Finance Bill (HC Bill 47)

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(b) “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) 5set out when the restricted period is to begin and end.

(5) For 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
10result from) a relief or increased relief from tax, or

(b) it 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) 15in relation to a defeat by virtue of Condition A, the tax advantage
mentioned in paragraph 12(1)(a),

(b) in relation to a defeat by virtue of Condition B, the denied advantage
(as defined in paragraph 13(4)), or

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

(i) 20the tax advantage mentioned in paragraph 14(2)(a), or, as the
case 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
25defeat means—

(a) in 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) 30in 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
having been given a separate warning notice in relation to each of those
35relevant 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) The person may not, in the restricted period, make any claim for relief.

(3) 40Sub-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,
securities and real property to charities etc);

(c) 45a claim for relief under Part 10 of ITA 2007 (special rules about
charitable trusts etc);

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

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

(4) Claims under the following provisions in Part 4 of FA 2004 (registered
5pension 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);

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

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

(5) 10The 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
against subsequent trade profits) in calculating the person’s net income for
a relevant tax year.

(7) 15No 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) The person is not entitled to relief under section 448 (annual payments: relief
for individuals) or 449 (annual payments: relief for other persons) of ITA
202007 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
company’s investment business).

(10) No reduction is to be made under section 45(4) of CTA 2010 (carry-forward
25of 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
30chargeable to capital gains tax, and allowable losses).

(12) In 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) 35In calculating the total amount of chargeable NRCGT gains accruing to a
person 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
40CTA 2010 (relief for losses made in UK property business) from the
company’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
45net income for a relevant tax year.

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(16) In 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) 5In this paragraph “double taxation arrangements” means arrangements
which 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
10the period of 3 years beginning with the day on which the relief restriction
notice 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-
15paragraph (4), HMRC must give the person a written notice (a “restricted
period 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) 20The conditions mentioned in sub-paragraph (2) are that—

(a) the 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
25defeat 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) 30In 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
35the 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
40given 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,

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(b) where 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
5had ceased, P is to be treated as having continued to have the excuse
if 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
10on 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
no account of P’s individual circumstances.

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

15Mitigation 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
circumstances such that the operation of that paragraph would otherwise
have an unduly serious impact with respect to the tax affairs of P or another
20person.

(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
allowing P access to the whole or part of a relief to which P would otherwise
not be entitled as a result of paragraph 20.

25Appeal

24 (1) A person may appeal against—

(a) a relief restriction notice, or

(b) a restricted period extension notice.

(2) An appeal under this paragraph must be made within the period of 30 days
30beginning 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
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
35Tribunal or Upper Tribunal).

(4) On an appeal the tribunal may—

(a) cancel HMRC’s decision, or

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

(5) 40On 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
mitigation as HMRC to a different starting point), or

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

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(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) In this Part of this Schedule “avoidance-related rule” means a rule in
5Category 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) to whether or not the purpose in question is or involves the
10avoidance 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
transaction, arrangements or any other action or matter, and

(b) 15whether 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
any other reference to a benefit.

(4) 20A 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) For example, a rule in the following form would fall within Category 1 and
25within 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—

(a)

30 for genuine commercial reasons, or

(b)

in the ordinary course of managing investments.

Meaning 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
35which is not available without making an election,

(b) relief under section 1219 of CTA 2009 (expenses of management of a
company’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),
40and

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

“Claim” for relief

27 5In this Part of this Schedule “claim for relief” includes any election or other
similar action which is in substance a claim for relief.

VAT

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

Power to amend

29 (1) 10The Treasury may by regulations amend—

(a) amend paragraph 20;

(b) amend 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
15its application or extend its application to further reliefs.

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

(4) Regulations under this paragraph may—

(a) make supplementary, incidental and consequential provision;

(b) 20make transitional provision.

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

(6) A 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.

25Part 5 Penalty

Penalty

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

(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
relevant defeat is incurred the person has been given, or become liable to be
35given, 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.

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(5) In 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
5paragraphs 32 to 37.

Simultaneous 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
10defeat with the next lowest value immediately before it, and so on.

(2) For this purpose the “value” of a relevant defeat is taken to be equal to the
value of the counteracted 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
15having been given a separate warning notice in relation to each of those
relevant 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) 20in the case of a relevant defeat incurred by virtue of Condition A, the
additional 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
25action mentioned in paragraph 13(1);

(c) in 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
30payable 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 counteraction
mentioned in paragraph (a) or (c) of sub-paragraph (1) were not
35made 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
advantage—

(a) group relief, and

(b) 40any 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) This paragraph is subject to paragraphs 33 and 34.

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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
5result 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
10wrongly 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
15to 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) 20to 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) 25the 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
30it 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
35deferral 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) a 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) 40This paragraph does not apply to a case to the extent that paragraph 33
applies.

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

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

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(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
denied advantage in relation to which the action mentioned in
5paragraph 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) In sub-paragraph (1)(c) “counteraction” is to be interpreted in accordance
10with 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
counteracted tax advantages determined under sub-paragraphs (3) to (6).

(2) 15In 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
been so payable but for the counteraction, the amount by which X exceeds Y
20is 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
advantage.

(5) 25If 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) If the amount (X) of the person’s non-deductible tax for any prescribed
30accounting 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
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-
35paragraphs (3) to(5).

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

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

(b) 40any 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
Commissioners 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) 45VAT on the supply to the person of any goods or services,

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

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

(9) 5References in sub-paragraph (3) to amounts due and payable by the person
in respect of a prescribed accounting period include references to—

(a) amounts 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
10mentioned in sub-paragraph (3) were not made.

Value of counteracted advantage: delayed VAT

37 (1) Sub-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
15VAT.

(2) That sub-paragraph has effect as if for “the amount by which X exceeds Y is
a 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
20delay, or

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

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

25Assessment of penalty

38 (1) Where a person is liable for a penalty under paragraph 30, 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) 30state 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) 35An 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) 40An assessment of a penalty under this paragraph must be made before the
end of the period of 12 months beginning with the date of the defeat
mentioned in paragraph 30(1).