Finance (No. 2) Bill (HL Bill 156)

(5) The amendments made by this section have effect for the tax year 2017-18 and
subsequent tax years.

13 Legal expenses etc

(1) ITEPA 2003 is amended as follows.

(2) 5In section 346 (deduction for employee liabilities)—

(a) in the heading, at the end insert “and expenses”,

(b) after paragraph B (in subsection (1)) insert—

“BA Payment of any costs or expenses not falling within
paragraph B which are incurred in connection with the
10employee giving evidence about matters related to the
employment in, or for the purposes of—

(a) a proceeding or other process (whether or not
involving the employee), or

(b) an investigation (whether or not likely to lead to any
15proceeding or other process involving the employee).

BB Payment of any costs or expenses not falling within
paragraph B or BA which are incurred in connection with a
proceeding or other process, or an investigation, in which—

(a) acts of the employee related to the employment, or

(b) 20any other matters related to the employment,

are being or are likely to be considered.”,”

(c) in paragraph C(b) (in subsection (1)), after “B” insert “, BA or BB”,

(d) in subsection (2) for “or B” substitute “B, BA or BB”,

(e) in subsection (2A), for “paragraph A, B or C” substitute “any of
25paragraphs A to C”, and

(f) after subsection (3) insert—

“(4) In this section and section 349—

(a) “acts” includes failures to act and acts are “related to the
employment” if the employee was acting—

(i) 30in the employee’s capacity as holder of the
employment, or

(ii) in any other capacity in which the employee was
acting in the performance of the duties of the
employment,

(b) 35“giving evidence” includes making a formal or informal
statement or answering questions,

(c) “proceeding or other process” includes any civil,
criminal or arbitration proceedings, any disciplinary or
regulatory proceedings of any kind and any process
40operated for resolving disputes or adjudicating on
complaints, and

(d) references to a proceeding or other process or an
investigation include a reference to a proceeding or
other process or an investigation that is likely to take
45place.””

(3) In section 349 (section 346: meaning of “qualifying insurance contract”), in
subsection (2)—

(a) after paragraph (c) insert—

“(ca) the payment of costs or expenses incurred in connection
with an employee giving evidence about matters related
to the employee’s employment in, or for the purposes
5of—

(i) a proceeding or other process (whether or not
involving the employee), or

(ii) an investigation (whether or not likely to lead to
any proceeding or other process involving the
10employee),

(cb) the payment of any costs or expenses incurred in
connection with a proceeding or other process, or an
investigation, in which—

(i) acts of an employee related to the employment,
15or

(ii) any other matters related to the employment of
an employee,

are being or are likely to be considered,”, and”

(b) in subsection (2)(d), after “(c)” insert “, (ca) or (cb)”.

(4) 20In section 409 (payments and benefits on termination of employment etc:
exception for payments and benefits in respect of employee liabilities and
indemnity insurance)—

(a) in the heading, for “employee liabilities etc” substitute “certain legal
expenses etc”, and

(b) 25in subsection (3), at the end insert “or by the employer or former
employer on behalf of the individual”.

(5) In section 410 (payments and benefits on termination of employment etc:
exception for certain payments and benefits received by personal
representatives of deceased individual)—

(a) 30in the heading for “employee liabilities etc” substitute “certain legal
expenses etc”, and

(b) in subsection (3), at the end insert “or by the former employer on behalf
of the individual’s personal representatives”.

(6) In section 558 (deductions for liabilities of former employees: meaning of
35“deductible payment”)—

(a) after paragraph B (in subsection (1)) insert—

“BA Payment of any costs or expenses not falling within
paragraph B which are incurred in connection with the
former employee giving evidence about matters related to
40the former employment in, or for the purposes of—

(a) a proceeding or other process (whether or not
involving the former employee), or

(b) an investigation (whether or not likely to lead to any
proceeding or other process involving the former
45employee).

