Finance (No. 2) Bill (HC Bill 134)

Finance (No. 2) BillPage 50

person who would be such a participator if the
company were a close company.

(3) In subsection (2)(a)(ii) “associated company” has the same meaning
as it has for the purposes of Part 10 of CTA 2010 (see section 449 of
5that Act).

554AF Section 554AA: supplementary

(1) Section 554AA(1) is subject to subsection (2) and sections 554E to
554Y.

(2) Chapter 2 does not apply by reason of section 554AA(1) in relation to
10a relevant step taken on or after A’s death if—

(a) the relevant step is within section 554B, or

(b) the relevant step is within section 554C by virtue of
subsection (1)(ab) of that section.

(3) In section 554AA(1)(a) and (b) references to A include references to a
15person linked with A.

(4) For the purposes of section 554AA(1)(b) it does not matter if the
relevant arrangement does not include details of the steps which will
or may be taken in connection with providing, in essence, payments
or benefits or loans as mentioned (for example, details of any sums
20of money or assets which will or may be involved or details of how
or when or by whom or in whose favour any step will or may be
taken).

(5) For the purposes of section 554AA(1)(b) and (d) in particular, all
relevant circumstances are to be taken into account in order to get to
25the essence of the matter.”

Double taxation

3 (1) In section 554Z2 of ITEPA 2003 (value of relevant step to count as
employment income), after subsection (1) insert—

(1AA) But subsection (1) is subject to section 554Z2A (close companies).”

(2) 30After section 554Z2 of ITEPA 2003, insert—

554Z2A Exception to section 554Z2(1): close companies

(1) Section 554Z2(1) does not apply in the case of a relevant step if—

(a) this Chapter applies in the case of the relevant step only by
reason of section 554AA (close companies),

(b) 35the relevant step is a step within section 554B, 554C or 554D,

(c) the relevant step gives rise to a charge to tax under either—

(i) section 455 of CTA 2010 by virtue of section 459 of
that Act (loans treated as made to participator), or

(ii) section 415 of ITTOIA 2005 (release of loan to
40participator in a close company), and

(d) in a case within paragraph (c)(i), either the payment
condition or the consent condition is met in relation to the
charge under section 455 of CTA 2010.

Finance (No. 2) BillPage 51

(2) The payment condition is met in relation to a charge to tax under
section 455 of CTA 2010 if—

(a) the net section 455 charge is paid in full on or before the due
date, or

(b) 5the net section 455 charge is nil.

(3) The “net section 455 charge” means the amount of the charge to tax
under section 455 of CTA 2010 less the amount of section 458 relief
from that charge.

(4) In subsection (3) “section 458 relief” means relief given under section
10458 of that Act—

(a) in respect of a repayment made, or a release or writing-off
occurring, on or before the due date, and

(b) on a claim made on or before the due date.

(5) The consent condition is met in relation to a charge to tax under
15section 455 of CTA 2010 if—

(a) the charge to tax is reported, in a company tax return of B’s,
as required under Schedule 18 to FA 1998 (company tax
returns etc),

(b) the payment condition is not met in relation to that charge,
20and

(c) an officer of Revenue and Customs considers that section
554Z2(1) should not apply in the case of the relevant step
concerned.

(6) In this section, references to the “due date” in relation to a charge to
25tax under section 455 of CTA 2010 are references to the day on which
the tax is due and payable (see section 455(3) of CTA 2010).”

4 (1) Schedule 11 to F(No.2)A 2017 (employment income provided through third
parties: loans etc outstanding on 5 April 2019) is amended as follows.

(2) Before paragraph 37 (but after the italic heading preceding that paragraph)
30insert—

36A (1) Sub-paragraphs (2) to (8) apply if—

(a) a person (“P”) would, apart from this paragraph, be treated
as taking a relevant step by paragraph 1 by reason of a loan
made to a relevant person, and

(b) 35the loan gives rise to a charge to tax under section 455 of
CTA 2010 by virtue of section 459 of that Act (loans treated
as made to participators).

(2) In this paragraph “the key date” means the later of—

(a) 5 April 2019, and

(b) 40the day on which the tax referred to in sub-paragraph
(1)(b) is due and payable (see section 455(3) of CTA 2010).

