Finance Bill

House of Commons

Session 2002 - 03
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Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 17 — Minor amendments of or connected with the Income Tax (Earnings and Pensions) Act 2003
374

      (2)
This amendment (which corrects an error in the amendment made by
paragraph 157 of Schedule 6 to the Income Tax (Pensions and Earnings) Act
2003) has effect—
(a)
for the purposes of income tax, for the year 2004-05 and subsequent
years of assessment;
5
(b)
for the purposes of corporation tax, for accounting periods ending
after 5th April 2004.
Donations to charity by individuals: application to Crown employment
5     (1)
In section 25(2) of the Finance Act 1990 (donations to charity by individuals:
qualifying conditions), in paragraph (i)(i) for the words from “or performs
10
duties” to “performed in the United Kingdom” substitute “or is in Crown
employment as defined in section 28(2) of the Income Tax (Earnings and
Pensions) Act 2003”.
      (2)
This amendment (which supersedes the amendment made by paragraph
166(3) of Schedule 6 to the Income Tax (Earnings and Pensions) Act 2003) has
15
effect for the year 2003-04 and subsequent years of assessment.
Payments on account of income tax
6     (1)
Section 108 of the Finance Act 1995 (c. 4) shall be deemed not to have been
repealed by Part 1 of Schedule 8 to the Income Tax (Earnings and Pensions)
Act 2003 (c. 1) and the inclusion of that section among the enactments so
20
repealed shall be deemed not to have affected the amendments made by that
section in section 59A of the Taxes Management Act 1970 (c. 9) (payments on
account of income tax).
      (2)
Nothing in this paragraph affects anything done—
(a)
on or after 6th April 2003 (when the Income Tax (Earnings and
25
Pensions) Act 2003 came into force), and
(b)
before the passing of this Act,

in reliance on the view that the amendments referred to in sub-paragraph (1)
had ceased to have effect.
Tax relief for expenditure on R&D or remediation of contaminated land: staff costs
30
7     (1)
In Schedule 20 to the Finance Act 2000 (c. 17) (tax relief for expenditure on
research and development), in paragraph 5 (staffing costs)—
(a)
in sub-paragraph (1), for paragraph (a) substitute—
“(a)
the emoluments paid by the company to directors
or employees of the company, including all
35
salaries, wages, perquisites and profits whatsoever
other than benefits in kind;”; and
(b)
omit sub-paragraph (1ZA).
      (2)
In Schedule 22 to the Finance Act 2001 (c. 9) (remediation of contaminated
land), in paragraph 5 (employee costs)—
40
(a)
in sub-paragraph (1), for paragraph (a) substitute—
“(a)
the emoluments paid by the company to directors
or employees of the company, including all
salaries, wages, perquisites and profits whatsoever
other than benefits in kind;”; and
45
(b)
omit sub-paragraph (1A).

Finance Bill
Schedule 17 — Minor amendments of or connected with the Income Tax (Earnings and Pensions) Act 2003
375

      (3)
These amendments have effect in relation to expenditure incurred on or
after 1st April 2004.
Gains and losses of a company from intangible fixed assets: delayed payment of remuneration
8     (1)
In Schedule 29 to the Finance Act 2002 (c. 23) (gains and losses of a company
from intangible fixed assets), paragraph 113 (delayed payments of
5
emolument) is amended as follows.
      (2)
In the heading, for “emoluments” substitute “employees’ remuneration”.
      (3)
In sub-paragraph (1)—
(a)
in paragraph (a), for “emoluments” substitute “employees’
remuneration”,
10
(b)
in paragraph (b), for “emoluments are” substitute “remuneration is”,
and
(c)
for “emoluments shall” substitute “remuneration shall”.
      (4)
For sub-paragraph (2) substitute—
     “(2)
Sub-paragraph (1) applies whether the amount is in respect of
15
particular employments or in respect of employments generally.”.
      (5)
For sub-paragraph (3) substitute—
     “(3)
This paragraph applies to potential employees’ remuneration as it
applies to employees’ remuneration.

