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

Exclusions: payments in respect of a tax liability

9 After section 554X insert—

“554XA Exclusions: payments in respect of a tax liability

(1) Chapter 2 does not apply by reason of a relevant step which is the
5payment of a sum of money if—

(a) the payment is a relevant tax payment, or

(b) where the payment is not a relevant tax payment—

(i) the payment is made to a person for the purpose of
the person making a relevant tax payment,

(ii) 10the person makes a relevant tax payment of an
amount equal to the amount of the first payment, and

(iii) the relevant tax payment is made before the end of the
period of 60 days beginning with the day on which
the first payment is made.

(2) 15“Relevant tax payment” means a payment made to Her Majesty’s
Revenue and Customs in respect of a relevant liability for—

(a) income tax,

(b) national insurance contributions,

(c) inheritance tax, or

(d) 20corporation tax.

(3) But a provisional payment of tax (see section 554Z11D) is not a
relevant tax payment.

(4) A liability is a “relevant liability” if—

(a) under the terms of an agreement for the discharge of the
25liability, or

(b) by way of a decision on an application under this section,

an officer of Revenue and Customs agrees that the liability is to be
treated as arising in respect of the relevant arrangement concerned.

(5) A person may make an application to Her Majesty’s Revenue and
30Customs for a liability to be treated, for the purposes of this section,
as arising in respect of the relevant arrangement concerned.

(6) An application under this section must be made in such form and
manner, and contain such information, as may be specified by, or on
behalf of, the Commissioners for Her Majesty’s Revenue and
35Customs.

(7) An officer of Revenue and Customs must notify the applicant of the
decision on an application under this section.””

Double taxation

10 For section 554Z5 (overlap with earlier relevant step) substitute—

“554Z5 40 Overlap with money or asset subject to earlier tax liability

(1) This section applies if there is overlap between—

(a) the sum of money or asset (“sum or asset P”) which is the
subject of the relevant step, and

(b) a sum of money or asset (“sum or asset Q”) by reference to
which, on an occasion that occurred before the relevant step
is taken, A became subject to a liability for income tax (“the
earlier tax liability”).

(2) 5But this section does not apply where—

(a) the earlier tax liability arose by reason of a step within section
554B taken in a tax year before 6 April 2011, and

(b) the value of the relevant step is (or if large enough would be)
reduced under paragraph 59 of Schedule 2 to FA 2011.

(3) 10Where either the payment condition or the liability condition is met,
the value of the relevant step is reduced (but not below nil) by an
amount equal to so much of the sum of money, or (as the case may
be) the value of so much of the asset, as is within the overlap.

(4) The payment condition is that, at the time the relevant step is taken—

(a) 15the earlier tax liability has become due and payable, and

(b) either—

(i) it has been paid in full, or

(ii) the person liable for the earlier tax liability has agreed
terms with an officer of Revenue and Customs for the
20discharge of that liability.

(5) The liability condition is that, at the time the relevant step is taken,
the earlier tax liability is not yet due and payable.

(6) For the purposes of this section there is overlap between sum or asset
P and sum or asset Q so far as it is just and reasonable to conclude
25that—

(a) they are the same sum of money or asset, or

(b) sum or asset P directly, or indirectly, represents sum or asset
Q.

(7) Subsection (8) applies where—

(a) 30the earlier tax liability arose by virtue of the application of
this Chapter by reason of an earlier relevant step (the “earlier
relevant step”), and

(b) reductions were made under this section to the value of the
earlier relevant step.

(8) 35Where this subsection applies, sum or asset P is treated as
overlapping with any other sum of money or asset so far as the other
sum of money or asset was treated as overlapping with sum or asset
Q for the purposes of this section.

(9) In subsection (1)(b)—

(a) 40the reference to A includes a reference to any person linked
with A, and

(b) the reference to a liability for income tax does not include a
reference to a liability for income tax arising by reason of
section 175 (benefit of taxable cheap loan treated as earnings).

(10) 45In subsection (3) the reference to the value of the relevant step is a
reference to that value—

(a) after any reductions made to it under section 554Z4, this
section or 554Z7, but

(b) before any reductions made to it under section 554Z6 or
554Z8.

(11) 5For the purposes of subsection (4)(b)(i) a person is not to be regarded
as having paid any tax by reason only of making—

(a) a payment on account of income tax,

(b) a payment that is treated as a payment on account under
section 223(3) of FA 2014 (accelerated payments), or

(c) 10a payment pending determination of an appeal made in
accordance with section 55 of TMA 1970.””

