Income Tax (Trading and Other Income) Bill

House of Commons

Session 2004 - 05
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Other Bills before Parliament

Income Tax (Trading and Other Income) Bill

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 3 — Dividends etc. from UK resident companies etc.
170

(b)
the reference to any of the charging provisions of Chapter 4 or 5 of Part
2 of ITEPA 2003 has the same meaning as it has in the employment
income Parts of that Act (see sections 14(3) and 20(3) of that Act).
(5)
Condition B is that—
(a)
the shares were awarded before 6th April 2003, and
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(b)
the individual was liable for tax under Schedule E in respect of the
relevant employment.
(6)
In subsection (5) “the relevant employment” means the employment by
reference to which the individual met the requirements in paragraph 14 of
Schedule 8 to FA 2000 (employee share ownership plans: the employment
10
requirement) in relation to the plan.
(7)
See section 396 for the general interpretation of this section and sections 393 to
395.
393
Later charge where cash dividends retained in SIPs are paid over
(1)
This section applies if a cash dividend is paid over to a participant under
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paragraph 68(4) of Schedule 2 to ITEPA 2003 (cash dividend paid over if not
reinvested etc.).
(2)
Tax charged under this Chapter is charged for the tax year in which the cash
dividend is paid over instead of the tax year in which it was originally paid.
(3)
Tax so charged is charged on the amount of the cash dividend paid over.
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(4)
The person liable for any tax so charged is the participant.
(5)
For the purposes of determining—
(a)
whether the participant is entitled to a tax credit under section 397 in
respect of a cash dividend so charged, and
(b)
the amount of that tax credit,
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that section applies as it has effect for the tax year in which the cash dividend
is paid over.
(6)
For the purposes of this Chapter, the question whether a cash dividend paid
over to a participant under paragraph 68(4) of Schedule 2 to ITEPA 2003 is a
dividend paid by a company that is UK resident is determined by reference to
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the tax year in which the dividend was originally paid.
394
Distribution when dividend shares cease to be subject to SIP
(1)
This section applies if dividend shares cease to be subject to an approved share
incentive plan before the end of the period of 3 years beginning with the date
on which the shares were acquired on the participant’s behalf.
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(2)
For income tax purposes a distribution is treated as made to the participant in
the tax year in which the shares cease to be subject to the plan.
(3)
The amount of the distribution treated as made is the amount of the cash
dividend applied to acquire the shares on the participant’s behalf, so far as it
represents a cash dividend paid in respect of plan shares in a UK resident
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company.
(4)
The person liable for any tax charged on the distribution as a result of this
section is the participant.

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 3 — Dividends etc. from UK resident companies etc.
171

(5)
For the purposes of determining—
(a)
whether the participant is entitled to a tax credit under section 397 in
respect of a distribution so charged, and
(b)
if so, the amount of that tax credit,

that section applies as it has effect for the tax year in which the shares cease to
5
be subject to the plan.
(6)
But for the purposes of this Chapter, the question whether the distribution
under subsection (2) is a distribution by a company that is UK resident is
determined by reference to the year in which the company paid the dividend
applied to acquire the shares on the participant’s behalf.
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(7)
For rules identifying shares ceasing to be subject to approved share incentive
plans, see section 508 of ITEPA 2003.
395
Reduction in tax due in cases within section 394
(1)
This section applies if—
(a)
a person is liable to tax as a result of section 394, and
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(b)
any tax is paid on any capital receipts under section 501 of ITEPA 2003
(charge on capital receipts in respect of plan shares) in respect of the
shares that cease to be subject to the approved share incentive plan.
(2)
The tax due is to be reduced by an amount equal to the total tax so paid.
(3)
In subsection (2) “the tax due” means the amount of tax due as a result of
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section 394 after deduction of the tax credit determined in accordance with
section 394(5).
(4)
For rules identifying shares ceasing to be subject to approved share incentive
plans, see section 508 of ITEPA 2003.
396
Interpretation of sections 392 to 395
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(1)
This section and sections 392 to 395 form part of the SIP code (see section 488
of ITEPA 2003 (approved share incentive plans)).
(2)
Accordingly, expressions used in this section or those sections and contained
in the index in paragraph 100 of Schedule 2 to that Act (approved share
incentive plans) have the meaning indicated by that index.
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(3)
In particular—
(a)
for the meaning of “award of shares” see paragraph 5(1) of that
Schedule,
(b)
for the meaning of “ceasing to be subject to plan” see paragraph 97 of
that Schedule,
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(c)
for the meaning of “dividend shares” see paragraph 62(3)(b) of that
Schedule,
(d)
for the meaning of “employment requirement” see paragraph 15(3) of
that Schedule,
(e)
for the meaning of “participant” see paragraph 5(4) of that Schedule,
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(f)
for the meaning of “plan shares” see paragraphs 86 to 88 and 99(1) of
that Schedule, and
(g)
for the meaning of “shares” see paragraphs 87(6) and 99(2) of that
Schedule.