BB Payment of any costs or expenses not falling within
paragraph B or BA which are incurred in connection with a
proceeding or other process, or an investigation, in which—

(a) acts of the former employee related to the former
employment, or

(b) any other matters related to the former employment,

are being or are likely to be considered.”, and”

(b) 5in paragraph C(b) (in subsection (1)), after “B” insert “, BA or BB”,

(c) in subsection (2), for “or B” substitute “B, BA or BB”,

(d) after subsection (3) insert—

“(4) In this section and section 560—

(a) “acts” includes failures to act and acts are “related to the
10former employment” if the former employee was
acting—

(i) in the employee’s capacity as holder of the
former employment, or

(ii) in any other capacity in which the former
15employee was acting in the performance of the
duties of that employment,

(b) “giving evidence” includes making a formal or informal
statement or answering questions,

(c) “proceeding or other process” includes any civil,
20criminal or arbitration proceedings, any disciplinary or
regulatory proceedings of any kind and any process
operated for resolving disputes or adjudicating on
complaints, and

(d) references to a proceeding or other process or an
25investigation include a reference to a proceeding or
other process or an investigation that is likely to take
place.””

(7) In section 560 (section 558: meaning of “qualifying insurance contract”), in
subsection (2)—

(a) 30after paragraph (c) insert—

“(ca) the payment of costs or expenses incurred in connection
with a former employee giving evidence about matters
related to the former employment in, or for the purposes
of—

(i) 35a proceeding or other process (whether or not
involving the former employee), or

(ii) an investigation (whether or not likely to lead to
any proceeding or other process involving the
former employee).

(cb) 40the payment of any costs or expenses incurred in
connection with a proceeding or other process, or an
investigation, in which—

(i) acts of a former employee related to the
employment, or

(ii) 45any other matters related to the former
employment of a former employee,

are being or are likely to be considered,”, and”

(b) in paragraph (d), after “(c)” insert “, (ca) or (cb)”.

(8) The amendments made by this section have effect in relation to the tax year
502017-18 and subsequent tax years.

14 Termination payments etc: amounts chargeable on employment income

(1) ITEPA 2003 is amended in accordance with subsections (2) to (9).

(2) In section 7(5) (list of provisions under which amounts are treated as earnings),
before the “or” at the end of paragraph (c) insert—

“(ca) 5section 402B (termination payments, and other benefits, that
cannot benefit from section 403 threshold),”.”

(3) Before section 403 (charge on payments and benefits in excess of £30,000
threshold) insert—

“402A Split of payments and other benefits between sections 402B and 403

(1) 10In this Chapter “termination award” means a payment or other benefit
to which this Chapter applies because of section 401(1)(a).

(2) Section 402B (termination awards not benefiting from threshold treated
as earnings) applies to termination awards to the extent determined
under section 402C.

(3) 15Section 403 (charge on payment or benefit where threshold applies)
applies to termination awards so far as they are not ones to which
section 402B applies.

(4) Section 403 also applies to payments and other benefits to which this
Chapter applies because of section 401(1)(b) or (c) (change in duties or
20earnings).

402B Termination awards not benefiting from threshold to be treated as
earnings

(1) The amount of a termination award to which this section applies is
treated as an amount of earnings of the employee, or former employee,
25from the employment.

(2) See also section 7(3)(b) and (5)(ca) (which cause amounts treated as
earnings under this section to be included in general earnings).

(3) Section 403(3) (when benefits are received) does not apply in relation to
payments or other benefits to which this section applies.

402C 30 The termination awards to which section 402B applies

(1) This section has effect for the purpose of identifying the extent to which
section 402B applies to termination awards in respect of the termination
of the employment of the employee.

(2) In this section “relevant termination award” means a termination
35award that is neither—

(a) a redundancy payment, nor

(b) so much of an approved contractual payment as is equal to or
less than the amount which would have been due if a
redundancy payment had been payable.

