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

only to the extent that amount is not represented by a corresponding amount
which is the whole or part of a counteracted tax advantage by virtue of sub-
paragraphs (3) to(5).

(7) In this paragraph “non-deductible tax”, in relation to the person who
5incurred the relevant defeat, means—

(a) input tax for which the person is not entitled to credit under section
25 of VATA 1994, and

(b) any VAT incurred by the person which is not input tax and in respect
of which the person is not entitled to a refund from the
10Commissioners by virtue of any provision of VATA 1994.

(8) For the purposes of sub-paragraph (7)(b) the VAT “incurred” by a taxable
person is—

(a) VAT on the supply to the person of any goods or services,

(b) VAT on the acquisition by the person from another member State of
15any goods;

(c) VAT on the importation of any goods from a place outside the
member States.

(9) References in sub-paragraph (3) to amounts due and payable by the person
in respect of a prescribed accounting period include references to—

(a) 20amounts payable to HMRC having erroneously been paid by way of
repayment of tax, and

(b) amounts which would be repayable by HMRC if the counteraction
mentioned in sub-paragraph (3) were not made.

Value of counteracted advantage: delayed VAT

37 (1) 25Sub-paragraph (3) of paragraph 36 has effect as follows so far as the tax
advantage which is counteracted as mentioned in that sub-paragraph is in
the nature of a delay in relation to the person’s obligations with respect to
VAT.

(2) That sub-paragraph has effect as if for “the amount by which X exceeds Y is
30a counteracted tax advantage” there were substituted, “there is a
counteracted tax advantage of—

“25% of the amount of the delayed VAT for each year of the
delay, or

(e) a percentage of the amount of the delayed VAT, for each
35separate period of delay of less than a year, equating to
25% per year,

or, if less, 100% of the amount of the delayed VAT”.

Assessment of penalty

38 (1) Where a person is liable for a penalty under paragraph 30, HMRC must
40assess the penalty.

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

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

(b) state 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 the person is notified of the
penalty under sub-paragraph (2).

(4) An assessment—

(a) 5is 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) An assessment of a penalty under this paragraph must be made before the
10end of the period of 12 months beginning with the date of the defeat
mentioned in paragraph 30(1).

Alteration of assessment of penalty

39 (1) After notification of an assessment has been given to a person under
paragraph 38(2), the assessment may not be altered except in accordance
15with this paragraph or on appeal.

(2) A 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
20overestimate of the value of the counteracted advantage.

Aggregate penalties

40 (1) The amount of a penalty for which a person is liable under paragraph 30 is
to be reduced by the amount of any other penalty incurred by the person, or
any surcharge for late payment of tax imposed on the person, if the amount
25of the penalty or surcharge is determined by reference to the same tax
liability.

(2) In sub-paragraph (1) “any other penalty” does not include a penalty under
section 212A of FA 2013 (GAAR penalty) or Part 4 of FA 2014 (penalty where
corrective action not taken after follower notice etc).

(3) 30In the application of section 97A of TMA 1970 (multiple penalties) no
account shall be taken of a penalty under paragraph 30.

Appeal against penalty

41 (1) A person may appeal against a decision of HMRC that a penalty is payable
under paragraph 30.

(2) 35A person may appeal against a decision of HMRC as to the amount of a
penalty payable by P under paragraph 30.

(3) An appeal under this paragraph must be made within the period of 30 days
beginning with the day on which notification of the penalty is given under
paragraph 38.

(4) 40An 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 determination of the appeal by the First-tier
Tribunal or Upper Tribunal).

(5) Sub-paragraph (4) does not apply—

(a) so as to require a person to pay a penalty before an appeal against the
5assessment of the penalty is determined, or

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

(6) On an appeal under sub-paragraph (1) or (2) the tribunal may—

(a) affirm HMRC’s decision, or

(b) substitute for HMRC’s decision another decision that HMRC has
10power to make.

(7) In this paragraph “tribunal” means the First-tier Tribunal or Upper Tribunal
(as appropriate by virtue of sub-paragraph (4)).

