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Schedule 24 | |
Section 142 | |
Restriction of deductions for employee benefit contributions | |
Restriction of deductions | |
1 (1) This Schedule applies where— | |
(a) a calculation is required to be made for tax purposes of a person’s | 5 |
profits for any period, and | |
(b) a deduction would (but for this Schedule) be allowed for that period | |
in respect of employee benefit contributions made, or to be made, by | |
that person (“the employer”). | |
But it does not apply to a deduction of a kind mentioned in paragraph 8. | 10 |
(2) For the purposes of this Schedule an employer makes an “employee benefit | |
contribution” if— | |
(a) he pays money or transfers an asset to another person (“the third | |
party”), and | |
(b) the third party is entitled or required, under the terms of an | 15 |
employee benefit scheme, to hold or use the money or asset for or in | |
connection with the provision of benefits to employees of the | |
employer. | |
(3) The deduction in respect of employee benefit contributions mentioned in | |
sub-paragraph (1) is allowed only to the extent that— | 20 |
(a) during the period in question or within nine months from the end of | |
it— | |
(i) qualifying benefits are provided out of the contributions, or | |
(ii) qualifying expenses are paid out of the contributions, | |
or | 25 |
(b) where the making of the contributions is itself the provision of | |
qualifying benefits, the contributions are made during that period or | |
within those nine months. | |
(4) An amount disallowed under sub-paragraph (3) is allowed as a deduction | |
for a subsequent period to the extent that— | 30 |
(a) qualifying benefits are provided out of the employee benefit | |
contributions in question before the end of that subsequent period, | |
or | |
(b) where the making of the contributions is itself the provision of | |
qualifying benefits, the contributions are made before the end of that | 35 |
subsequent period. | |
“Provision of qualifying benefits” | |
2 (1) For the purposes of this Schedule qualifying benefits are provided where | |
there is a payment of money or transfer of assets, otherwise than by way of | |
loan, that— | 40 |
(a) gives rise both to an employment income tax charge and to an NIC | |
charge, or would do if the conditions in sub-paragraph (3) were met, | |
or | |
(b) is made in connection with the termination of the recipient’s | |
employment with the employer. | 45 |
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(2) In sub-paragraph (1)(a)— | |
“employment income tax charge” means a charge to tax under the | |
Income Tax (Earnings and Pensions) Act 2003 (c. 1) (whether on the | |
recipient or on someone else); | |
“NIC charge” means a liability to pay national insurance contributions | 5 |
under section 6 (Class 1 contributions), 10 (Class 1A contributions) | |
or 10A (Class 1B contributions) of the Contributions and Benefits | |
Act. | |
(3) The conditions mentioned in sub-paragraph (1)(a) are— | |
(a) that the duties of the employment in respect of which the payment | 10 |
or transfer was made were performed in the United Kingdom, and | |
(b) that the person in respect of whose employment the payment or | |
transfer was made fulfilled at all relevant times the conditions as to | |
residence or presence in Great Britain or Northern Ireland prescribed | |
under section 1(6)(a) of the Contributions and Benefits Act. | 15 |
(4) In this paragraph “the Contributions and Benefits Act” means— | |
(a) the Social Security Contributions and Benefits Act 1992 (c. 4), or | |
(b) the Social Security Contributions and Benefits (Northern Ireland) | |
Act 1992 (c. 7). | |
(5) Where the provision of a qualifying benefit takes the form of the payment of | 20 |
money, the benefit is treated for the purposes of this Schedule as provided | |
at the time when the money is treated as received for the purposes of | |
Chapter 4 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003, | |
applying the rules in section 18 of that Act (receipt of money earnings). | |
“Qualifying expenses” | 25 |
3 In this Schedule “qualifying expenses”— | |
(a) does not include expenses that, if incurred by the employer, would | |
not be deductible in calculating for tax purposes the employer’s | |
profits for any period, but | |
(b) subject to that, includes any expenses of the third party (other than | 30 |
the provision of benefits to employees of the employer) in operating | |
the employee benefit scheme in question. | |
Payment “out of” employee benefit contributions | |
