.

(3) Sub-paragraph (2) does not have effect in relation to—

(a) a claim for relief under Schedule 8 to FA 2003 (stamp duty land tax:
charities relief);

(b) a claim for relief under Chapter 3 of Part 8 of ITA 2007 (gifts of shares,
15securities and real property to charities etc);

(c) a claim for relief under Part 10 of ITA 2007 (special rules about
charitable trusts etc);

(d) a claim for relief under double taxation arrangements;

(e) an election under section 426 of ITA 2007 (gift aid: election to treat
20gift as made in previous year).

(4) Claims under the following provisions in Part 4 of FA 2004 (registered
pension schemes: tax reliefs etc) do not count as claims for relief for the
purposes of this paragraph—

• section 192(4) (increase of basic rate limit and higher rate limit);

• 25section 193(4) (net pay arrangements: excess relief);

• section 194(1) (relief on making of a claim).

(5) The person may not, in the restricted period, surrender group relief under
Part 5 of CTA 2010.

(6) No deduction is to be made under section 83 of ITA 2007 (carry forward
30against subsequent trade profits) in calculating the person’s net income for
a relevant tax year.

(7) No deduction is to be made under section 118 of ITA 2007 (carry-forward
property loss relief) in calculating the person’s net income for a relevant tax
year.

(8) 35The person is not entitled to relief under section 448 (annual payments: relief
for individuals) or 449 (annual payments: relief for other persons) of ITA
2007 for any payment made in the restricted period.

(9) No deduction of expenses referable to a relevant accounting period is to be
made under section 1219(1) of CTA 2009 (expenses of management of a
40company’s investment business).

(10) No reduction is to be made under section 45(4) of CTA 2010 (carry-forward
of trade loss relief) in calculating the profits for a relevant accounting period
of a trade carried on by the person.

(11) In calculating the total amount of chargeable gains accruing to a person in a
relevant tax year (or part of a relevant tax year), no losses are to be deducted
under subsections (2) to (2B) of section 2 of TCGA 1992 (persons and gains
chargeable to capital gains tax, and allowable losses).

(12) 5In calculating the total amount of ATED-related chargeable gains accruing
to a person in a relevant tax year, no losses are to be deducted under
subsection (3) of section 2B of TCGA 1992 (persons chargeable to capital
gains tax on ATED-related gains).

(13) In calculating the total amount of chargeable NRCGT gains accruing to a
10person in a relevant tax year on relevant high value disposals, no losses are
to be deducted under subsection (2) of section 14D of TCGA 1992 (persons
chargeable to capital gains tax on NRCGT gains).

(14) If the person is a company, no deduction is to be made under section 62 of
CTA 2010 (relief for losses made in UK property business) from the
15company’s total profits of a relevant accounting period.

(15) No deduction is to be made under regulation 18 of the Unauthorised Unit
Trusts (Tax) Regulations 2013 (S.I. 2013/2819S.I. 2013/2819) (relief for deemed payments
by trustees of an exempt unauthorised unit trust) in calculating the person’s
net income for a relevant tax year.

(16) 20In this paragraph “relevant tax year” means any tax year the first day of
which is in the restricted period.

(17) In this paragraph “relevant accounting period” means an accounting period
the first day of which is in the restricted period.

(18) In this paragraph “double taxation arrangements” means arrangements
25which have effect under section 2(1) of TIOPA 2010 (double taxation relief
by agreement with territories outside the UK).

The restricted period

21 (1) In paragraphs 19 and 20 (and this paragraph) “the restricted period” means
the period of 3 years beginning with the day on which the relief restriction
30notice is given.

(2) If during the restricted period (or the restricted period as extended under
this sub-paragraph) the person to whom a relief restriction notice has been
given incurs a further relevant defeat meeting the conditions in sub-
paragraph (4), HMRC must give the person a written notice (a “restricted
35period extension notice”).

(3) A restricted period extension notice extends the restricted period to the end
of the period of 3 years beginning with the day on which the further relevant
defeat occurs.