Penalties: reasonable excuse

42 (1) A person is not liable to a penalty under paragraph 30 in respect of a relevant
15defeat if the person satisfies HMRC or (on appeal) the First-tier Tribunal or
Upper Tribunal that the person had a reasonable excuse for the relevant
failure to which that relevant defeat relates (see paragraph 43).

(2) Sub-paragraph (3) applies if—

(a) a person has incurred a relevant defeat in respect of which the person
20is liable to a penalty under paragraph 30, and

(b) before incurring that defeat the person had been given, or become
liable to be given, an excepted warning notice.

(3) The person is treated for the purposes of sub-paragraphs (2) to (4) of
paragraph 30 (rate of penalty) as not having been given, and not having
25become liable to be given, the excepted notice (so far as it relates to the
relevant defeat in respect of which the person had a reasonable excuse).

(4) A warning notice is “excepted” for the purposes of this paragraph if the
person was not liable to a penalty in respect of the defeat specified in it
because the person had a reasonable excuse for the relevant failure in
30question.

(5) 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) where P relies on another person to do anything, that is not a
35reasonable excuse unless P took reasonable care to avoid the relevant
failure, and

(c) where P had a reasonable excuse for the relevant failure but the
excuse had ceased, P is to be treated as having continued to have the
excuse if the failure is remedied without unreasonable delay after the
40excuse ceased.

(6) 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
if the advice is addressed to, or was given to, a person other than P or takes
45no account of P’s individual circumstances.

Paragraph 42: meaning of “the relevant failure”

43 (1) In paragraph 42 “the relevant failure”, in relation to a relevant defeat, is to be
interpreted in accordance with sub-paragraphs (2) to (7).

(2) In relation to a relevant defeat incurred by virtue of Condition A, “the
5relevant failure” means the failures or inaccuracies as a result of which the
counteraction under section 209 of FA 2013 was necessary

(3) In relation to a relevant defeat incurred by virtue of Condition B, “the
relevant failure” means the failures or inaccuracies in respect of which the
action mentioned in paragraph 13(1) was taken.

(4) 10In relation to a relevant failure incurred by virtue of Condition C, “the
relevant failure” means the failures of inaccuracies as a result of which the
adjustments, assessments, or other action mentioned in paragraph 14(5) are
required.

(5) In relation to a relevant defeat incurred by virtue of Condition D, “the
15relevant failure” means the failures or inaccuracies as a result of which the
adjustments, assessments or other action mentioned in paragraph 15(5) are
required.

(6) In relation to a relevant defeat incurred by virtue of Condition E, “the
relevant failure” means P’s actions (and failures to act), so far as they are
20connected with matters in respect of which the counteraction mentioned in
paragraph 16(1) is required.

(7) In sub-paragraph (6) “counteraction” is to be interpreted in accordance with
paragraph 16(2).

Mitigation of penalties

44 (1) 25The Commissioners may in their discretion mitigate a penalty under
paragraph 30, or stay or compound any proceedings for such a penalty.

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

Part 6 Corporate groups

30Representative member of a VAT group

45 (1) Where a body corporate (“R”) is the representative member of a group (and
accordingly is treated for the purposes of this Schedule as mentioned in
section 43(1) of VATA 1994), anything which has been done by or in relation
to another body corporate (“B”) in B’s capacity as representative member of
35that group is treated for the purposes of this Schedule as having been done
by or in relation to R in R’s capacity as representative member of the group.

(2) This Schedule has effect as if the representative member of a group, so far as
acting in its capacity as such, were a different person from that body
corporate so far as acting in any other capacity.

(3) In this paragraph the reference to a “group” is to be interpreted in
accordance with sections 43A to 43D of VATA 1994.

Corporate groups

46 (1) Sub-paragraphs (2) and (3) apply if HMRC has a duty under paragraph 2 to
5give a warning notice to a company (“C”) which is a member of a group.

(2) That duty has effect as a duty to give a warning notice to each current group
member (see sub-paragraph (8)).

(3) Any warning notice which has been given (or is treated as having been
given) previously to any current group member is treated as having been
10given to each current group member (and any provision in this Schedule
which refers to a “warning period” in relation to a person is to be interpreted
accordingly).

(4) In relation to a company which incurs a relevant defeat, paragraph 19(1)
(duty to give relief restriction notice) does not have effect unless the warning
15period mentioned in that sub-paragraph would be a warning period in
relation to the company regardless of sub-paragraph (3).