4 (1) For the purposes of paragraph 1(3)(a) any qualifying benefits provided or | |
qualifying expenses paid by the third party after the receipt by him of | 35 |
employee benefit contributions are regarded as being provided or paid out | |
of those contributions, up to the total amount of the contributions as reduced | |
by the amount of any benefits or expenses previously provided or paid as | |
mentioned in paragraph 1(3)(a). | |
(2) For the purposes of paragraph 1(4)(a) any qualifying benefits provided by | 40 |
the third party after the receipt by him of employee benefit contributions are | |
regarded as being provided out of those contributions, up to the total | |
amount of the contributions as reduced by the amount of any benefits or | |
expenses previously provided or paid as mentioned in paragraph 1(3)(a) or | |
(4)(a). | 45 |
(3) In applying sub-paragraphs (1) and (2) above no account shall be taken of | |
any other amount received or paid by the third party. | |
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Transfer of asset to employee | |
5 (1) This paragraph applies where the provision of a qualifying benefit takes the | |
form of the transfer of an asset. | |
(2) The amount provided shall be taken for the purposes of this Schedule to be | |
the total of— | 5 |
(a) the amount (if any) expended on the asset by the third party, and | |
(b) in a case where the asset was transferred to the third party by the | |
employer, the amount of the deduction that would be allowed as | |
mentioned in paragraph 1(1) in respect of the transfer. | |
(3) But where the amount given by sub-paragraph (2) above is more than the | 10 |
amount that is charged to tax under the Income Tax (Earnings and Pensions) | |
Act 2003 (c. 1) in respect of the transfer, or would be so charged if the | |
condition in paragraph 2(3)(a) were met, the deduction allowable under | |
paragraph 1(3) or (4) is limited to that lower amount. | |
Provisional calculation of profits | 15 |
6 Where the calculation referred to in paragraph 1(1) is made before the end | |
of the nine-month period mentioned in paragraph 1(3)— | |
(a) for the purposes of making the calculation, paragraph 1(3) shall be | |
read as if the reference to that nine-month period were a reference to | |
the period ending at the time when the calculation is made, but | 20 |
(b) after the end of the nine-month period the calculation shall if | |
necessary be adjusted to take account of any benefits provided, | |
expenses paid or contributions made within that period but after the | |
time of the calculation. | |
Life assurance business | 25 |
7 (1) In the case of an insurance company carrying on life assurance business, the | |
effect of section 86 of the Finance Act 1989 (c. 26) (spreading of relief for | |
acquisition expenses) shall be ignored in determining for the purposes of | |
paragraph 1(1) whether a deduction would (apart from this Schedule) be | |
allowed for a particular period. | 30 |
(2) But paragraph 1(4) has effect subject to that section where, in accordance | |
with sub-paragraph (1) above, an amount is allowed as a deduction for a | |
particular period under paragraph 1(4). | |
Deductions to which Schedule does not apply | |
8 This Schedule does not apply to any deduction that is allowable— | 35 |
(a) in respect of anything given as consideration for goods or services | |
provided in the course of a trade or profession, | |
(b) in respect of contributions under a retirement benefits scheme within | |
the meaning of Chapter 1 of Part 14 of the Taxes Act 1988 (see section | |
611 of that Act), | 40 |
(c) in respect of contributions under a personal pension scheme | |
approved under Chapter 4 of that Part (see section 630 of that Act), | |
(d) in respect of contributions under an accident benefit scheme, | |
(e) under Schedule 4AA to that Act (approved share incentive plans), | |
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(f) under section 67 of the Finance Act 1989 (c. 26) (qualifying share | |
ownership trusts), or | |
(g) under Schedule 23 to this Act (relief for employee share acquisition). | |
Interpretation | |
9 (1) In this Schedule— | 5 |
“accident benefit scheme” means an employee benefit scheme under | |
which benefits may be provided only by reason of a person’s | |
disablement, or death, caused by an accident occurring during his | |
service as an employee of the employer; | |
“employee benefit contribution” shall be read in accordance with | 10 |
paragraph 1(2); | |
“employee benefit scheme” means a trust, scheme or other | |
