Finance (No. 2) Bill

Finance (No. 2) Bill - continued	House of Commons
PART III, INCOME TAX, CORPORATION TAX AND CAPITAL GAINS TAX - continued
Computation of profits of trade, profession or vocation - continued

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Minor and consequential provisions about computations.

46. - (1) In provisions of the Tax Acts relating to the computation of the profits of a trade, profession or vocation references to receipts and expenses are (except where otherwise expressly provided) to any items brought into account as credits or debits in computing such profits.

There is no implication that an amount has been actually received or expended.

(2) Except where otherwise expressly provided, the same rules apply in computing losses of a trade, profession or vocation for any purpose of the Tax Acts as apply in computing profits.

(3) In the provisions of the Tax Acts which refer to the subject of the charge under Case I or II of Schedule D as "profits or gains" or "profits and gains" of a trade, profession or vocation-

(a) for "profits or gains" or "profits and gains", wherever occurring, substitute "profits", and

(b) for "arising or accruing", in reference to such profits or gains, substitute "arising".

The provisions affected are listed in Schedule 7 to this Act.

Gifts to charities

Gifts in kind for relief in poor countries.

47. - (1) This section applies where-

(a) any article falling within subsection (2) below is given to a charity at any time in the period beginning with the first designation date and ending with 31st December 2000;

(b) the person making the gift ("the donor") is a person carrying on a trade, profession or vocation; and

(c) that gift is made for the purpose of enabling the article to be used by an educational establishment in a designated country or territory.

(2) An article falls within this subsection if-

(a) it is an article manufactured, or of a class or description sold, by the donor in the course of his trade; or

(b) it is an article used by the donor in the course of his trade, profession or vocation which for the purposes of Part II of the Capital Allowances Act 1990 constitutes machinery or plant used by him wholly or partly in the course of that trade, profession or vocation.

(3) Subject to subsections (4) and (5) below, where this section applies in the case of the gift of any article-

(a) no amount shall be required, in consequence of the donor's disposal of that article from trading stock, to be brought into account for the purposes of the Tax Acts as a trading receipt of the donor; and

(b) subsection (6) of section 24 of the Capital Allowances Act 1990 shall not require the donor to bring into account any disposal value in respect of the article for the purposes of that section.

(4) In any case where-

(a) relief is given under subsection (3) above in respect of the gift of an article, and

(b) any benefit received in any chargeable period by the donor or any person connected with him is in any way attributable to the making of that gift,

the donor shall in respect of that chargeable period be charged to tax under Case I or Case II of Schedule D or, if he is not chargeable to tax under either of those Cases for that period, under Case VI of Schedule D on an amount equal to the value of that benefit.

(5) Subsection (3) above shall not apply unless the donor makes a claim for relief under this section; and such a claim-

(a) must be made within the required period; and

(b) must specify the article given and the name of the charity to which it is given.

(6) In subsection (5)(a) above "the required period" means-

(a) in the case of a claim with respect to income tax, the period ending with the first anniversary of the 31st January next following the year of assessment in whose basis period the gift is made; and

(b) in the case of a claim with respect to corporation tax, the period of two years beginning at the end of the accounting period in which the gift is made.

(7) In paragraph (a) of subsection (6) above "basis period" means-

(a) in relation to a year of assessment for which a basis period is given by sections 60 to 63 of the Taxes Act 1988, that basis period; and

(b) in relation to a year of assessment for which no basis period is given by those sections, the year of assessment.

(8) A country or territory is a designated country or territory for the purposes of this section if-

(a) it is designated as such by an order made for those purposes by the Treasury; or

(b) it is of a description specified in an order so made;

and a description specified in such an order may be expressed by reference to the opinion of any person so specified or by reference to the contents from time to time of a document prepared by a person so specified.

(9) In this section-

"charity" has the same meaning as in section 506 of the Taxes Act 1988; and

"the first designation date" means the date on which the Treasury first makes an order under subsection (8) above.

(10) Section 839 of the Taxes Act 1988 (connected persons) applies for the purposes of this section.

Gifts of money for relief in poor countries.

48. - (1) This section applies to any gift of a sum of money by an individual to a charity that has given the required notification to the Board if that gift is made-

(a) in the period beginning with the first designation date and ending with 31st December 2000; and

(b) in circumstances giving rise to a reasonable expectation that the sum given will be applied for, or in connection with, one or both of the purposes specified in subsection (2) below.

(2) Those purposes are-

(a) the relief of poverty in any one or more designated countries or territories, and

(b) the advancement of education in any one or more designated countries or territories.

(3) Subject to the following provisions of this section, subsection (2)(g) of section 25 of the Finance Act 1990 (minimum payment for which relief given on gift by an individual) shall have effect in relation to any gift to which this section applies as if for "£250" there were substituted "£100".