(3) 40If the post-employment notice pay (see section 402D) in respect of the
termination is greater than, or equal to, the total amount of the relevant
termination awards in respect of the termination, section 402B applies
to all of those relevant termination awards.

(4) If the post-employment notice pay in respect of the termination is less
than the total amount of the relevant termination awards in respect of
the termination but is not nil—

(a) section 402B applies to a part of those relevant termination
5awards, and

(b) the amount of that part is equal to the post-employment notice
pay.

(5) Section 309(4) to (6) (meaning of “redundancy payment” and
“approved contractual payment” etc) apply for the purposes of
10subsection (2) as they apply for the purposes of section 309.

402D “Post-employment notice pay”

(1) “The post-employment notice pay” in respect of a termination is
(subject to subsection (11)) given by—

(2) 25If the amount given by the formula in subsection (1) is a negative
amount, the post-employment notice pay is nil.

(3) Subject to subsections (5) and (6)—

• BP is the employee’s basic pay (see subsection (7)) from the
  employment in respect of the last pay period of the employee to
  30end before the trigger date,

• P is the number of days in that pay period, and

• D is the number of days in the post-employment notice period.

(4) See section 402E for the meaning of “trigger date” and “post-
employment notice period”.

(5) 35If there is no pay period of the employee which ends before the trigger
date then—

• BP is the employee’s basic pay from the employment in respect of
  the period starting with the first day of the employment and
  ending with the trigger date,

• 40P is the number of days in that period, and

• D is the number of days in the post-employment notice period.

(6) If the last pay period of the employee to end before the trigger date is a
month, the minimum notice (see section 402E) is given by contractual
terms and is expressed to be a whole number of months, and the post-

employment notice period is equal in length to the minimum notice or
is otherwise a whole number of months, then—

• BP is the employee’s basic pay from the employment in respect of
  the last pay period of the employee to end before the trigger
  5date,

• P is 1, and

• D is the length of the post-employment notice period expressed in
  months.

(7) In this section “basic pay” means—

(a) 10employment income of the employee from the employment but
disregarding—

(i) any amount received by way of overtime, bonus,
commission, gratuity or allowance,

(ii) any amount received in connection with the termination
15of the employment,

(iii) any amount treated as earnings under Chapters 2 to 10
of Part 3 (the benefits code) or which would be so treated
apart from section 64,

(iv) any amount which is treated as earnings under Chapter
2012 of Part 3 (amounts treated as earnings),

(v) any amount which counts as employment income by
virtue of Part 7 (income relating to securities and
securities options), and

(vi) any employment-related securities that constitute
25earnings under Chapter 1 of Part 3 (earnings), and

(b) any amount which the employee has given up the right to
receive but which would have fallen within paragraph (a) had
the employee not done so.

(8) In subsection (7) “employment-related securities” has the same
30meaning as it has in Chapter 1 of Part 7 (see section 421B).

(9) The Treasury may by regulations amend this section for the purpose of
altering the meaning of “basic pay”.

(10) A statutory instrument containing regulations under subsection (9)
may not be made unless a draft of it has been laid before, and approved
35by a resolution of, the House of Commons.

(11) Where the purpose, or one of the purposes, of any arrangements is the
avoidance of tax by causing the post-employment notice pay calculated
under subsection (1) to be less than it would otherwise be, the post-
employment notice pay is to be treated as the amount which the post-
40employment notice pay would have been but for the arrangements.

(12) In subsection (11) “arrangements” includes any scheme, arrangement
or understanding of any kind, whether or not legally enforceable,
involving a single transaction or two or more transactions.

402E Meaning of “trigger date” and “post-employment notice period” in
45section 402D

(1) Subsections (2) and (4) to (6) have effect for the purposes of section
402D (and subsection (4) has effect also for the purposes of this section).