(4) The conditions mentioned in sub-paragraph (2) are that—

(a) 40the relevant defeat is incurred by virtue of Condition A, B or C in
relation to arrangements which the person used in the warning
period mentioned in paragraph 19(1)(a), and

(b) the warning notice given to the person in respect of the relevant
defeat relates to the misuse of a relief.

(5) If the person to whom a relief restriction notice has been given incurs a
relevant defeat which meets the conditions in sub-paragraph (4) after the
restricted period has expired but before the end of a concurrent warning
period, HMRC must give the person a restriction of relief notice.

(6) 5In sub-paragraph (5) “concurrent warning period” means a warning period
which at some time ran concurrently with the restricted period.

Reasonable excuse

22 (1) If a person who has incurred a relevant defeat satisfies HMRC or, on an
appeal under paragraph 24, the First-tier Tribunal or Upper Tribunal that
10the person had a reasonable excuse for the matters to which that relevant
defeat relates, then—

(a) for the purposes of paragraph 19(1)(a) and 21(2) and (5), the person
is treated as not having incurred that relevant defeat, and

(b) for the purposes of paragraph 19(1)(b) and (c) any warning notice
15given to the person which relates to that relevant defeat is treated as
not having been given to the person.

(2) For the purposes of this paragraph, in the case of a person (“P”)—

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

(b) 20where P relies on another person to do anything, that is not a
reasonable excuse unless P took reasonable care to avoid the relevant
failure, and

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

(3) In determining for the purposes of this paragraph whether or not a person
(“P”) had a reasonable excuse for any action, failure or inaccuracy, reliance
on advice is to be taken automatically not to constitute a reasonable excuse
30if the advice is addressed to, or was given to, a person other than P or takes
no account of P’s individual circumstances.

Mitigation of restriction of relief

23 (1) The Commissioners may mitigate the effects of paragraph 20 in relation to a
person (“P”) so far as it appears to them that there are exceptional
35circumstances such that the operation of that paragraph would otherwise
have an unduly serious impact with respect to the tax affairs of P or another
person.

(2) For the purposes of sub-paragraph (1) the Commissioners may modify the
effects of paragraph 20 in any way they think appropriate, including by
40allowing P access to the whole or part of a relief to which P would otherwise
not be entitled as a result of paragraph 20.

Appeal

24 (1) A person may appeal against—

(a) a relief restriction notice, or

(b) 45a restricted period extension notice.

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

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

(4) On an appeal the tribunal may—

(a) cancel HMRC’s decision, or

(b) 10affirm that decision with or without any modifications in accordance
with sub-paragraph (5).

(5) On an appeal the tribunal may rely on paragraph 23 (mitigation of
restriction of relief)—

(a) to the same extent as HMRC (which may mean applying the same
15mitigation as HMRC to a different starting point), or

(da) to a different extent, but only if the tribunal thinks that HMRC‘s decision in respect of the application of paragraph 23 was flawed.

(6) In this paragraph “tribunal” means the First-tier Tribunal or Upper Tribunal
(as appropriate by virtue of sub-paragraph (3)).

Meaning of “avoidance-related rule”

25 (1) 20In this Part of this Schedule “avoidance-related rule” means a rule in
Category 1 or 2.

(2) A rule is in Category 1 if it refers (in whatever terms)—

(a) to the purpose or main purpose or purposes of a transaction,
arrangements or any other action or matter, and

(b) 25to whether or not the purpose in question is or involves the
avoidance of tax or the obtaining of any advantage in relation to tax
(however described).

(3) A rule is also in Category 1 if it refers (in whatever terms) to—

(a) expectations as to what are, or may be, the expected benefits of a
30transaction, arrangements or any other action or matter, and

(b) whether or not the avoidance of tax or the obtaining of any
advantage in relation to tax (however described) is such a benefit.

For the purposes of paragraph (b) it does not matter whether the reference
is (for instance) to the “sole or main benefit” or “one of the main benefits” or
35any other reference to a benefit.