11 After section 554Z11A insert—

““Double taxation: earlier income tax liability

554Z11B Earlier income tax liability: application of section 554Z11C

(1) 15Section 554Z11C applies if the conditions in subsections (2) and (3)
are met.

(2) The first condition is that there is overlap between—

(a) the sum of money or asset (“sum or asset P”) which is the
subject of the relevant step, and

(b) 20a sum of money or asset (“sum or asset Q”) by reference to
which, on an occasion that occurred before the relevant step
is taken, A became subject to a liability for income tax (“the
earlier tax liability”).

(3) The second condition is that at the time the relevant step is taken—

(a) 25an amount is payable by a person (the “liable person”) in
respect of the earlier tax liability, but the whole or part of that
amount is unpaid and not otherwise accounted for, and

(b) the liable person has not agreed any terms with an officer of
Revenue and Customs for the discharge of the earlier tax
30liability.

(4) For the purposes of this section there is overlap between sum or asset
P and sum or asset Q so far as it is just and reasonable to conclude
that—

(a) they are the same sum of money or asset, or

(b) 35sum or asset P directly, or indirectly, represents sum or asset
Q.

(5) In subsection (2)(b)—

(a) the reference to A includes a reference to any person linked
with A, and

(b) 40the reference to a liability for income tax does not include a
reference to a liability for income tax arising by reason of
section 175 (benefit of taxable cheap loan treated as earnings).

554Z11C Earlier income tax liability: treatment of payments

(1) In this section—

(a) “the earlier charge” means so much of the earlier tax liability
as relates to the overlap between sum or asset P and sum or
asset Q, and

(b) “the Chapter 2 overlap charge” means so much of the
5Chapter 2 tax liability as relates to the overlap between sum
or asset P and sum or asset Q.

(2) The amount of a tax liability that relates to the overlap between sum
or asset P and sum or asset Q is to be determined on a just and
reasonable basis.

(3) 10Subsection (4) applies where, after the relevant step is taken, an
amount (the “earlier charge paid amount”) is paid in respect of all or
part of—

(a) the earlier charge, or

(b) any late payment interest in respect of the charge.

(4) 15An amount equal to the earlier charge paid amount is treated as a
payment on account of—

(a) the Chapter 2 overlap charge, or

(b) if that charge has been paid in full, any late payment interest
payable in respect of the charge.

(5) 20Except where subsection (10) applies, subsection (6) applies where
an amount (the “Chapter 2 paid amount”) is paid in respect of all or
part of—

(a) the Chapter 2 overlap charge, or

(b) any late payment interest in respect of the charge.

(6) 25An amount equal to the Chapter 2 paid amount is treated as a
payment on account of—

(a) the earlier charge, or

(b) if the earlier charge has been paid in full, any late payment
interest payable in respect of the charge.

(7) 30Subsection (10) applies where—

(a) the condition in 554Z11B(2) is met because there is overlap
between sum or asset P and each of two or more items within
section 554Z11B(2)(b), and

(b) an amount (the “Chapter 2 aggregate paid amount”) is paid
35in respect of all or part of—

(i) two or more relevant Chapter 2 overlap charges, or

(ii) any late payment interest in respect of any of those
charges.

(8) In subsection (7)(b), “relevant Chapter 2 overlap charge” means so
40much of the Chapter 2 tax liability as relates to the overlap between
sum or asset P and one of those items within section 554Z11B(2)(b).

(9) For the purposes of subsection (10)—

(a) in the case of each of those items, the “earlier charge” in
respect of the overlap between sum or asset P and the item is
45so much of the liability mentioned in section 554Z11B(2)(b) in
the case of the item as relates to the overlap, and

(b) the Chapter 2 aggregate paid amount is to be allocated, in
such proportions as are just and reasonable in all the
circumstances, between the earlier charges given by
paragraph (a).

(10) 5The amount allocated to an earlier charge under subsection (9) is
treated as a payment on account of—

(a) the earlier charge to which it is allocated, and

(b) if the earlier charge has been paid in full, any late payment
interest payable in respect of the charge.