(2) The “trigger date” is—

(a) if the termination is not a notice case, the last day of the
employment, and

(b) if the termination is a notice case, the day the notice is given.

(3) 5For the purposes of this section, the termination is a “notice case” if the
employer or employee gives notice to the other to terminate the
employment, and here it does not matter—

(a) whether the notice is more or less than, or the same as, the
minimum notice, or

(b) 10if the employment ends before the notice expires.

(4) The “minimum notice” is the minimum notice required to be given by
the employer to terminate the employee’s employment by notice in
accordance with the law and contractual terms effective—

(a) where the termination is not a notice case—

(i) 15immediately before the employment ends, or

(ii) where the employment ends by agreement entered into
after the start of the employment, immediately before
the agreement is entered into, and

(b) where the termination is a notice case, immediately before the
20notice is given.

(5) The “post-employment notice period” is the period—

(a) beginning at the end of the last day of the employment, and

(b) ending with the earliest lawful termination date.

(But see subsection (8) for provision about limited-term contracts.)

(6) 25If the earliest lawful termination date is, or precedes, the last day of the
employment, the number of days in the post-employment notice period
is nil.

(7) “The earliest lawful termination date” is the last day of the period
which—

(a) 30is equal in length to the minimum notice, and

(b) begins at the end of the trigger date.

(8) In the case of a contract of employment which is a limited-term contract
and which does not include provision for termination by notice by the
employer, the post-employment notice period is the period—

(a) 35beginning at the end of the last day of the employment, and

(b) ending with the day of the occurrence of the limiting event.

(9) If, in a case to which subsection (8) applies, on the last day of the
employment the day of the occurrence of the limiting event is not
ascertained or ascertainable (because, for example, the limiting event is
40the performance of a task), then subsection (8) has effect as if for
paragraph (b) there were substituted—

“(b) ending with the day on which notice would have expired if the
employer had, on the last day of the employment, given to the
employee the minimum notice required to terminate the
45contract under section 86 of the Employment Rights Act 1996
(assuming that that section applies to the employment).””

(10) In this section “limited-term contract” and “limiting event” have the
same meaning as in the Employment Rights Act 1996 (see section
235(2A) and (2B)).””

(4) In section 403 (charges on payments and benefits which can benefit from
5threshold)—

(a) in subsection (1), for “Chapter” substitute “section”,

(b) in subsection (3), after “Chapter” insert “(but see section 402B(3))”,

(c) in subsection (4), for the words from “when” to “exceeds” substitute
“when aggregated with—

“(1)(a)10other payments or benefits in respect of the employee or
former employee that are payments or benefits to which
this section applies, and

(b) other payments or benefits in respect of the employee or
former employee that are payments or benefits—

(i) 15received in the tax year 2017-18 or an earlier tax
year, and

(ii) to which this Chapter applied in the tax year of
receipt,

it exceeds”,”

(d) 20in subsection (5)(a), for “Chapter” substitute “section”,

(e) in subsection (6), after “employment income” insert “or, as the case may
be, in relation to whom section 402B(1) provides for an amount to be
treated as an amount of earnings”, and

(f) in the heading, at the end insert “where threshold applies”.

(5) 25In section 404 (how the threshold applies)—

(a) in subsection (3)(b) (meaning of “termination or change date”), for “this
Chapter” substitute “section 403”, and

(b) after subsection (5) insert—

“(6) In subsection (3)(b), the reference to a payment or other benefit
30to which section 403 applies includes a reference to a payment
or other benefit—

(a) received in the tax year 2017-18 or an earlier tax year,
and

(b) to which this Chapter applied in the tax year of receipt.””

(6) 35After section 404A insert—

“404B Power to vary threshold

(1) The Treasury may by regulations amend the listed provisions by
substituting, for the amount for the time being mentioned in those
provisions, a different amount.

(2) 40The listed provisions are—

• subsections (1), (4) and (5) of section 403, and

• subsections (1), (4) and (5) of section 404 and its heading.