(5) A company which incurs a relevant defeat is not liable to pay a penalty
under paragraph 30 unless the warning period mentioned in sub-paragraph
(1) of that paragraph would be a warning period in relation to the company
20regardless of sub-paragraph (3).

(6) HMRC may discharge any duty to give a warning notice to a current group
member in accordance with sub-paragraph (2) by delivering the notice to C
(and if it does so may combine one or more warning notices in a single
notice).

(7) 25If a company ceases to be a member of a group, and—

(a) immediately before it ceases to be a member of the group, a warning
period has effect in relation to the company, but

(b) no warning period would have effect in relation to the company at
that time but for sub-paragraph (2) or (3),

30that warning period ceases to have effect in relation to the company when it
ceases to be a member of that group.

(8) In this paragraph “current group member” means a company which is a
member of the group concerned at the time when the warning notice
mentioned in sub-paragraph (1) is given.

(9) 35For the purposes of this paragraph two companies are members of the same
group of companies if—

(a) one is a 75% subsidiary of the other, or

(b) both are 75% subsidiaries of a third company.

(10) In this paragraph “75% subsidiary” has the meaning given by section 1154 of
40CTA 2010.

(11) In this paragraph “company” has the same meaning as in the Corporation
Tax Acts (see section 1121 of CTA 2010).

Part 7 Supplemental

Meaning of “adjustments”

47 (1) In this Schedule “adjustments” means any adjustments, whether by way of
5an assessment, the modification of an assessment or return, amendment or
disallowance of a claim, a payment, the entering into of a contract
settlement, or otherwise (and references to “making” adjustments
accordingly include securing that adjustments are made by entering into a
contract settlement).

(2) 10“Adjustments” also includes a payment in respect of a liability to pay
national insurance contributions.

Time of “use” of defeated arrangements

48 (1) With reference to a particular relevant defeat incurred by a person in relation
to arrangements, the person is treated as having “used” the arrangements on
15the dates set out in this paragraph.

(2) If the person incurs the relevant defeat by virtue of Condition A, the person
is treated as having “used” the arrangements on the following dates—

(a) the filing date of any return made by the person on the basis that the
tax advantage mentioned in paragraph 12(1)(a) arises from the
20arrangements;

(b) the date on which the person makes any claim or election on that
basis;

(c) the date of any relevant failure by the person to comply with an
obligation.

(3) 25For the purposes of sub-paragraph (2) a failure to comply with an obligation
is a “relevant failure” if the whole or part of the tax advantage mentioned in
paragraph 12(1)(b) arose as a result of, or in connection with, that failure.

(4) If the person incurs the relevant defeat by virtue of Condition B, the person
is treated as having “used” the arrangements on the following dates—

(a) 30the filing date of any return made by the person on the basis that the
asserted advantage (see section 204(3) of FA 2014) results from the
arrangements,

(b) the date on which any claim is made by the person on that basis,

(c) the date of any failure by the person to comply with a relevant
35obligation.

In this sub-paragraph “relevant obligation” means an obligation which
would not have fallen on the person (or might have been expected not to do
so), had the denied advantage arisen (see section 208(3) of FA 2014).

(5) If the person incurs the relevant defeat by virtue of Condition C, the person
40is treated as having “used” the arrangements on the following dates—

(a) the filing date of any return made by the person on the basis
mentioned in paragraph 14(2)(a);

(b) the date on which the person makes any claim or election on that
basis;

(c) the date of any failure by the person to comply with a relevant
obligation (as defined in paragraph 14(4)).

(6) If the person incurs the relevant defeat by virtue of Condition D, the person
is treated as having “used” the arrangements on the following dates—

(a) 5the filing date of any return made by the person on the basis
mentioned in paragraph 15(2)(a);

(b) the date on which the person makes any claim on that basis;

(c) the date of any failure by the person to comply with a relevant
obligation (as defined in paragraph 15(4)).

(7) 10If the person incurs the relevant defeat by virtue of Condition E, the person
is treated as having “used” the arrangements on the following dates—

(a) the filing date of any return made by S to which the counteraction
mentioned in paragraph 16(1)(c) relates;

(b) the date on which S made any claim to which that counteraction
15relates;

(c) the date of any relevant failure by S to which that counteraction
relates.