(11) 10In this section—

• “late payment interest” means interest payable under—

  (a)

  section 86 of TMA 1970,

  (b)

  section 101 of FA 2009, or

  (c)

  regulation 82 of the Income Tax (Pay As You Earn)
  15Regulations 2003 (S.I. 2003/2682S.I. 2003/2682);

• “Chapter 2 tax liability” means the liability for income tax
  arising by virtue of the application of Chapter 2 by reason of
  the relevant step.

554Z11D Earlier income tax liability: provisional payments of tax

(1) 20Subsection (2) applies for the purposes of—

(a) section 554Z11B(3)(a), and

(b) section 554Z11C(3), (4)(b), (7)(b) and (10)(b).

(2) A person is not to be regarded as having paid, or otherwise
accounted for, any tax by reason only of making a provisional
25payment of tax, except in accordance with an application granted
under section 554Z11E.

(3) In this Part, “provisional payment of tax” means—

(a) a payment on account of income tax,

(b) a payment that is treated as a payment on account under
30section 223(3) of FA 2014 (accelerated payments), or

(c) a payment pending determination of an appeal made in
accordance with section 55 of TMA 1970.

(4) The reference in subsection (3)(a) to a payment on account of income
tax does not include a reference to a payment treated under section
35554Z11C as a payment on account of a tax liability.

554Z11E Application for provisional payments to be treated as payment of
tax

(1) A person may make an application to Her Majesty’s Revenue and
Customs for a provisional payment of tax to be treated for the
40purposes of section 554Z11C as—

(a) an earlier charge paid amount,

(b) a Chapter 2 paid amount, or

(c) a Chapter 2 aggregate paid amount.

(2) Where an application under subsection (1) is granted, the provisional
45payment of tax to which it relates may not be repaid.

(3) An application for approval must be made in such form and manner,
and contain such information, as may be specified by, or on behalf of,
the Commissioners for Her Majesty’s Revenue and Customs.

(4) An officer of Revenue and Customs must notify the applicant of the
5decision on an application.

554Z11F Provisional payments of tax: further provision

(1) This section applies in a case to which section 554Z11C applies (see
section 554Z11B(1)).

(2) If a provisional payment of tax is made in respect of an earlier charge
10in relation to an overlap, it is to be treated as also being made in
respect of the Chapter 2 overlap charge in relation to the overlap.

(3) If a provisional payment of tax is made in respect of a Chapter 2
overlap charge in relation to an overlap, it is to be treated as also
being made in respect of the earlier charge in relation to the overlap.

(4) 15If section 554Z11C(10) applies in a case (see section 554Z11C(7)) and
a provisional payment of tax is made in respect of two or more
relevant Chapter 2 overlap charges—

(a) the amount of the provisional payment of tax is to be
allocated, in such proportions as are just and reasonable in all
20the circumstances, between those relevant Chapter 2 overlap
charges, and

(b) a provisional payment of tax, equal to the amount allocated
to the relevant Chapter 2 overlap charge relating to any
particular overlap, is to be treated as also being made in
25respect of the earlier charge given by section 554Z11C(9) in
respect of that overlap.

(5) Subsection (6) applies if—

(a) the provisional payment of tax is repaid, and

(b) late payment interest on the earlier charge or the Chapter 2
30overlap charge would have accrued during the relevant
period if the provisional payment of tax had not been made.

(6) The late payment interest mentioned in subsection (5) is treated as
having accrued as if the provisional payment of tax had not been
made.

(7) 35For the purposes of subsection (5), the “relevant period” is the period
beginning on the day on which the provisional payment of tax is
made and ending with the day on which the repayment is made.”

554Z11G Earlier income tax liability: supplementary provision

(1) This section applies in a case to which section 554Z11C applies (see
40section 554Z11B(1)).

(2) Subsection (3) applies where an employer is treated by virtue of
section 687A or 695A as making a payment of income (“the notional
payment”) by reason of the value of the relevant step, of which sum
or asset P is the subject, counting as employment income.

(3) 45The reference in section 222 (payments by employer on account of
tax where deduction not possible) to the notional payment is to be

treated as a reference to that payment reduced by an amount equal
to so much of the sum of money or (as the case may be) the value of
so much of the asset—

(a) as is within the overlap, and

(b) 5in relation to which an amount is treated under section
554Z11C as a payment on account of either the earlier charge
or the Chapter 2 overlap charge.