(4) A rule falls within Category 2 if as a result of the rule a person may be treated
differently for tax purposes depending on whether or not purposes referred
to in the rule (for instance the purposes of an actual or contemplated action
or enterprise) are (or are shown to be) commercial purposes.

(5) 40 For example, a rule in the following form would fall within Category 1 and
within Category 2—

““Example rule

Section X does not apply to a company in respect of a transaction if
the company shows that the transaction meets Condition A or B.

Condition A is that the transaction is effected—

5Meaning of “relief”

26 The following are “reliefs” for the purposes of this Part of this Schedule—

(a) any relief from tax (however described) which must be claimed, or
which is not available without making an election,

(b) relief under section 1219 of CTA 2009 (expenses of management of a
10company’s investment business),

(c) any relief (not falling within paragraph (a)) under Part 4 of ITA 2007
(loss relief) or Part 4 or 5 of CTA 2010 (loss relief and group relief),
and

(d) any relief (not falling within paragraph (a) or (b)) under a provision
15listed in section 24 of ITA 2007 (reliefs deductible at Step 2 of the
calculation of income tax liability).

“Claim” for relief

27 In this Part of this Schedule “claim for relief” includes any election or other
similar action which is in substance a claim for relief.

20VAT

28 In this Part of this Schedule “tax” does not include VAT.

Power to amend

29 (1) The Treasury may by regulations amend—

(a) amend paragraph 20;

(b) 25amend paragraph 26.

(2) Regulations under sub-paragraph (1)(a) may, in particular, alter the
application of paragraph 20 in relation to any relief, exclude any relief from
its application or extend its application to further reliefs.

(3) Regulations under sub-paragraph (1)(b) may amend the meaning of “relief”
30in any way (including by extending or limiting the meaning).

(4) Regulations under this paragraph may—

(a) make supplementary, incidental and consequential provision;

(b) make transitional provision.

(5) Regulations under this paragraph are to be made by statutory instrument.

(6) 35A statutory instrument containing regulations under this Part may not be
made unless a draft of the instrument has been laid before and approved by
a resolution of the House of Commons.

Part 5 Penalty

Penalty

30 (1) A person is liable to pay a penalty if the person incurs a relevant defeat in
5relation to any arrangements which the person has used in a warning
period.

(2) The penalty is 20% of the value of the counteracted advantage if neither sub-
paragraph (3) nor sub-paragraph (4) applies.

(3) The penalty is 40% of the value of the counteracted advantage if before the
10relevant defeat is incurred the person has been given, or become liable to be
given, one (but not more than one) relevant prior warning notice.

(4) The penalty is 60% of the value of the counteracted advantage if before the
current defeat is incurred the person has been given, or become liable to be
given, two or more relevant prior warning notices.

(5) 15In this paragraph “relevant prior warning notice” means a warning notice in
relation to the defeat of arrangements which the person has used in the
warning period mentioned in sub-paragraph (1).

(6) For the meaning of “the value of the counteracted advantage” see
paragraphs 32 to 37.

20Simultaneous defeats etc

31 (1) If a person incurs simultaneously two or more relevant defeats in relation to
different arrangements, sub-paragraphs (2) to (4) of paragraph 30 have effect
as if the relevant defeat with the lowest value was incurred last, the relevant
defeat with the next lowest value immediately before it, and so on.

(2) 25For this purpose the “value” of a relevant defeat is taken to be equal to the
value of the counteracted tax advantage.

(3) If a person has been given a single warning notice in relation to two or more
relevant defeats, the person is treated for the purposes of paragraph 30 as
having been given a separate warning notice in relation to each of those
30relevant defeats.

Value of the counteracted advantage: basic rule for taxes other than VAT

32 (1) In relation to a relevant defeat incurred by virtue of Condition A, B or C, the
“value of the counteracted advantage” is—

(a) in the case of a relevant defeat incurred by virtue of Condition A, the
35additional amount due or payable in respect of tax as a result of the
counteraction mentioned in paragraph 12(1)(c);

(b) in the case of a relevant defeat incurred by virtue of Condition B, the
additional amount due or payable in respect of tax as a result of the
action mentioned in paragraph 13(1);

(c) 40in the case of a relevant defeat incurred by virtue of Condition C, the
additional amount due or payable in respect of tax as a result of the
counteraction mentioned in paragraph 14(1)(d).

