Clause 552: Attribution of interest in company to beneficiary or associate

2221.     This clause sets out that in certain circumstances the individual (or an associate of the individual) is treated as owning the "appropriate percentage" of the company's ordinary share capital. It derives from paragraph 7(9) of Schedule 8 to ICTA.

2222.     The relevant circumstances are that the individual in question (or an associate) has received a payment from the employee benefit trust since 13 March 1989 and the property subject to the trust included any ordinary share capital of the company at any time during the three years preceding that payment.

2223.     The "appropriate percentage" of the company's ordinary share capital that the individual (or associate) is treated as owning in those circumstances is specified in clause 553.

Clause 553: Meaning of "appropriate percentage" for purposes of section 552

2224.     This clause sets out how the "appropriate percentage" is to be calculated. It derives from paragraph 7(10) of Schedule 8 to ICTA.

2225.     There are a number of factors to be taken into account in working out the "appropriate percentage" of the company's ordinary share capital for the purposes of clause 552. The main calculation consists of a straightforward fraction using "P" and "D" to signify the numbers to be fed into that fraction. The expressions "P" and "D", however, take rather more explaining.

2226.     "P" is either the total of any payments received by the individual or associates from the trust during the 12 months up to and including the day the relevant payment is made (subsection (2)) or, if smaller, the distributions made by the company to the trustees of the employee benefit trust during the period of three years up to and including the day the relevant payment is made (subsection (3)).

2227.     "D" is the aggregate distributions made during the three years preceding the relevant payment, divided by the number of years in which such distributions were actually made (subsection (4)).

2228.     It is difficult to express the ideas in this calculation in simpler terms than those used in paragraph 7(10) of Schedule 8 to ICTA; but the clause includes a mini method statement for the calculation of "D".

Clause 554: Attribution of further interest in company

2229.     This clause sets out in that in certain circumstances the individual (or an associate of the individual) is treated as owning, not only the "appropriate percentage" of the company's ordinary share capital determined under clause 552 but an additional percentage as well. It derives from paragraph 7(11) of Schedule 8 to ICTA.

2230.     The "appropriate percentage" may be increased if the individual (or associate) receives payments from other trusts that own shares in the company. This clause sets out in what circumstances the appropriate percentage may be so increased, and how to work out the total percentage of the company's share capital that the individual (or associate) is treated as owning.

2231.     Subsection (3) sets out material that has no precise counterpart in ICTA; but its inclusion in this Bill should make the legislation clearer.

Part 8: Former employees: deductions for liabilities

Overview

2232.     This Part contains provisions that give relief for payments made against liabilities arising from a former office or employment. To qualify for relief those payments must be made in the run-off period defined in the provisions. The clauses derive from the provisions in section 92 of FA 1995, apart from subsections (6) to (8), which are dealt as consequential amendments in paragraphs 217 and 219(2) of Schedule 6 and subsection (10), which is dealt with in clauses 409 and 410.

2233.     In most instances there will not be any income from the relevant employment against which to set the payment incurred because that employment must have ceased. Relief for the payment is therefore given against total income. That contrasts with the corresponding provisions for similar payments incurred in an ongoing office or employment, found in clauses 346 to 350 in Chapter 2 of Part 5, which derive from section 201AA of ICTA. Under those provisions the payment can only be set against earnings from the employment that gives rise to the liabilities that led to the payment being incurred.

2234.     Section 92 of FA 1995 operated by importing concepts from section 201AA of ICTA. This Part does not follow that approach and instead is as self-contained as possible.

Clause 555: Former employee entitled to deduction from total income

2235.     This clause sets out the circumstances under which entitlement to a deduction arises. It derives from parts of section 92(1) and (5) of FA 1995.

Clause 556: Deductible payments made outside the time limits allowed

2236.     This clause gives the start and finish dates of the run-off period referred to in the overview above. It derives from section 92(2)(a) of FA 1995.

2237.     Subsection (1) is more precise than the source legislation about when the payment must be made. See Change 134 in Annex 1.

Clause 557: Deductible payments wholly or partly borne by the former employer etc.

2238.     This clause gives a method for determining the amount of any deduction due to a former employee in one of two circumstances where that employee has not paid or borne the whole of the cost of the payment personally. It derives from parts of sections 92(4) and (5) of FA 1995.

2239.     The first circumstance is that the former employer (as defined in clause 563) has borne some or all of the cost involved. The second circumstance is that the cost has been met from the proceeds of a contract of insurance against the risk(s) that gave rise to the need to make the payment. A deduction for the payment involved is available only to the extent that the former employee has been treated as having received a relevant retirement benefit or post-employment earnings.

Clause 558: Meaning of "deductible payment"

2240.     This clause derives from section 201AA(1), (7), (8) and (9) of ICTA and from section 92(2)(b) of FA 1995. It describes the different sorts of payments that can qualify as a deduction under this Part.

Clause 559: Liabilities related to the former employment

2241.     This clause describes the types of liability that can give rise to payments that qualify for relief. It derives from section 201AA(2) of ICTA and from section 92(2)(b) of FA 1995.

Clause 560: Meaning of "qualifying insurance contract"

2242.     This clause describes the conditions that have to be met if an insurance contract is to fall within the scope of this Part. It derives from section 201AA(3)(a) to (d) and (4) of ICTA and from section 92(2)(b) of FA 1995.

2243.     Subsections (2) to (5) state the conditions that have to be met for an insurance contract to come within clause 558(1).

Clause 561: Connected contracts

2244.     This clause describes what determines whether insurance contracts are connected with one another. It derives from section 201AA (5) and (6) of ICTA and from section 92(2)(b) of FA 1995.

2245.     Subsections (1) to (3) define when insurance contracts are connected.

2246.     Subsections (4) to (7) provide for that connection to be ignored in certain specified circumstances.

Clause 562: Meaning of "former employee" and "employment"

2247.     This clause defines what is meant by a "former employee", giving some non-exhaustive examples of the sort of posts covered. It is based on and developed from the definition of "employment" in clause 4. It is sufficiently wide in scope to include what are commonly described as "shadow directors", as defined in the full out words of clause 67(1). See Note 1 in Annex 2.

Clause 563: Other interpretation

2248.     This clause contains definitions of some terms used throughout this Part. It derives from section 92(4) (part) and (9) of FA 1995.

2249.     In particular this clause has an extended definition of "former employer". See Note 1 in Annex 2.

Clause 564: Application of this Part to office holders

2250.     The provisions in this Part are written in terms of the "former employee". This clause extends the provisions so that they apply equally to former office-holders. It echoes the provisions in clause 5. The clause derives from part of section 92(4) and (9) of FA 1995. See Note 1 in Annex 2.