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 3 — Dividends etc. from UK resident companies etc.
172

Tax credits and payment and deduction of tax
397
Tax credits for qualifying distributions: UK residents and eligible non-UK
residents
(1)
A UK resident or eligible non-UK resident receiving a qualifying distribution
made by a UK resident company is entitled to a tax credit equal to one-ninth of
5
the amount or value of the distribution (but see subsections (3) and (6)).
(2)
Such a person may claim to deduct the tax credit from—
(a)
the income tax charged on the person’s total income for the tax year in
which the distribution is made, or
(b)
the income tax charged on the person’s income under section 3 of ICTA
10
(certain income charged at basic rate) for that year.
(3)
Subsection (1) only applies so far as the distribution is brought into charge to
tax, and accordingly if the person’s total income is reduced by any deductions
which fall to be made from the distribution, the tax credit for the distribution
is reduced in the same proportion as the distribution.
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(4)
For the purposes of this section “eligible non-UK resident”, in relation to a
qualifying distribution, means an individual who at any time in the tax year in
which it is received is a non-UK resident within section 278(2) of ICTA
(Commonwealth citizens, EEA nationals etc.).
(5)
If a distribution is, or is treated under any provision of the Tax Acts as, the
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income of a person (“P”) other than the recipient (“R”), P (not R) is treated as
receiving it for the purposes of this section (and so P (not R) is entitled to a tax
credit if P falls within subsection (1)).
(6)
This section is subject to the following provisions—
section 231AA of ICTA (no tax credit for borrower under stock lending
25
arrangement or interim holder under repurchase agreement),
section 231AB of ICTA (no tax credit for original owner under repurchase
agreement in respect of certain manufactured dividends),
section 469(2A) of ICTA (no tax credit for trustees of a unit trust scheme
that is neither an authorised unit trust nor an umbrella scheme), and
30
section 171(2B) of FA 1993 (no tax credit for distributions in respect of
assets in Lloyd’s member’s premium trust fund).
398
Increase in amount or value of dividends where tax credit available
(1)
If a person is entitled to a tax credit in respect of a dividend or other
distribution, the amount or value of the dividend or other distribution is
35
treated as increased by the amount of the tax credit for all income tax purposes
(except section 397(1)).
(2)
Subsection (1) does not apply if the distribution is dealt with under Chapter 2
of Part 2 unless the trade consists of the underwriting business of a member of
Lloyd’s.
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399
Qualifying distributions received by persons not entitled to tax credits
(1)
This section applies if a person is not entitled to a tax credit for a qualifying
distribution included in the person’s income for a tax year.

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 3 — Dividends etc. from UK resident companies etc.
173

(2)
The person is treated as having paid income tax at the dividend ordinary rate
on the amount or value of the distribution (but see subsection (7)).
(3)
For the purposes of subsection (2), if the person is non-UK resident the amount
or value of the distribution is treated as the grossed up amount, unless the
person is a company which is beneficially entitled to the income.
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(4)
If the person is non-UK resident and the distribution is income to which section
686 of ICTA applies (accumulation and discretionary trusts: special rates of
tax), for the purposes of that section the amount or value of the distribution is
treated as the grossed up amount.
(5)
In this section “the grossed up amount” means the actual amount or value of
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the distribution, grossed up by reference to the dividend ordinary rate for the
tax year.
(6)
The income tax treated as paid under subsection (2) is not repayable.
(7)
Subsection (2) is subject to the following provisions—
section 231AA(1A) of ICTA (which disapplies subsection (2) for borrower
15
under stock lending arrangement or interim holder under repurchase
agreement),
section 231AB(1A) of ICTA (which disapplies subsection (2) for original
owner under a repurchase agreement in respect of certain
manufactured dividends), and
20
section 469(2B) of ICTA (which disapplies subsection (2) for trustees of a
unit trust scheme that is neither an authorised unit trust nor an
umbrella scheme).
400
Non-qualifying distributions
(1)
This section applies if a person’s income in a tax year includes a non-qualifying
25
distribution.
(2)
The person is treated as having paid income tax at the dividend ordinary rate
on the amount or value of the distribution.
(3)
The income tax treated as paid under subsection (2) is not repayable.
(4)
If the distribution is income to which section 686 of ICTA applies
30
(accumulation and discretionary trusts: special rates of tax), the trustees’
liability for income tax at the dividend trust rate on the amount or value of the
whole or any part of the distribution is reduced.
(5)
The amount of the reduction is equal to income tax at the dividend ordinary
rate on so much of the distribution as is assessed at the dividend trust rate.
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(6)
In this section and section 401 “non-qualifying distribution” means a
distribution which is not a qualifying distribution.
401
Relief: qualifying distribution after linked non-qualifying distribution
(1)
Where a person pays an amount in respect of extra liability for a non-qualifying
distribution, the person’s extra liability for a subsequent qualifying
40
distribution is reduced by that amount if conditions A and B are met.
(2)
Condition A is that the non-qualifying distribution consists of the issue of share
capital or security.