(4) Where-

(a) a relevant gift of less than £100 is made by an individual to a charity that has given the required notification to the Board,

(b) the aggregate of that gift and any one or more subsequent relevant gifts made by that individual to that charity is £100 or more,

(d) the condition specified in paragraph (e) of subsection (2) of section 25 of the Finance Act 1990 (limit on benefit for the donor) would be satisfied if the aggregated gifts constituted a single gift by that individual to that charity made at the time of the making of the last of them to be made,

the aggregated gifts shall be treated for the purposes of that section as if they together constituted a single qualifying donation made by that individual to that charity at that time.

(5) The gifts aggregated for the purposes of subsection (4) above must not include either-

(a) a relevant gift of £250 or more; or

(b) more than one relevant gift of £100 or more.

(6) The reference in paragraph (c) of subsection (4) above to an appropriate certificate is a reference to a certificate which states-

(a) that each of the gifts being aggregated qualifies as a relevant gift for the purposes of this section;

(b) that if those gifts are treated in accordance with this section as a single qualifying donation made at the time specified in subsection (4) above, the single donation will satisfy the taxation condition; and

(7) For the purposes of subsection (6) above the taxation condition in the case of any relevant gift is that, either directly or by deduction from profits or gains brought into charge to tax in the relevant year of assessment, the individual making the gift has paid or will pay to the Board income tax of an amount equal to income tax at the basic rate for the relevant year of assessment on the grossed up amount of that gift.

(8) In this section-

"the first designation date" means the date on which the Treasury first makes an order under subsection (9) below;

"relevant gift" means a gift to which this section applies which is either-

(a) a gift which satisfies the requirements of subsection (2) of section 25 of the Finance Act 1990; or

(b) a gift of less than £100 which would satisfy those requirements if paragraph (g) of that subsection, or that paragraph together with paragraph (e), were disregarded;

and

"required notification", in relation to a charity, means a notification (including one given before the passing of this Act) which-

(i) is in such form, and contains such information, as may have been required by the Board, and

(ii) contains a statement to the effect that the charity proposes to accept gifts to which this section applies.

(9) A country or territory is a designated country or territory for the purposes of this section if-

(a) it is designated as such by an order made for those purposes by the Treasury; or

(b) it is of a description specified in an order so made;

(10) Expressions used in this section and in section 25 of the Finance Act 1990 have the same meanings in this section as in that section.

Employee share incentives

Employee share options.

49. - (1) In section 135 of the Taxes Act 1988, in each of subsections (2) and (5) (in accordance with which there is a charge to tax when an employee obtains a share option that is exercisable more than seven years after being obtained), for "seven" there shall be substituted "ten".

(2) Subsection (1) above has effect in relation to rights obtained on or after 6th April 1998.

Conditional acquisition of shares.

50. - (1) After section 140 of the Taxes Act 1988 there shall be inserted the following sections-