(2) The 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) 5an amount which would be repayable by HMRC if the counteraction
mentioned in paragraph (a) or (c) of sub-paragraph (1) were not
made or the action mentioned in paragraph (b) of that sub-paragraph
were not taken (as the case may be).

(3) The following are ignored in calculating the value of the counteracted
10advantage—

(a) group relief, and

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

(4) 15This paragraph is subject to paragraphs 33 and 34.

Value of counteracted advantage: losses for purposes of direct tax

33 (1) This paragraph has effect in relation to relevant defeats incurred by virtue of
Condition A, B or C.

(2) To the extent that the counteracted advantage (see paragraph 35) has the
20result that a loss is wrongly recorded 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 32.

(3) To the extent that the counteracted advantage has the result that a loss is
25wrongly recorded 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 32 of so much of the counteracted
advantage as results from the part (if any) of the loss which is used
30to reduce the amount due or payable in respect of tax, plus

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

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

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

(b) 35to a case where a loss of a different amount would have been
recorded (but in that case sub-paragraphs (2) and (3) apply only to
the difference between the amount recorded and the true amount).

(5) To the extent that a counteracted advantage creates or increases an
aggregate loss recorded for a group of companies—

(a) 40the value of the counteracted advantage is calculated in accordance
with this paragraph, and

(b) in applying paragraph 32 in accordance with sub-paragraphs (2) and
(3), group relief may be taken into account (despite paragraph 32(3)).

(6) To the extent that the counteracted advantage results in a loss, the value of
45it is nil where, because of the nature of the loss or the person’s
circumstances, there is 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

34 (1) To the extent that the counteracted advantage (see paragraph 35) is a
deferral of tax (other than VAT), the value of that advantage is—

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

(b) 5a percentage of the amount of the deferred tax, for each separate
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 33
applies.

10Meaning of “the counteracted advantage” in paragraphs 33 and 34

35 (1) In paragraphs 33 and 34 “the counteracted tax advantage” means—

(a) in relation to a relevant defeat incurred by virtue of Condition A, the
tax advantage mentioned in paragraph 12(1)(b);

(b) in relation to a relevant defeat incurred by virtue of Condition B, the
15denied advantage in relation to which the action mentioned in
paragraph 13(1) is taken;

(c) in relation to a relevant defeat incurred by virtue of Condition C,
means any tax advantage in respect of which the counteraction
mentioned in paragraph 14(1)(c) is made.

(2) 20In sub-paragraph (1)(c) “counteraction” is to be interpreted in accordance
with paragraph 14(5).

Value of the counteracted advantage: Conditions D and E

36 (1) In relation to a relevant defeat incurred by a person by virtue of Condition
D or E, the “value of the counteracted advantage” is equal to the sum of any
25counteracted tax advantages determined under sub-paragraphs (3) to (6).

(2) In this paragraph “the counteraction” means the counteraction mentioned in
paragraph 15(1) or 16(1) (as the case may be).

(3) If the amount of VAT due or payable by the person in respect of any
prescribed accounting period (X) exceeds the amount (Y) that would have
30been so payable but for the counteraction, the amount by which X exceeds Y
is a counteracted tax advantage.

(4) If the person obtains no VAT credit for a particular prescribed accounting
period, the amount of any VAT credit which the person would have
obtained for that period but for the counteraction is a counteracted tax
35advantage.

(5) If for a prescribed accounting period the person obtains a VAT credit of an
amount (Y) which is less than the amount (X) of the VAT credit which the
person would have obtained but for the counteraction, the amount by which
X exceeds Y is a counteracted tax advantage.

(6) 40If the amount (X) of the person’s non-deductible tax for any prescribed
accounting period is greater than Y, where Y is what would be the amount
of the person’s non-deductible tax for that period but for the counteraction,
then the amount by which X exceeds Y is a counteracted tax advantage, but