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 4 — Dividends from non-UK resident companies
174

(3)
Condition B is that the qualifying distribution consists of a repayment of the
share capital or the principal of the security.
(4)
A person’s extra liability for a distribution charged to tax for the tax year 1999-
2000 or a later tax year is the amount by which the person’s liability to income
tax on the distribution exceeds the amount it would be if it were charged only
5
at the dividend ordinary rate.
(5)
A person’s extra liability for a distribution charged to tax for a tax year after the
tax year 1992-93 and before the tax year 1999-2000 is the amount by which the
person’s liability to income tax on the distribution exceeds the amount it would
be if it were charged only at the lower rate.
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(6)
A person’s extra liability for a distribution charged to tax for a tax year before
the tax year 1993-94 is the amount by which the person’s liability to income tax
on the distribution exceeds the amount it would be if it were charged only at
the basic rate.
(7)
In this section “security” has the meaning given in section 254(1) of ICTA.
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Chapter 4
Dividends from non-UK resident companies
Charge to tax on dividends from non-UK resident companies
402
Charge to tax on dividends from non-UK resident companies
(1)
Income tax is charged on dividends of a non-UK resident company.
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(2)
For exemptions, see in particular section 770 (amounts applied by SIP trustees
acquiring dividend shares or retained for reinvestment).
(3)
Subsection (1) is also subject to section 498 of ITEPA 2003 (no charge on shares
ceasing to be subject to SIP in certain circumstances).
(4)
In this Chapter “dividends” does not include dividends of a capital nature.
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403
Income charged
(1)
Tax is charged under this Chapter on the full amount of the dividends arising
in the tax year.
(2)
Subsection (1) is subject to—
section 406(2) and (3) (later charge where cash dividends retained in SIPs
30
are paid over),
section 407(3) (dividend payment when dividend shares cease to be
subject to SIP), and
Part 8 (foreign income: special rules).
404
Person liable
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(1)
The person liable for any tax charged under this Chapter is the person
receiving or entitled to the dividends.
(2)
Subsection (1) is subject to—

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 4 — Dividends from non-UK resident companies
175

section 406(4) (later charge where cash dividends retained in SIPs are paid
over), and
section 407(4) (dividend payment when dividend shares cease to be
subject to SIP).
Shares in approved share incentive plans ("SIPs")
5
405
SIP shares: introduction
(1)
Sections 406 to 408 contain special rules about the charge under this Chapter in
respect of shares awarded to an individual under an approved share incentive
plan.
(2)
Those sections only apply if the condition in section 392(3) or (5) was met at the
10
time the shares in question were so awarded (earnings within ITEPA 2003).
(3)
This section and sections 406 to 408 form part of the SIP code (see section 488
of ITEPA 2003 (approved share incentive plans)).
(4)
Accordingly, expressions used in this section or those sections and contained
in the index in paragraph 100 of Schedule 2 to that Act (approved share
15
incentive plans) have the meaning indicated by that index.
(5)
In particular—
(a)
for the meaning of “award of shares” see paragraph 5(1) of that
Schedule,
(b)
for the meaning of “ceasing to be subject to plan” see paragraph 97 of
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that Schedule,
(c)
for the meaning of “dividend shares” see paragraph 62(3)(b) of that
Schedule,
(d)
for the meaning of “participant” see paragraph 5(4) of that Schedule,
(e)
for the meaning of “plan shares” see paragraphs 86 to 88 and 99(1) of
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that Schedule, and
(f)
for the meaning of “shares” see paragraphs 87(6) and 99(2) of that
Schedule.
406
Later charge where cash dividends retained in SIPs are paid over
(1)
This section applies if a cash dividend is paid over to a participant under
30
paragraph 68(4) of Schedule 2 to ITEPA 2003 (cash dividend paid over if not
reinvested etc.).
(2)
Tax charged under this Chapter is charged for the tax year in which the cash
dividend is paid over instead of the tax year in which in which it was originally
paid.
35
(3)
Tax so charged is charged on the amount of the cash dividend paid over.
(4)
The person liable for any tax so charged is the participant.
(5)
For the purposes of this Chapter, the question whether a cash dividend so paid
over is a dividend paid by a company that is non-UK resident is determined by
reference to the tax year in which the dividend was originally paid.
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