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Finance (No.2) Bill


Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Miscellaneous provisions

86

 

PAYE

94      

PAYE: retrospective notional payments

(1)   

ITEPA 2003 is amended as follows.

(2)   

In section 222 (payments by employer on account of tax where deduction not

possible)—

5

(a)   

in subsection (1)(c), for “date on which the employer is treated as

making the notional payment” substitute “relevant date”,

(b)   

in subsection (2), for “date mentioned in subsection (1)(c)” substitute

“relevant date”, and

(c)   

after subsection (3) insert—

10

“(4)   

In this section “the relevant date” means—

(a)   

if the employer is treated by virtue of any Act as making

the notional payment before the date on which the Act

is passed, that date, and

(b)   

in any other case, the date on which the employer is

15

treated as making the notional payment.”

(3)   

In section 684(2) (PAYE regulations), in item 1—

(a)   

for “time of the payment” substitute “relevant time”, and

(b)   

after paragraph (b) insert—

““The relevant time” is—

20

(a)   

if the payment is a notional payment for the

purposes of section 710 and the person is treated

by virtue of any Act as making it at a time before

the date on which the Act is passed, that date,

and

25

(b)   

in any other case, the time when the payment is

made.”

(4)   

In section 710 (notional payments: accounting for tax)—

(a)   

in subsection (7), after “means” insert “(subject to subsection (7A))”,

and

30

(b)   

after that subsection insert—

“(7A)   

In a case where the notional payment is treated by virtue of any

Act as made before the date on which the Act is passed—

(a)   

the reference in sub-paragraph (i) of paragraph (a) of

subsection (7) to the time when the notional payment is

35

made is to the date on which the Act is passed,

(b)   

the reference in sub-paragraph (ii) of that paragraph to

any occasion falling within the same income tax period

is to any occasion falling before the end of the income

tax period next after that in which that date falls, and

40

(c)   

the reference in paragraph (b) of that subsection to the

income tax period in which the notional payment was

made is to the income tax period next after that in which

that date falls.”

(5)   

The provisions of ITEPA 2003 amended by this section have effect in relation

45

to notional payments treated by virtue of this Act as made before the date on

 
 

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Miscellaneous provisions

87

 

which this Act is passed as if for the references to the date on which the Act is

passed in—

(a)   

section 222(4)(a),

(b)   

paragraph (a) of the definition of “the relevant time” in section 684(2),

and

5

(c)   

section 710(7A)(a), (b) and (c),

   

there were substituted references to such date as the Commissioners for Her

Majesty’s Revenue and Customs may by order made by statutory instrument

appoint.

Alternative finance arrangements

10

95      

Profit share agency

(1)   

In section 46(1) of FA 2005 (alternative finance arrangements: definition) for “or

49.” substitute “, 49 or 49A.”

(2)   

In section 49 of FA 2005 (profit share return)—

(a)   

for subsection (2) substitute—

15

“(2)   

Amounts paid or credited as mentioned in subsection (1)(c) by

a financial institution under arrangements falling within this

section are profit share return for the purposes of this Chapter.”,

and

(b)   

in the heading for “profit share return” substitute “deposit”.

20

(3)   

After section 49 of FA 2005 insert—

“49A    

Alternative finance arrangements: profit share agency

(1)   

Subject to section 52, arrangements fall within this section if they are

arrangements under which—

(a)   

a person (“the principal”) appoints a financial institution as his

25

agent,

(b)   

the agent uses money provided by the principal with a view to

producing a profit,

(c)   

the principal is entitled, to a specified extent, to profits resulting

from the use of the money,

30

(d)   

the agent is entitled to any additional profits resulting from the

use of the money (and may also be entitled to a fee to be paid by

the principal), and

(e)   

payments in pursuance of the entitlement specified in

paragraph (c) equate, in substance, to the return on an

35

investment of the money at interest.

(2)   

Amounts paid or credited by a financial institution in accordance with

an entitlement of the kind specified in subsection (1)(c) are profit share

return for the purposes of this Chapter.

(3)   

The principal shall not be treated for the purposes of the Tax Acts as

40

entitled to profits to which the agent is entitled in accordance with

subsection (1)(d).”

(4)   

After section 50(2) of FA 2005 (treatment of alternative finance arrangements:

 
 

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Miscellaneous provisions

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companies) insert—

“(2A)   

Where a company is a party to arrangements falling within section 49A,

Chapter 2 of Part 4 of FA 1996 (loan relationships) has effect in relation

to the arrangements as if—

(a)   

the arrangements were a loan relationship to which the

5

company is a party,

(b)   

the amount provided under the arrangements were—

(i)   

in relation to a company which is the principal under the

arrangements, the amount of a loan made by the

company to the agent, and

10

(ii)   

in relation to a company which is the agent under the

arrangements, the amount of a loan made to it by the

principal, and

(c)   

profit share return payable to or by the company under the

arrangements were interest payable under that loan

15

relationship.”

(5)   

In section 52 of FA 2005 (provision not at arm’s length)—

(a)   

in subsection (1)(a) for “or section 49,” substitute “, 49 or 49A,”

(b)   

in subsection (3) for “or section 49.” substitute “, 49 or 49A.”, and

(c)   

in subsection (5) for “49,” substitute “49 or 49A,”.