(3) Paragraph 1(2) has effect as if it treated P as taking the relevant
step immediately before the end of the key date, but this is subject
to sub-paragraphs (4) and (5).

(4) 45Paragraph 1(1) does not apply in the case of the loan if the
payment condition is met.

Finance (No. 2) BillPage 52

(5) Paragraph 1(1) does not apply in the case of the loan if—

(a) the payment condition is not met,

(b) the charge to tax mentioned in sub-paragraph (1)(b) is
reported, in a company tax return of B’s, as required under
5Schedule 18 to FA 1998 (company tax returns etc), and

(c) an officer of Revenue and Customs considers that
paragraph 1(1) should not apply in the case of the loan.

(6) The payment condition is met if—

(a) the net section 455 charge is paid in full on or before the
10key date, or

(b) the net section 455 charge is nil.

(7) The “net section 455 charge” is the amount of the tax referred to
sub-paragraph (1)(b) less the amount of section 458 relief from that
tax.

(8) 15In sub-paragraph (7) “section 458 relief” means relief given under
section 458 of CTA 2010—

(a) in respect of a repayment made, or a release or writing-off
occurring, on or before the key date, and

(b) on a claim made on or before the key date.”

20Part 3 Amendments consequential on Part 2

ITEPA 2003

5 (1) Part 7A of ITEPA 2003 (employment income provided through third parties)
is amended in accordance with this paragraph.

(2) 25In the italic heading before section 554A, at the end insert “: main case”.

(3) In the heading of section 554A, at the end insert “: main case”.

(4) In section 554Z(2) (interpretation: “A” and “B”) at the end insert “or, as the
case may be, section 554AA(1)”.

ITTOIA 2005

6 30In section 39(4) of ITTOIA 2005 (meaning of “employee benefit scheme”), for
paragraph (a) (but not the “or” following it) substitute—

(a) an arrangement (the “relevant arrangement”) which is—

(i) an arrangement within subsection (1)(b) of section
554A of ITEPA 2003 to which subsection (1)(c) of that
35section applies, or

(ii) an arrangement within subsection (1)(b) of section
554AA of ITEPA 2003 to which subsection (1)(c) of
that section applies,”.

CTA 2009

7 40In section 1291(4) of CTA 2009 (meaning of “employee benefit scheme”), for

Finance (No. 2) BillPage 53

paragraph (a) (but not the “or” following it) substitute—

(a) an arrangement (the “relevant arrangement”) which is—

(i) an arrangement within subsection (1)(b) of section
554A of ITEPA 2003 to which subsection (1)(c) of that
5section applies, or

(ii) an arrangement within subsection (1)(b) of section
554AA of ITEPA 2003 to which subsection (1)(c) of
that section applies,”.

F(No.2)A 2017

8 (1) 10Schedule 11 to F(No.2)A 2017 (employment income provided through third
parties: loans etc outstanding on 5 April 2019) is amended in accordance
with this paragraph.

(2) In paragraph 1 (relevant step)—

(a) in sub-paragraph (3), for “section 554A(1)(e)(i) and (ii)” substitute
15“sections 554A(1)(e)(i) and (ii) and 554AA(1)(h)(i) and (ii)”;

(b) in sub-paragraph (6)—

(i) for “Sub-paragraph (1) is” substitute “Sub-paragraphs (1) and
(2) are”, and

(ii) at the end insert “and paragraph 36A (double taxation: close
20companies)”.

Part 4 Loans etc outstanding on 5 April 2019

Information requirement

9 Schedule 11 to F(No.2)A 2017 (employment income provided through third
25parties: loans etc outstanding on 5 April 2019) is amended in accordance
with this Part.

10 After paragraph 35 insert—

“Part 3A Duty to provide loan charge information to HMRC

30Duty to provide loan charge information

35A (1) Paragraphs 35B and 35C apply if one of the following conditions
is met.

(2) The first condition is that—

(a) a person (“P”) is treated as taking a relevant step within
35paragraph 1 immediately before the end of 5 April 2019,
and

(b) Chapter 2 of Part 7A of ITEPA 2003 applies by reason of
that relevant step.