arrangement for the benefit of persons who are, or include, | |
employees of the employer; | |
“the employer” shall be read in accordance with paragraph 1(1); | 15 |
“for tax purposes” means for any purposes of income tax or | |
corporation tax; | |
“qualifying benefits” shall be read in accordance with paragraph 2; | |
“qualifying expenses” has the meaning given by paragraph 3; | |
“the third party” shall be read in accordance with paragraph 1(2). | 20 |
(2) A reference in this Schedule to a person’s employee includes a reference to | |
the holder of an office under that person, and “employment” shall be read | |
accordingly. | |
Consequential amendments | |
10 (1) In section 43 (Schedule D) and section 44 (investment and insurance | 25 |
companies) of the Finance Act 1989, in subsection (2) (amounts charged in | |
accounts in respect of employees’ remuneration) for paragraphs (a) and (b) | |
substitute “for which provision is made in the accounts”. | |
(2) In Schedule 29 to the Finance Act 2002 (c. 23) (intangible fixed assets), in | |
paragraph 113(3)(a) (meaning of “potential emoluments”) omit the words | 30 |
“or benefits” and “, or held by an intermediary,”. | |
Commencement and transitory provisions | |
11 (1) This Schedule has effect in relation to deductions that would (but for this | |
Schedule) be allowed for a period ending on or after 27th November 2002 in | |
respect of employee benefit contributions made on or after that date. | 35 |
(2) In relation to any time before the coming into force of the Income Tax | |
(Earnings and Pensions) Act 2003 (c. 1), this Schedule has effect as if— | |
(a) the references to tax under that Act were to income tax under | |
Schedule E; | |
(b) the reference in paragraph 8(e) to Schedule 4AA to the Taxes Act | 40 |
1988 (approved share incentive plans) were to Part 12 of Schedule 8 | |
to the Finance Act 2000 (c. 17) (employee share ownership plans); | |
(c) for the words in paragraph 2(5) from “treated as received” to the end | |
there were substituted “treated as received for the purposes of | |
section 202A(1)(a) of the Taxes Act 1988, applying the rules in section | 45 |
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202B(1) to (6) of that Act (receipts basis of assessment for Schedule | |
E)”. | |
(3) In relation to any such time, sections 43(11)(a) and 44(9)(a) of the Finance Act | |
1989 (c. 26) have effect with the omission of the words “or benefits” and “, or | |
held by an intermediary,”. | 5 |
(4) In relation to a period beginning before 1st January 2003, the reference in | |
paragraph 8(g) to a deduction allowable under Schedule 23 to this Act shall | |
be read as a reference to a deduction allowable to a company for that period | |
in respect of a person— | |
(a) acquiring shares that are qualifying shares within the meaning of | 10 |
that Schedule, or | |
(b) having a right to acquire such shares, | |
whether in that period or subsequently, by reason of his or another’s | |
employment with the company. | |
Schedule 25 | 15 |
Section 148(3) | |
Determination of profits attributable to permanent establishment: | |
supplementary provisions | |
The Schedule inserted in the Taxes Act 1988 as Schedule A1 is as follows— | |
“Schedule A1 | |
Determination of profits attributable to permanent establishment: | 20 |
supplementary provisions | |
Part 1 | |
Introduction | |
Introduction | |
1 (1) The provisions of this Schedule have effect for supplementing | 25 |
section 11AA as regards the determination of the profits | |
attributable to a permanent establishment in the United Kingdom | |
of a company that is not resident in the United Kingdom (“the | |
non-resident company”). | |
(2) In this Schedule “the separate enterprise principle” means the | 30 |
principle in section 11AA(2) (read with subsection (3) of that | |
section). | |
Part 2 | |
General provisions | |
Transactions treated as taking place at arm’s length | 35 |
2 In accordance with the separate enterprise principle, transactions | |
between the permanent establishment and any other part of the | |
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non-resident company are treated as taking place on such terms as | |
would have been agreed between parties dealing at arm’s length. | |
Application of general provision as to allowable deductions | |
3 (1) Section 11AA(4) (general provision as to allowable deductions) | |
applies whether or not the expenses are incurred by, or | 5 |
reimbursed by, the permanent establishment. | |
(2) The amount of expenses to be taken into account under section | |
11AA(4) is the actual cost to the non-resident company. | |