(3) Subsection (4) applies for the purposes of sections 65(5)(b) and
70(3)(b) of the Inheritance Tax Act 1984 (tax relief for payments
10which are income of a person for income tax purposes etc).

(4) The value of the relevant step of which sum or asset P is the subject
is to be treated as reduced by an amount equal to so much of the sum
of money or (as the case may be) the value of so much of the asset —

(a) as is within the overlap, and

(b) 15in relation to which an amount is treated under section
554Z11C as a payment on account of either the earlier charge
or the Chapter 2 overlap charge.””

Amendments to Schedule 2 to FA 2011

12 (1) Paragraph 59 of Schedule 2 to FA 2011 (transitional provision relating to Part
207A of ITEPA 2003) is amended as follows.

(2) In sub-paragraph (1)(f), after “554Z4” insert “and 554Z6”.

(3) In the opening words of sub-paragraph (2), after “554Z4” insert “and 554Z6”.

Commencement

13 Subject to paragraphs 14 to 16, the amendments made by this Schedule to
25Part 7A of ITEPA 2003 have effect in relation to relevant steps taken on or
after 6 April 2017.

14 Section 554RA of ITEPA 2003, inserted by paragraph 8 of this Schedule, has
effect in relation to relevant steps taken on or after 9 December 2010.

15 (1) Paragraph 13 does not apply in relation to the amendment made by
30paragraph 11 of this Schedule (new sections 554Z11B to 554Z11G of ITEPA
2003).

(2) Sections 554Z11B to 554Z11D and 554Z11G of ITEPA 2003, inserted by
paragraph 11 of this Schedule, have effect in relation to relevant steps taken
on or after 6 April 2011.

(3) 35Where—

(a) a relevant step (the “early step”) is taken on or after 9 December 2010
but before 6 April 2011, and

(b) Chapter 2 of Part 7A of ITEPA 2003 would have applied by reason of
the early step had it been taken on or after 6 April 2011 but before 6
40April 2017,

sections 554Z11B to 554Z11D and 554Z11G of ITEPA 2003 have effect in
relation to the early step as they have effect in relation to relevant steps taken
on or after 6 April 2011.

16 The amendments made by paragraph 12 of this Schedule to paragraph 59 of
Schedule 2 to FA 2011 have effect in relation to chargeable steps (as defined
in that paragraph) taken on or after 6 April 2017.

Section 48

SCHEDULE 17 5Employment income provided through third parties: loans etc outstanding on
5 April 2019

Part 1 Application of Part 7A of ITEPA 2003

Relevant step

1 (1) 10A person (“P”) is treated as taking a relevant step for the purposes of Part 7A
of ITEPA 2003 if—

(a) P has made a loan, or a quasi-loan, to a relevant person,

(b) the loan or quasi-loan was made on or after 6 April 1999, and

(c) an amount of the loan or quasi-loan is outstanding immediately
15before the end of 5 April 2019.

(2) P is treated as taking the step immediately before—

(a) the end of the approved repayment date, if P has made a loan which
is an approved fixed term loan on 5 April 2019, or

(b) the end of 5 April 2019, in any other case.

(3) 20Where P is treated as taking a relevant step within this paragraph by reason
of making a loan or a quasi-loan, references to “the relevant step” in sections
554A(1)(e)(i) and (ii) of ITEPA 2003 have effect as if they were references to
the step of making the loan or, as the case may be, quasi-loan.

(4) For the purposes of section 554Z3(1) of ITEPA 2003 (value of relevant step),
25the step is to be treated as involving a sum of money equal to the amount of
the loan or quasi-loan that is outstanding at the time P is treated as taking
the step.

(5) Subsections (2) and (3) of section 554C of ITEPA 2003 (“relevant person”)
apply for the purposes of this Schedule as they apply for the purposes of that
30section.

(6) Sub-paragraph (1) is subject to paragraphs 21 and 22 (accelerated payments).

(7) For the purposes of this paragraph, whether an amount of a loan or quasi-
loan is outstanding at a particular time—

(a) is to be determined in accordance with the following provisions of
35this Schedule, and

(b) does not depend on the loan or quasi-loan subsisting at that time.

Meaning of “loan”, “quasi-loan” and “approved repayment date”

2 (1) In this Part of this Schedule “loan” includes—

(a) any form of credit;

(b) 40a payment that is purported to be made by way of a loan.