(3) Regulations under this section may include transitional provision.

(4) A statutory instrument containing regulations under this section which
45reduce the mentioned amount may not be made unless a draft of it has

been laid before, and approved by a resolution of, the House of
Commons.””

(7) In section 406 (exception in cases of death, injury or disability)—

(a) the existing text becomes subsection (1), and

(b) 5after that subsection insert—

“(2) Although “injury” in subsection (1) includes psychiatric injury,
it does not include injured feelings.””

(8) In section 414(2) (proportionate reduction for foreign service in certain cases),
for “otherwise count as employment income under this Chapter” substitute
10“otherwise—

“(a) be treated as earnings by section 402B(1), or

(b) count as employment income as a result of section 403”.”

(9) In section 717(4) (regulations etc not subject to negative procedure), before “or
section 681F(3)” insert “, section 402D(10) (meaning of basic pay for purpose of
15calculating charge on termination award), section 404B(4) (reduction of tax-
free threshold for employment-termination etc payments)”.

(10) The amendments made by this section have effect for the tax year 2018-19 and
subsequent tax years.

15 PAYE settlement agreements

(1) 20In Chapter 5 of Part 11 of ITEPA 2003 (PAYE settlement agreements), in
sections 703(a) and 704(1)(a), for “an officer of Revenue and Customs”
substitute “Her Majesty’s Revenue and Customs”.

(2) The amendment made by this section has effect in relation to the tax year 2018-
19 and subsequent tax years.

25Pensions

16 Money purchase annual allowance

(1) Part 4 of FA 2004 is amended as follows.

(2) In section 227ZA (chargeable amount), in subsection (1)(b), for “£10,000”
substitute “£4,000”.

(3) 30In section 227B (alternative chargeable amount), in subsections (1)(b) and (2),
for “£10,000” substitute “£4,000”.

(4) In section 227D (pension input amounts in respect of certain hybrid
arrangements), in Steps 4 and 5 of subsection (4), for “£10,000” substitute
“£4,000”.

(5) 35The amendments made by this section have effect for the tax year 2017-18 and
subsequent tax years.

17 Overseas pensions

Schedule 3 makes provision about—

(a) registered pension schemes established outside the United Kingdom,
40and

(b) payments made in respect of overseas pension entitlement.

18 Pensions: offshore transfers

Schedule 4 contains provision about charging income tax—

(a) where payments are made in respect of overseas pensions, and

(b) 5on transfers to qualifying recognised overseas pension schemes.

Trading and property businesses income

19 Calculation of profits of trades and property businesses

Schedule 5 contains provision about the calculation of the profits of a trade,
profession or vocation or a property business, in particular the calculation of
10profits on the cash basis.

20 Trading and property allowances

Schedule 6 contains provision about a trading allowance and a property
allowance giving relief from income tax.

Investment income

21 15Deduction of income tax at source

Schedule 7 makes provision about deduction of income tax at source.

22 Life insurance policies: recalculating gains on part surrenders etc

(1) ITTOIA 2005 is amended as follows.

(2) After section 507 (method for making periodic calculations in part surrender or
20assignment cases) insert—

“507A Recalculating gains under section 507

(1) An interested person may apply to an officer of Revenue and Customs
for a review of a calculation under section 507 on the ground that the
gain arising from it is wholly disproportionate.

(2) 25For the purposes of this section an interested person in relation to a
calculation under section 507 is a person who would be liable for all or
any part of the amount of tax that would be chargeable under this
Chapter if the gain were not recalculated.

(3) Applications under subsection (1) must be—

(a) 30made in writing, and

(b) received by an officer of Revenue and Customs within—

(i) the four tax years following the tax year in which the
gain arose, or

(ii) such longer period as the officer may agree.

(4) 35In considering whether the gain is wholly disproportionate, the officer
may take into account (as well as the amount of the gain) any factor