For this purpose—
20
(a)
potential employees’ remuneration is an amount reserved
in the accounts of an employer, with a view to it becoming
employees’ remuneration, and
(b)
potential employees’ remuneration is regarded as paid
when it becomes employees’ remuneration that is paid.”.
25
      (6)
In sub-paragraph (5)—
(a)
for “emoluments have not” substitute “employees’ remuneration has
not”,
(b)
in paragraph (a), for “they” substitute “it”, and
(c)
in paragraph (b), for “emoluments are” substitute “remuneration is”.
30
      (7)
After that sub-paragraph insert—
     “(6)
For the purposes of this section remuneration is paid when it—
(a)
is treated as received by an employee for the purposes of
the Income Tax (Earnings and Pensions) Act 2003 by
section 18, 19, 31 or 32 of that Act (receipt of money and
35
non-money earnings), or
(b)
would be so treated if it were not exempt income.
      (7)
In this paragraph—
“employee” includes an office-holder and “employment”
correspondingly includes an office, and
40
“remuneration” means an amount which is or is treated as
earnings for the purposes of the Income Tax (Earnings
and Pensions) Act 2003.”.
      (8)
These amendments have effect for accounting periods ending after 5th April
2003.
45

Finance Bill
Schedule 17 — Minor amendments of or connected with the Income Tax (Earnings and Pensions) Act 2003
376

Minor corrections of the Income Tax (Earnings and Pensions) Act 2003
9     (1)
The Income Tax (Earnings and Pensions) Act 2003 (c. 1) is amended as
follows.
      (2)
In section 286 (power to amend sections 279 to 285), in the heading and in
subsection (1), for “279” substitute “277”.
5
      (3)
In Chapter 11 of Part 7 (supplementary provisions about employee benefit
trusts), in section 554(1)(a) (attribution of further interest in company), for
“employment” substitute “employee”.
      (4)
In section 577 (United Kingdom social security pensions)—
(a)
in subsection (2), in paragraph (b) of the definition of “state pension”,
10
for “48” substitute “48A”, and
(b)
omit subsection (3).
      (5)
In section 677 (UK social security benefits wholly exempt from income tax),
in Part 2 of Table B (benefits payable under regulations), omit the entry
relating to compensation payments where child support reduced because of
15
a change in legislation.
Other minor corrections
10    (1)
In section 59A(8)(b) of the Taxes Management Act 1970 (c. 9) (payments on
account of income tax), for “that Act” substitute “the principal Act”.
      (2)
In section 336 of the Income and Corporation Taxes Act 1988 (c. 1)
20
(temporary residents in the United Kingdom) for “Cases I, II and III of
Schedule E” substitute “determining taxable earnings from an employment
under Chapters 4 and 5 of Part 2 of the Income Tax (Earnings and Pensions)
Act 2003 (employment income: charge to tax)”.
      (3)
In section 38(9) of the Finance Act 1988 (c. 39) (maintenance payments under
25
existing obligations: 1989-90 onwards)—
(a)
for “68(1)(b) or 192(3)” substitute “or 68(1)(b)”, and
(b)
after “Taxes Act 1988” insert “or section 355 of the Income Tax
(Earnings and Pensions) Act 2003”.
      (4)
In section 76 of the Finance Act 1989 (c. 26) (non-approved retirement
30
benefits schemes)—
(a)
in subsection (3)(b) and (6)(b), for the words from “is treated” to the
end substitute “counts as employment income of a person by virtue
of section 386(1) of the Income Tax (Earnings and Pensions) Act 2003
(charge on payments to non-approved retirement benefit schemes)”,
35
and
(b)
in subsection (6D)(a) for “employer” substitute “employee”.

Finance Bill
Schedule 18 — Enterprise investment scheme
Part 1 — Income tax relief
377