(8) In sub-paragraph (7) “relevant failure” means a failure to comply with an
obligation relating to VAT.

(9) 20In this paragraph “filing date”, in relation to a return, means the earlier of—

(a) the day on which the return is delivered, or

(b) the last day of the period within which the return must be delivered.

(10) References in this paragraph to the date on which a person fails to comply
with an obligation are to the date on which the person is first in breach of the
25obligation.

Inheritance tax

49 (1) In the case of inheritance tax, each of the following is treated as a return for
the purposes of this Schedule—

(a) an account delivered by a person under section 216 or 217 of IHTA
301984 (including an account delivered in accordance with regulations
under section 256 of that Act);

(b) a statement or declaration which amends or is otherwise connected
with such an account produced by the person who delivered the
account;

(c) 35information or a document provided by a person in accordance with
regulations under section 256 of that Act;

and such a return is treated as made by the person in question.

(2) In this Schedule (except where the context requires otherwise) “assessment”,
in relation to inheritance tax, includes a determination.

40National insurance contributions

50 (1) In this Schedule references to an assessment to tax include a NICs decision
relating to a person’s liability for relevant contributions.

(2) In this Schedule a reference to a provision of Part 7 of FA 2004 (disclosure of
tax avoidance schemes) (a “DOTAS provision”) includes a reference to—

(a) that DOTAS provision as applied by regulations under section 132A
of the Social Security Administration Act 1992 (disclosure of
contributions avoidance arrangements);

(b) any provision of regulations under that section that corresponds to
5that DOTAS provision,

whenever the regulations are made.

(3) Regulations under section 132A of that Act may disapply, or modify the
effect of, sub-paragraph (2).

(4) In this paragraph “NICs decision” means a decision under section 8 of the
10Social Security Contributions (Transfer of Functions, etc) Act 1999 or Article
7 of the Social Security Contributions (Transfer of Functions, etc) (Northern
Ireland) Order 1999 (S.I. 1999/671S.I. 1999/671).

General interpretation

51 (1) In this Schedule—

• 15“adjustments” means any adjustments, whether by way of an
  assessment, the modification of an assessment or return, amendment
  or disallowance of a claim, a payment, the entering into of a contract
  settlement, or otherwise (and references to “making” adjustments
  accordingly include securing that adjustments are made by entering
  20into a contract settlement);

• “arrangements” has the meaning given by paragraph 2(5);

• “the Commissioners” means the Commissioners for Her Majesty’s
  Revenue and Customs;

• “contract settlement” means an agreement in connection with a
  25person’s liability to make a payment to the Commissioners under or
  by virtue of an enactment;

• “disclosable VAT arrangements” is to be interpreted in accordance with
  paragraph 9;

• “DOTAS arrangements” is to be interpreted in accordance with
  30paragraph 8 (and see also paragraph 50(2));

• “follower notice” has the meaning given by paragraph 13(5);

• “HMRC” means Her Majesty’s Revenue and Customs;

• “national insurance contributions” means contributions under Part 1 of
  the Social Security Contributions and Benefits Act 1992 or Part 1 of
  35the Social Security Contributions and Benefits (Northern Ireland)
  Act 1992;

• “net income” has the meaning given by section 23 of ITA 2007 (see Step
  2 of that section);

• “relevant contributions” means the following contributions under Part
  401 of the Social Security Contributions and Benefits Act 1992 or Part 1
  of the Social Security Contributions and Benefits (Northern Ireland)
  Act 1992—

  (a)

  Class 1 contributions;

  (b)

  Class 1A contributions;

  (c)

  45Class 1B contributions;

  (d)

  Class 2 contributions which must be paid but in relation to
  which section 11A of the Act in question (application of
  certain provisions of the Income Tax Acts in relation to Class

  Finance (No. 2) BillPage 508

  2 contributions under section 11(2) of that Act) does not
  apply;

• “relevant defeat” is to be interpreted in accordance with paragraph 11;

• “tax” has the meaning given by paragraph 4;

• 5“tax advantage” has the meaning given by paragraph 7;

• “warning notice” has the meaning given by paragraph 2.