(3) The second condition is that—

(a) 40a person (“Q”) has made a loan which is an approved fixed
term loan on 5 April 2019,

Finance (No. 2) BillPage 54

(b) if that day were the approved repayment date in relation
to the loan—

(i) Q would be treated as taking a relevant step within
paragraph 1 immediately before the end of that
5day, and

(ii) Chapter 2 of Part 7A of ITEPA 2003 would apply by
reason of that relevant step, and

(c) A is living immediately before the end of—

(i) 30 September 2019, or

(ii) 10if earlier, the approved repayment date.

(4) The third condition is that—

(a) paragraph 24(1) applies by reference to a loan, or a quasi-
loan, made by a person (“S”) to a relevant person (“R”),

(b) R makes an application under paragraph 24(1) for S to be
15treated as mentioned in paragraph 24(1) in relation to the
relevant step concerned,

(c) a favourable decision is made on the application before 6
April 2019,

(d) that decision is not revoked before 6 April 2019,

(e) 20the first condition is not met, and

(f) A is living immediately before—

(i) the end of 30 September 2019, or

(ii) if earlier, the time given by sub-paragraphs (i) and
(ii) of paragraph 24(1)(b).

(5) 25The fourth condition is that—

(a) none of the first, second and third conditions is met, and

(b) if the date specified in paragraph 1(1)(c) and (2)(b) were 16
March 2016 (and if paragraph 1(2)(a), and the words “in
any other case” in paragraph 1(2)(b), were omitted)—

(i) 30a person (“T”) would be treated as taking a relevant
step within paragraph 1 immediately before the
end of 16 March 2016, and

(ii) Chapter 2 of Part 7A of ITEPA 2003 would apply by
reason of that relevant step (using, for this purpose,
35the law that would be used to test whether that
Chapter applies to a relevant step taken on 5 April
2019), and

(c) A is living immediately before the end of 5 April 2019.

(6) Paragraph 35C does not apply in a case where one of the first to
40fourth conditions is met if—

(a) a person agrees, with an officer of Revenue and Customs,
terms for the discharge of liability for income tax,

(b) the terms cover all liability (if any) under Chapter 2 of Part
7A of ITEPA 2003 by reason of any loan-charge relevant
45step or result in there being no such liability, and

(c) the terms are agreed before 1 October 2019.

(7) In sub-paragraph (6)(b) “loan-charge relevant step” means (as the
case may be)—

(a) the relevant step that P is treated as taking,

Finance (No. 2) BillPage 55

(b) any relevant step within paragraph 1 that Q is, or has yet
to be, treated as taking by reference to the approved fixed
term loan mentioned in sub-paragraph (3),

(c) any relevant step within paragraph 1 that S is, or has yet to
5be, treated as taking by reference to the loan or quasi-loan
mentioned in sub-paragraph (4), or

(d) any relevant step within paragraph 1 that T is, or has yet to
be, treated as taking by reference to the loan or quasi-loan
by reference to which T would be treated as taking the
10relevant step mentioned in sub-paragraph (5)(b)(i).

(1) In this paragraph “the appropriate third party” means P, Q, S or T
(as the case may be: see paragraph 35A).

(2) Sub-paragraph (3) applies if the appropriate third party receives a
request from A or A’s personal representatives for information
15specified in the request that is reasonably required for the purpose
of complying with paragraph 35C in the case concerned.

(3) The appropriate third party must provide A or A’s personal
representatives—

(a) with such of the information as is available to the
20appropriate third party, and

(b) if any of the information is not available to the appropriate
third party, with a statement confirming that so much of
the information as is not provided is information that is not
available to the appropriate third party.

(4) 25The information, and any such statement, must be provided
promptly and, in any event, before the end of 30 days beginning
with date of receipt of the request.

(1) A, or A’s personal representatives, must provide the loan charge
information (see paragraph 35D(1)) to the Commissioners for Her
30Majesty’s Revenue and Customs.

(2) The loan charge information must be provided—

(a) after 5 April 2019, and

(b) before 1 October 2019.

(3) The loan charge information must be provided in such form and
35manner as may be specified by, or on behalf of, the Commissioners
for Her Majesty’s Revenue and Customs.