Prohibition of deductions for payments in respect of intangible assets | |
4 (1) No deduction is allowed in respect of royalties paid, or other | 10 |
similar payments made, by the permanent establishment to any | |
other part of the non-resident company in respect of the use of | |
intangible assets held by the company. | |
(2) This does not prevent a deduction in respect of any contribution | |
by the permanent establishment to the costs of creation of an | 15 |
intangible asset. | |
(3) In this paragraph “intangible asset” has the meaning it has for | |
accounting purposes, and includes any intellectual property (as | |
defined in paragraph 2(2) of Schedule 29 to the Finance Act 2002). | |
Prohibition of deductions for interest or other financing costs | 20 |
5 (1) No deduction is allowed in respect of payments of interest or other | |
financing costs by the permanent establishment to any other part | |
of the non-resident company, except as provided by sub- | |
paragraph (2). | |
(2) The restriction in sub-paragraph (1) above does not apply to | 25 |
interest or other costs of financing that are payable in respect of | |
borrowing by the permanent establishment in the ordinary course | |
of a financial business carried on by it. | |
(3) In sub-paragraph (2) “financial business” means any of the | |
following— | 30 |
(a) banking, deposit-taking, money-lending or debt-factoring, | |
or a business similar to any of those; | |
(b) dealing in commodity or financial futures. | |
Provision of goods or services for permanent establishment | |
6 (1) This paragraph applies where the non-resident company provides | 35 |
the permanent establishment with goods or services. | |
(2) If the goods or services are of a kind that the company supplies, in | |
the ordinary course of its business, to third parties dealing with it | |
at arm’s length, the matter is dealt with as a transaction to which | |
the separate enterprise principle applies. | 40 |
(3) If not, the matter is dealt with as an expense incurred by the non- | |
resident company for the purposes of the permanent | |
establishment. | |
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Part 3 | |
Provisions applicable to non-resident banks | |
Application of this Part | |
7 (1) The provisions of this Part of this Schedule have effect where the | |
non-resident company is a bank. | 5 |
“Bank” for this purpose has the meaning given by section 840A. | |
(2) Nothing in this Part of this Schedule shall be read as preventing | |
the application of principles similar to those provided for in this | |
Part in applying the separate enterprise principle to a non-resident | |
company that is not a bank. | 10 |
Non-resident banks: transfer of financial assets | |
8 (1) In accordance with the separate enterprise principle, transfers of | |
loans and other financial assets between the permanent | |
establishment and any other part of the company are recognised | |
only if they would have taken place between independent | 15 |
enterprises. | |
(2) Such a transfer is not recognised where it cannot reasonably be | |
considered that it is carried out for valid commercial reasons. | |
For this purpose the obtaining of a tax advantage is not a valid | |
commercial reason. | 20 |
Loans by non-resident banks: attribution of financial assets and profits arising | |
9 (1) In accordance with the separate enterprise principle, loans and | |
other financial assets, and profits arising from them, are attributed | |
to a permanent establishment to the extent that they can | |
reasonably be regarded as having been generated by the activities | 25 |
of the permanent establishment. | |
(2) The following provisions have effect as regards the factors to be | |
taken into account. | |
(3) Particular account shall be taken of the extent to which the | |
permanent establishment is responsible for— | 30 |
(a) obtaining the offer of new business; | |
(b) establishing the potential borrower’s credit rating and the | |
risk involved in providing credit; | |
(c) negotiating the terms of the loan with the borrower; | |
(d) deciding whether, and if so on what conditions, to make or | 35 |
extend the loan. | |
(4) Account may also be taken of the extent to which the permanent | |
establishment is responsible for— | |
(a) concluding the loan agreement and disbursing the | |
proceeds of the loan; | 40 |
(b) administering the loan (including handling and | |
monitoring the service of it) and holding and controlling | |
any securities pledged. | |
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