(2) For the purposes of paragraph 1, P makes a “quasi-loan” to a relevant person
if (and when) P acquires a right (the “acquired debt”)—

(a) which is a right to a payment or a transfer of assets, and

(b) in respect of which the condition in sub-paragraph (3) is met.

(3) 5The condition is met in relation to a right if there is a connection (direct or
indirect) between the acquisition of the right and—

(a) a payment made, by way of a loan or otherwise, to the relevant
person, or

(b) a transfer of assets to the relevant person.

(4) 10Where a quasi-loan or a loan made by P to a relevant person is replaced,
directly or indirectly, by a loan or another loan (the “replacement loan”),
references in paragraph 1 to the loan are references to the replacement loan.

(5) Where a loan or a quasi-loan made by P to a relevant person is replaced,
directly or indirectly, by a quasi-loan or another quasi-loan (the
15“replacement quasi-loan”), references in paragraph 1 to the quasi-loan are
references to the replacement quasi-loan.

(6) In this Part of this Schedule, “approved repayment date”, in relation to an
approved fixed term loan, means the date by which, under the terms of the
loan at the time of making the application for approval under paragraph 18,
20the whole of the loan must be repaid.

Meaning of “outstanding”: loans

3 (1) An amount of a loan is “outstanding” for the purposes of paragraph 1 if the
relevant principal amount exceeds the repayment amount.

(2) In sub-paragraph (1) “relevant principal amount”, in relation to a loan,
25means the total of—

(a) the initial principal amount lent, and

(b) any sums that have become principal under the loan, otherwise than
by capitalisation of interest.

(3) In sub-paragraph (1) “repayment amount”, in relation to a loan, means the
30total of—

(a) the amount of principal under the loan that has been repaid before
17 March 2016, and

(b) payments in money made by the relevant person on or after 17
March 2016 by way of repayment of principal under the loan.

(4) 35A payment is to be disregarded for the purposes of sub-paragraph (3)(b) if
there is any connection (direct or indirect) between the payment and a tax
avoidance arrangement (other than the arrangement under which the loan
was made).

4 (1) This paragraph applies where—

(a) 40a person (“P”) has made a loan to a relevant person,

(b) the loan was made on or after 6 April 1999, and

(c) before the end of 5 April 2019, A or B acquires (whether or not for
consideration) a right to payment of the whole or part of the loan.

(2) The amount of the loan in respect of which A or B acquires a right to
45payment is to be treated—

(a) for the purposes of paragraph 1(1) as an amount, of the loan made by
P to the relevant person, that is outstanding immediately before the
end of 5 April 2019;

(b) for the purposes of paragraph 1(4) and section 554Z3(1) of ITEPA
52003, as an amount of the loan that is outstanding at the time P is
treated as taking the relevant step under paragraph 1(1).

(3) Where a quasi-loan or a loan made by P to a relevant person is replaced,
directly or indirectly, by a loan or another loan (the “replacement loan”),
references in sub-paragraphs (1) and (2) to the loan are references to the
10replacement loan.

Meaning of “outstanding”: loans in currencies other than sterling

5 (1) In paragraphs 6 to 9 “the loan currency”, in relation to a loan, means the
currency in which the initial principal amount of the loan is denominated
(whether or not that amount is paid in that currency).

(2) 15For the purposes of paragraphs 6 to 9, the value of an amount in a particular
currency is to be determined by reference to an appropriate spot rate of
exchange.

6 (1) This paragraph applies in relation to a loan where the loan currency is a
currency other than sterling.

(2) 20But this paragraph does not apply if paragraph 9 applies in relation to the
loan.

(3) The amount of the loan that is outstanding, at the time P is treated as taking
the relevant step, is to be calculated in sterling as follows—

Step 1

25Calculate, in the loan currency, the amount that is outstanding at that time.

Step 2

(4) See paragraph 7 for provision about repayments made in a currency other
than the loan currency.

Repayments in currencies other than the loan currency

7 (1) 30This paragraph applies in relation to a loan where—

(a) payments in money are made by way of repayment of principal
under the loan, and

(b) some or all of the payments are made in a currency other than the
loan currency.

(2) 35But this paragraph does not apply if paragraph 9 applies in relation to the
loan.

(3) For the purposes of calculating the repayment amount in relation to the loan,
the amount of each of the payments referred to in sub-paragraph (1)(b) is an
amount equal to its value in the loan currency on the date it is made.