“Loan charge information”

35D (1) For the purposes of paragraphs 35C and 36, the “loan charge
information” consists of—

(a) 40A’s name and, if A’s personal representatives are
providing the information, their names,

(b) the address and telephone number, and e-mail address (if
any), of each person providing the information,

(c) A’s national insurance number (if any),

(d) 45the unique taxpayer reference number (if any) allocated to
A by HMRC,

Finance (No. 2) BillPage 56

(e) if the loan or quasi-loan that is or would be the subject of
the relevant step mentioned in paragraph 35A(2)(a) or
(4)(b) or (5)(b)(i), or the loan mentioned in paragraph
35A(3)(a), is made to someone other than A, the name of
5the person to whom it is made,

(f) B’s name,

(g) the name of the relevant arrangement,

(h) the reference number (if any) allocated to the relevant
arrangement by HMRC under section 311 of FA 2004
10(disclosure of tax avoidance schemes: arrangements to be
given reference number),

(i) any other reference number allocated by HMRC in
connection with the relevant arrangement or the relevant
step,

(j) 15if a person has agreed terms with an officer of Revenue and
Customs for the partial discharge of the liability for income
tax arising because of the application of Chapter 2 of Part
7A of ITEPA 2003 by reason of the relevant step that P, Q
or S is treated as taking, the date of that agreement and the
20amount of the liability to which it relates,

(k) if a loan is or would be the subject of the relevant step
mentioned in paragraph 35A(2)(a) or (4)(b) or (5)(b)(i), or
in a case within paragraph 35A(3)(a), the loan payment
information (see sub-paragraph (2)), and

(l) 25if a quasi-loan is or would be the subject of the relevant
step mentioned in paragraph 35A(2)(a) or (4)(b) or (5)(b)(i),
the quasi-loan payment information (see sub-paragraph
(3)).

(2) The “loan payment information”, in relation to a loan, consists of
30statements of the following—

(a) whether the loan is an approved fixed term loan,

(b) the initial principal amount of the loan,

(c) the amount that has become principal under the loan,
otherwise than by capitalisation of interest, in each
35relevant tax year,

(d) the amount of principal under the loan repaid in each
relevant tax year, ignoring any repayments not in money
made on or after 17 March 2016,

(e) the details of any repayment that is to be disregarded
40under paragraph 4,

(f) the amount of principal under the loan that has been
released or written off in each relevant tax year, and

(g) whether the liability for income tax arising because of the
application of Chapter 2 of Part 7A of ITEPA 2003, or
45section 188 of that Act, by reason of the release or writing-
off has been paid.

(3) The “quasi-loan payment information”, in relation to a quasi-loan,
consists of statements of the following—

(a) the amount equal to the value of the acquired debt,

(b) 50the amount equal to the value of the additional debts
acquired in each relevant tax year,

Finance (No. 2) BillPage 57

(c) the amount by which the initial debt amount has been
reduced by way of repayment in each relevant tax year,
ignoring any repayments not in money made on or after 17
March 2016,

(d) 5where the acquired debt or an additional debt is a right to
a transfer of assets, and the assets have been transferred,
the amount of the market value of the assets at the time of
the transfer,

(e) the details of any repayment that is to be disregarded
10under paragraph 12,

(f) the amount by which the initial debt amount has been
reduced by release or writing off in each relevant tax year,
and

(g) whether the liability for income tax arising because of the
15application of Chapter 2 of Part 7A of ITEPA 2003, or
section 188 of that Act, by reason of the release or writing-
off has been paid.

(4) In this paragraph “relevant tax year” in relation to a loan, or a
quasi-loan, means—

(a) 20the tax year in which the loan or quasi-loan was made, and

(b) each subsequent tax year.

(5) In sub-paragraph (3), “acquired debt”, “additional debt” and
“initial debt amount” have the same meaning as in paragraph 11.

(6) In this paragraph and in paragraphs 35G to 35J, “HMRC” means
25Her Majesty’s Revenue and Customs.