"Conditional acquisition of shares.	140A. - (1) This section applies where-
	(a) a beneficial interest in any shares in a company ("the employee's interest") is acquired by any person ("the employee") as a director or employee of that or another company; and
	(b) the employee acquires that interest on terms that make his interest in the shares only conditional.
	(2) If the terms on which the employee acquires the employee's interest are such that his interest in the shares in question will or might continue to be only conditional until a time more than five years after his acquisition of the interest, tax shall be chargeable under Schedule E in respect of that interest on the basis that it is emoluments of the office or employment concerned.
	(3) In any other case, there shall (subject to the following provisions of this section) be no tax chargeable on the employee under Schedule E in respect of his acquisition of the interest except any tax which is so chargeable by virtue only of section 135 or 162.
	(4) If, in a case falling within subsection (2) or (3) above-
	(a) the shares cease, without the employee ceasing to have a beneficial interest in them, to be shares in which the employee's interest is only conditional, or
	(b) the employee, not having become chargeable by virtue of this subsection in relation to the shares, sells or otherwise disposes of the employee's interest or any other beneficial interest in them,
	he shall, for the year of assessment in which they so cease, or in which the sale or other disposal takes place, be chargeable to tax under Schedule E on the amount specified in subsection (5) below.
	(5) That amount is the amount (if any) by which the sum of the deductible amounts is exceeded by the market value of the employee's interest immediately after that interest ceases to be only conditional or, as the case may be, at the time of the sale or other disposal.
	(6) For the purposes of subsection (5) above the market value of the employee's interest at any time is the amount that might reasonably be expected to be obtained from a sale of that interest in the open market at that time.
	(7) For those purposes the deductible amounts are-
	(a) the amount or value of the consideration given for the employee's interest;
	(b) any amounts on which the employee has become chargeable to tax under Schedule E in respect of his acquisition of the employee's interest;
	(c) any amounts on which the employee has, by reference to an event occurring not later than the time of the event by virtue of which a charge arises under this section, become chargeable to tax in respect of the shares under section 78 or 79 of the Finance Act 1988 (unapproved employee share schemes).
	(8) Where the employee dies holding the employee's interest this section shall have effect-
	(a) as if he had disposed of that interest immediately before his death; and
	(b) as if the market value of the interest at the time of that disposal were to be determined for the purposes of subsection (5) above on the basis-
	(i) that it is known that the disposal is being made immediately before the employee's death; and
	(ii) that any restriction on disposal subject to which the employee holds the shares is to be disregarded in so far as it is a restriction terminating on his death.
	(9) Any reference in this section or section 140B or 140C to shares in a company includes a reference to securities issued by a company; and the references in subsection (7)(c) above to an event include references to the expiry of a period.
Consideration for shares conditionally acquired.	140B. - (1) This section applies in relation to any shares for determining the amount or value of the consideration referred to in section 140A(7)(a).
	(2) Subject to the following provisions of this section, that consideration is any given by-
	(a) the employee; or
	(b) in a case where section 140H(1)(b) applies and the shares were acquired by another person, that other person,
	in respect of the acquisition of an interest in the shares.
	(3) The amount or value of the consideration given by any person for an interest in the shares shall include-
	(a) the amount or value of any consideration given for a right to acquire those shares; and
	(b) the amount or value of any consideration given for anything by virtue of which the employee's interest in the shares ceases to be only conditional.
	(4) Where any consideration is given partly in respect of one thing and partly in respect of another, the amount given in respect of the different things shall be determined on a just and reasonable apportionment.
	(5) The consideration which for the purposes of this section is taken to be given wholly or partly for anything shall not include the performance of any duties of or in connection with the office or employment by reference to which the interest in the shares in question has been acquired by a person as a director or employee of a company.
	(6) No amount shall be counted more than once in the computation of the amount or value of any consideration.
	(7) Subsections (1) to (3) of section 136 shall apply for determining for the purposes of subsection (3)(a) above the amount or value of the consideration given for a right to acquire any shares as they apply for determining such an amount for the purposes of section 135.
Cases where interest to be treated as only conditional.	140C. - (1) For the purposes of sections 140A and 140B (but subject to the following provisions of this section) a beneficial interest in shares is only conditional for so long as the terms on which the person with that interest is entitled to it-
	(a) provide that, if certain circumstances arise, or do not arise, there will be a transfer, reversion or forfeiture as a result of which that person will cease to be entitled to any beneficial interest in the shares; and
	(b) are not such that, on the transfer, reversion or forfeiture, that person will be entitled in respect of his interest to receive an amount equal to or more than the amount that might reasonably be expected (if there were no provision for transfer, reversion or forfeiture) to be obtained from a sale of that interest in the open market at that time.
	(2) A person shall not for the purposes of sections 140A and 140B be taken, in relation to any shares, to have an interest which is only conditional by reason only that, in a case where there is no restriction on the meeting of calls by that person, the shares-
	(a) are unpaid or partly paid; and
	(b) may be forfeited for non-payment of calls.
	(3) A person shall not for the purposes of sections 140A and 140B be taken, in relation to any shares in a company, to have an interest which is only conditional by reason only that the articles of association of the company require him to offer the shares for sale if he ceases to be an officer or, as the case may be, employee of the company.
	(4) A person shall not for the purposes of sections 140A and 140B be taken, in relation to any security, to have an interest which is only conditional by reason only that the security may be redeemed on payment of any amount.
	(5) In subsection (1) above the references, in relation to the terms of a person's entitlement, to circumstances arising include references-
	(a) to the expiration of a period specified in or determined under those terms or the death of that person or any other person; and
	(b) to the exercise by any person of any power conferred on him by or under those terms."

(2) In section 77(1) of the Finance Act 1988 (application of Chapter about unapproved employee share schemes), after "Subject to" there shall be inserted "section 140A of the Taxes Act 1988 and".

(3) After subsection (6) of section 79 of that Act (charge for shares in dependent subsidiaries) there shall be inserted the following subsection-

"(6A) If, before the time by reference to which the chargeable increase is determined, an event occurs by virtue of which the person making the acquisition becomes chargeable to tax under section 140A(4) of the Taxes Act 1988 (employee's interest in shares ceasing to be only conditional) on any amount ("the charged amount") in respect of the shares, the amount on which tax is chargeable by virtue of this section shall be reduced by the charged amount."

(4) The preceding provisions of this section apply in relation to interests acquired on or after 17th March 1998.

Prepared 6 April 1998