Schedule 18
Section 93

Enterprise investment scheme
Part 1
Income tax relief
1     (1)
Section 289 of the Taxes Act 1988 (eligibility for income tax relief) is
5
amended as follows.
      (2)
In subsection (1)—
(a)
in paragraph (a), omit “wholly in cash”,
(b)
after that paragraph insert—
“(aza)
he subscribed for the shares (other than any of
10
them which are bonus shares) wholly in cash,”,
(c)
in paragraph (aa), for the words from “are fully” to “future date)”
substitute “(other than any of them which are bonus shares) are fully
paid up”,
(d)
in paragraph (b), for “and all other shares comprised in the same
15
issue” substitute “(other than any of them which are bonus shares)”,
(e)
for paragraph (c) substitute—
“(c)
at least 80 per cent. of the money raised by the issue
of—
(i)
the shares, and
20
(ii)
all other eligible shares (if any) in the
company of the same class which are issued
on the same day,

is employed wholly for the purpose of the activity
mentioned in paragraph (b) above not later than the
25
time mentioned in subsection (3) below, and”.
      (3)
For subsections (1A) to (1D) substitute—
“(1A)
The requirements of this subsection are satisfied in relation to the
qualifying company if at no time in the relevant period is any of the
following, namely—
30
(a)
the relevant qualifying trade,
(b)
relevant preparation work (if any), and
(c)
relevant research and development (if any),

being carried on by a person other than the qualifying company or a
qualifying 90% subsidiary of that company.
35
(1B)
In a case where relevant preparation work is carried on by the
qualifying company or a qualifying 90% subsidiary of that company,
there is to be disregarded, for the purpose of determining whether
the requirements of subsection (1A) above are satisfied in relation to
the qualifying company, the carrying on of the relevant qualifying
40
trade by a company other than—
(a)
the qualifying company, or
(b)
a subsidiary of that company,

at any time in the relevant period before the qualifying company or
any qualifying 90% subsidiary of that company carries on that trade.
45

Finance Bill
Schedule 18 — Enterprise investment scheme
Part 1 — Income tax relief
378

(1C)
The requirements of subsection (1A) above are not to be regarded as
failing to be satisfied in relation to the qualifying company if—
(a)
by reason only of anything done as a consequence of the
qualifying company or any other company being in
administration or receivership, or
5
(b)
by reason only of the qualifying company or any other
company being wound up or dissolved without winding up,

the relevant qualifying trade ceases to be carried on in the relevant
period by the qualifying company or any qualifying 90% subsidiary
of that company and is subsequently carried on in that period by a
10
person who is not at any time in the period of restriction connected
with the qualifying company.
(1D)
Subsection (1C) above applies only if (as the case may be)—
(a)
the entry into administration or receivership and everything
done as a consequence of the company concerned being in
15
administration or receivership, or
(b)
the winding up or dissolution,

is for bona fide commercial reasons and is not part of a scheme or
arrangement the main purpose of which or one of the main purposes
of which is the avoidance of tax.
20
(1E)
In this section—

“relevant preparation work” means preparations falling within
subsection (2)(a)(ii) below which are the subject of the
qualifying business activity mentioned in subsection (1)
above,
25

“the relevant qualifying trade” means the qualifying trade
which is the subject of that qualifying business activity,

“relevant research and development” means—
(a)
research and development falling within subsection
(2)(b) below which is the subject of that qualifying
30
business activity, and
(b)
any other preparations for the carrying on of the
qualifying trade which is the subject of that activity.”.
      (4)
In subsection (2)—
(a)
in paragraph (a), for “subsidiary” substitute “qualifying 90%
35
subsidiary of that company”,
(b)
in paragraph (a)(i), for “it” substitute “the company or any such
subsidiary”,
(c)
in paragraph (a)(ii)—
(i)
for “preparing to carry on” substitute “preparing to carry on,
40
or carrying on,”,
(ii)
for “it intends to carry” substitute “is intended to be carried”,
(iii)
for “and which it begins to carry on” substitute “by the
company or any such subsidiary and which is begun to be
carried on by the company or any such subsidiary”,
45
(d)
in the full-out words at the end of paragraph (a), for “trade is”
substitute “trade is so”,
(e)
in paragraph (b)—
(i)
for “subsidiary”, in the first place, substitute “qualifying 90%
subsidiary of that company”,
50

Finance Bill
Schedule 18 — Enterprise investment scheme
Part 1 — Income tax relief
379