Power to amend paragraph 35D

35E The Commissioners for Her Majesty’s Revenue and Customs may
by regulations amend paragraph 35D so as to—

(a) add, remove or amend an entry in a list of information, and

(b) 30make incidental provision.

Penalties for failure to comply

35F (1) A person who fails to comply with paragraph 35C is liable to a
penalty of £300.

(2) Sub-paragraph (3) applies if the failure continues after the date on
35which a penalty is imposed under sub-paragraph (1) in respect of
the failure.

(3) The person is liable to a further penalty or penalties not exceeding
£60 for each subsequent day, up to a maximum of 90 days, on
which the failure continues.

40Penalties for inaccurate information and documents

35G (1) This paragraph applies if—

(a) in complying with the duty under paragraph 35C, a person
provides inaccurate information, and

(b) condition A, B or C is met.

Finance (No. 2) BillPage 58

(2) Condition A is that the inaccuracy is careless or deliberate.

(3) An inaccuracy is careless if it is due to a failure by the person to
take reasonable care.

(4) Condition B is that the person knows of the inaccuracy at the time
5the information is provided but does not inform HMRC at that
time.

(5) Condition C is that the person—

(a) discovers the inaccuracy some time later, and

(b) fails to take reasonable steps to inform HMRC.

(6) 10The person is liable to a penalty not exceeding £3000.

(7) Where the information contains more than one inaccuracy, a
penalty is payable for each inaccuracy.

Reasonable excuse

35H (1) Liability to a penalty under paragraph 35F does not arise if the
15person satisfies HMRC or (on an appeal notified to the tribunal)
the tribunal that there is a reasonable excuse for the failure.

(2) For the purposes of this paragraph—

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

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

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

Assessment of a penalty

35I (1) Where a person becomes liable for a penalty under paragraph 35F
30or 35G

(a) HMRC may assess the penalty, and

(b) if they do so, they must notify the person.

(2) An assessment of a penalty under paragraph 35F must be made
before 1 October 2021.

(3) 35An assessment of a penalty under paragraph 35G must be made
before 1 October 2023.

Appeals

35J (1) A person may appeal against any of the following decisions of an
officer of Revenue and Customs—

(a) 40a decision that a penalty is payable by that person under
paragraph 35F or 35G, or

(b) a decision as to the amount of such a penalty.

Finance (No. 2) BillPage 59

(2) Notice of an appeal under this paragraph must be given—

(a) in writing,

(b) before the end of the period of 30 days beginning with the
date on which the notification under paragraph 35I was
5issued, and

(c) to HMRC.

(3) Notice of an appeal under this paragraph must state the grounds
of appeal.

(4) On an appeal under sub-paragraph (1)(a) that is notified to the
10tribunal, the tribunal may confirm or cancel the decision.

(5) On an appeal under sub-paragraph (1)(b) that is notified to the
tribunal, the tribunal may—

(a) confirm the decision, or

(b) substitute for the decision another decision that the officer
15of Revenue and Customs had power to make.

Enforcement

35K (1) A penalty under paragraph 35F or 35G must be paid—

(a) before the end of the period of 30 days beginning with the
date on which the notification under paragraph 35I was
20issued, or

(b) if a notice of an appeal against the penalty is given, before
the end of the period of 30 days beginning with the date on
which the appeal is determined or withdrawn.

(2) A penalty under paragraph 35F or 35G may be enforced as if it
25were income tax charged in an assessment and due and payable.”

11 (1) Paragraph 36 (duty to provide loan balance information to B) is amended in
accordance with this paragraph.

(2) In sub-paragraph (2) for “loan balance information” substitute “loan charge
information (see paragraph 35D)”.

(3) 30Omit sub-paragraphs (3), (5) and (6).

(4) In the italic heading preceding paragraph 36, for “balance” substitute
“charge”.

PAYE: employee of non-UK employer

12 (1) Section 689 of ITEPA 2003 (PAYE: employee of non-UK employer) is
35amended in accordance with this paragraph.

(2) In subsection (4), in the words before paragraph (a), after “employee,” insert
“and if the case is not within subsection (4A),”.

(3) After subsection (4) insert—

(4A) A case is within this subsection if—

(a) 40the section concerned is section 687A or 695A (employment
income under Part 7A), and