(2) In this Schedule an expression used in relation to VAT has the same meaning
as in VATA 1994.

(3) In this Schedule (except where the context requires otherwise) references,
10however expressed, to a person’s affairs in relation to tax include the
person’s position as regards deductions or repayments of, or of sums
representing, tax that the person is required to make by or under an
enactment.

Consequential amendments

52 15In section 103ZA of TMA 1970 (disapplication of sections 100 to 103 in the
case of certain penalties)—

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

(b) after paragraph (h) insert “or

(i) Part 1 of Schedule 18 to FA 2016 (serial avoiders
20regime).”

53 In section 212 of FA 2014 (follower notices: aggregate penalties), in
subsection (4)—

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

(b) after paragraph (c) insert “, or

(d) 25Part 1 of Schedule 18 to FA 2016 (serial avoiders
regime).”

54 (1) The Social Security Contributions and Benefits Act 1992 is amended as
follows.

(2) In section 11A (application of certain provisions of the Income Tax Acts in
30relation to Class 2 contributions under section 11(2)), in subsection (1), at the
end of paragraph (e) insert—

“(ea) the provisions of Schedule 18 to the Finance Act 2016 (serial
avoiders regime);”.

(3) In section 16 (application of Income Tax Acts and destination of Class 4
35contributions), in subsection (1), at the end of paragraph (d) insert “and

(e) the provisions of Schedule 18 to the Finance Act 2016 (serial
avoiders regime),”.

55 In the Social Security Contributions and Benefits (Northern Ireland) Act
1992, in section 11A (application of certain provisions of the Income Tax Acts
40in relation to Class 2 contributions under section 11(2)), in subsection (1), at
the end of paragraph (e) insert—

“(ea) the provisions of Schedule 18 to the Finance Act 2016 (serial
avoiders regime);”.

Commencement

56 Subject to paragraphs 57 and 58, paragraphs 1 to 55 of this Schedule have
effect in relation to relevant defeats incurred after the day on which this Act
is passed.

57 (1) 5A relevant defeat is to be disregarded for the purposes of this Schedule if it
is incurred before 6 April 2017 in relation to arrangements which the person
has entered into before the day on which this Act is passed.

(2) A relevant defeat incurred on or after 6 April 2017 is to be disregarded for
the purposes of this Schedule if—

(a) 10the person entered into the arrangements concerned before the day
on which this Act is passed, and

(b) before 6 April 2017—

(i) the person incurring the defeat fully discloses to HMRC the
matters to which the relevant counteraction relates, or

(ii) 15that person gives HMRC notice of a firm intention to make a
full disclosure of those matters and makes such a full
disclosure within any time limit set by HMRC.

(3) In sub-paragraph (2) “the relevant counteraction” means—

(a) in a case within Condition A, the counteraction mentioned in
20paragraph 12(1)(c);

(b) in a case within Condition B, the action mentioned in paragraph
13(1);

(c) in a case within Condition C, the counteraction mentioned in
paragraph 14(1)(c);

(d) 25in a case within Condition D, the counteraction mentioned in
paragraph 15(1)(d);

(e) in a case within Condition E, the counteraction mentioned in
paragraph 16(1)(c).

(4) In sub-paragraph (3)—

(a) 30in paragraph (c) “counteraction” is to be interpreted in accordance
with paragraph 14(5);

(b) in paragraph (d) “counteraction” is to be interpreted in accordance
with paragraph 15(5);

(c) in paragraph (e) “counteraction” is to be interpreted in accordance
35with paragraph 16(2).

(5) See paragraph 11(2) for provision about when a relevant defeat is incurred.

58 (1) A warning notice given to a person is to be disregarded for the purposes of—

(a) paragraph 18 (naming), and

(b) Part 4 of this Schedule (restriction of reliefs),

40if the relevant defeat specified in the notice relates to arrangements which
the person has entered into before the day on which this Act is passed.

(2) Where a person has entered into any arrangements before the day on which
this Act is passed—

(a) a relevant defeat incurred by a person in relation to the
45arrangements, and

(b) any warning notice specifying such a relevant defeat,