(ii)
in sub-paragraph (i), for “it is carrying on or which it”
substitute “the company or any such subsidiary is carrying
on or which the company or any such subsidiary”,
(iii)
in sub-paragraph (ii), for “subsidiary” substitute “such
subsidiary”.
5
      (5)
In subsection (3)(b), for “subsidiary concerned” substitute “a qualifying 90%
subsidiary of that company”.
      (6)
After subsection (3) insert—
“(3A)
In determining—
(a)
for the purposes of subsection (2)(a)(ii) or (3)(b) above when
10
a qualifying trade is begun to be carried on by a qualifying
90% subsidiary of a company, or
(b)
for the purposes of subsection (2)(b)(i) above when research
and development is begun to be carried on by such a
subsidiary of a company,
15

there shall be disregarded any carrying on of the trade or, as the case
may be, the research and development by it before it became such a
subsidiary of the company.”.
      (7)
After subsection (8) insert—
“(8A)
Shares are not fully paid up for the purposes of subsection (1)(aa)
20
above if there is any undertaking to pay cash to any person at a
future date in respect of the acquisition of the shares.”.
      (8)
For subsection (9) substitute—
“(9)
For the purposes of this Chapter, a company (“the relevant
subsidiary”) is a qualifying 90% subsidiary of another company (“the
25
holding company”) if the following conditions are met—
(a)
the holding company possesses not less than 90% of the
issued share capital of, and not less than 90% of the voting
power in, the relevant subsidiary;
(b)
the holding company would—
30
(i)
in the event of a winding up of the relevant
subsidiary, or
(ii)
in any other circumstances,

be beneficially entitled to receive not less than 90% of the
assets of the relevant subsidiary which would then be
35
available for distribution to the equity holders of the
subsidiary;
(c)
the holding company is beneficially entitled to not less than
90% of any profits of the relevant subsidiary which are
available for distribution to the equity holders of the
40
subsidiary;
(d)
no person other than the holding company has control of the
relevant subsidiary within the meaning of section 840; and
(e)
no arrangements are in existence by virtue of which any of
the conditions in paragraphs (a) to (d) above would cease to
45
be met.
(10)
Subsections (3), (3A) and (4) of section 308 apply in relation to the
conditions in subsection (9) above as they apply in relation to the

Finance Bill
Schedule 18 — Enterprise investment scheme
Part 1 — Income tax relief
380

conditions in subsection (2) of that section, but with the following
modifications.
(11)
Those modifications are—
(a)
that references in subsections (3), (3A) and (4) of that section
to the subsidiary are to be read as references to the relevant
5
subsidiary, and
(b)
that subsection (4) of that section is to be read as if the words
“the holding company” were substituted for the words “the
qualifying company or (as the case may be) by another
subsidiary”.
10
(12)
For the purposes of subsection (9) above—
(a)
the persons who are equity holders of the relevant
subsidiary, and
(b)
the percentage of the assets of the relevant subsidiary to
which an equity holder would be entitled,
15

are to be determined in accordance with paragraphs 1 and 3 of
Schedule 18.
(13)
But in making that determination—
(a)
references in paragraph 3 of Schedule 18 to the first company
are to be read as references to an equity holder, and
20
(b)
references in that paragraph to a winding up are to be read as
including references to any other circumstances in which
assets of the relevant subsidiary are available for distribution
to its equity holders.”.
2     (1)
Section 289A of the Taxes Act 1988 (form of relief) is amended as follows.
25
      (2)
In subsection (6), for the words from “A claim” to “below is complied with”
substitute “A claim for relief in respect of eligible shares issued by a
company shall not be allowed unless subsection (7) below is complied with
in relation to the issue of shares in question”.
      (3)
In subsection (7)—
30
(a)
in paragraph (a)—
(i)
for “the case of shares issued” substitute “a case where the
money raised by an issue of eligible shares is raised wholly”,
(ii)
for “company or subsidiary concerned has carried on the
trade for four months” substitute “trade concerned has been
35
carried on for four months by no person other than the
qualifying company or a qualifying 90% subsidiary of that
company”,
(b)
in paragraph (b)—
(i)
for “the case of shares issued” substitute “a case where the
40
money raised by an issue of eligible shares is raised wholly or
partly”,
(ii)
for the words from “or within” to the end substitute “the
research and development concerned has been carried on for
four months by no person other than the qualifying company
45
or a qualifying 90% subsidiary of that company”.
      (4)
In subsection (8)—