20

(6)   

In the heading to section 54 of FA 2005 “Section 49” becomes “Sections 49 and

49A”.

(7)   

In the definition of “profit share return” in section 57 of FA 2005 for “section

49(2)” substitute “sections 49(2) and 49A(2)”.

(8)   

In paragraph 1(b) of Schedule 2 to FA 2005 after “49” insert “or 49A”.

25

(9)   

In section 148 of FA 2003 (meaning of “permanent establishment”) after

subsection (5A) insert—

“(5B)   

Where profit share return is paid, in accordance with arrangements to

which section 49A of FA 2005 applies (alternative finance

arrangements: profit share agency), to a company that is not resident in

30

the United Kingdom, the company is not regarded as having a

permanent establishment in the United Kingdom merely by virtue of

anything done for the purposes of the arrangements by the other party

to the arrangements or by any other person acting for the company in

relation to the arrangements.”

35

(10)   

In section 127(1) of FA 1995 (persons not treated as UK representatives)

renumber paragraph (cc) as paragraph (ca) and insert after it—

“(cb)   

where the income consists of profit share return in accordance with

arrangements to which section 49A of FA 2005 applies (alternative

finance arrangements: profit share agency), the other party to the

40

arrangements or any other person acting for the non-resident in

relation to the arrangements;”.

(11)   

Section 56 of FA 2005 (commencement and transitional) shall have effect in

relation to the commencement of this section—

(a)   

as if references to Chapter 5 of Part 2 of that Act were references to this

45

section,

(b)   

as if references to 6th April 2005 were references to—

 
 

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Miscellaneous provisions

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(i)   

1st April 2006 in relation to corporation tax, and

(ii)   

6th April 2006 in relation to income tax, and

(c)   

as if references to section 49 were references to section 49A.

96      

Diminishing shared ownership

(1)   

In section 46(1) of FA 2005 (alternative finance arrangements: definition) after

5

“47” insert “, 47A,”.

(2)   

In section 47 of FA 2005 (alternative finance return)—

(a)   

omit subsection (5),

(b)   

in subsections (6) and (7) after “is to be taken” insert “for the purposes

of this Chapter”, and

10

(c)   

in the heading for “alternative finance return” substitute “purchase and

re-sale”.

(3)   

After section 47 of FA 2005 insert—

“47A    

Alternative finance arrangements: diminishing shared ownership

(1)   

Subject to section 52, arrangements fall within this section if under

15

them—

(a)   

a financial institution acquires a beneficial interest in an asset,

and

(b)   

another person (“the eventual owner”)—

(i)   

also acquires a beneficial interest in the asset,

20

(ii)   

is to make payments to the financial institution

amounting in aggregate to the consideration paid for the

acquisition of its beneficial interest,

(iii)   

is to acquire the financial institution’s beneficial interest

(whether or not in stages) as a result of those payments,

25

(iv)   

is to make other payments to the financial institution

(whether in pursuance of a lease forming part of the

arrangements, or otherwise),

(v)   

has the exclusive right to occupy or otherwise use the

asset,

30

(vi)   

is exclusively entitled to any income, profit or gain

arising from or attributable to the asset (including, in

particular, any increase in the asset’s value).

(2)   

For the purposes of subsection (1)(a) it is immaterial—

(a)   

whether or not the financial institution acquires its beneficial

35

interest from the eventual owner,

(b)   

whether the eventual owner or another person other than the

financial institution also has a beneficial interest in the asset,

and

(c)   

whether or not the financial institution also has a legal interest

40

in the asset.

(3)   

Subsection (1)(b)(v) does not prevent the eventual owner from granting

an interest or right in relation to the asset to someone other than—

(a)   

the financial institution,

(b)   

a person controlled by the financial institution within the

45

meaning of section 840 of ICTA, and

 
 

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Miscellaneous provisions

90

 

(c)   

a person controlled by a person who also controls the financial

institution, in each case within the meaning of section 840 of

ICTA;

   

provided that the grant is not required by the financial institution or by

arrangements to which the financial institution is party.

5

(4)   

Subsection (1)(b)(vi) does not prevent the financial institution from

having responsibility for, or a share in any loss arising out of, any

reduction in the asset’s value (and subsection (1)(b)(ii) is subject to this

subsection).

(5)   

Payments by the eventual owner under arrangements to which this

10

section applies are alternative finance return for the purposes of this

Chapter except in so far as they amount to—

(a)   

payments of the kind described in subsection (1)(b)(ii), or

(b)   

payments in respect of any arrangement fee or legal or other

costs or expenses which the eventual owner is required under

15

the arrangements to pay.

(6)   

Arrangements to which this section applies shall not be treated as a

partnership for the purposes of the Taxes Acts (within the meaning of

the Taxes Management Act 1970).”

(4)   

In section 50 of FA 2005 (treatment of alternative finance arrangements:

20

companies)—

(a)   

in subsection (1) after “section 47” insert “or 47A”,

(b)   

at the beginning of subsection (1)(b) add “in the case of arrangements

within section 47,”, and

(c)   

after subsection (1)(b) insert—

25

“(ba)   

in the case of arrangements within section 47A, the

consideration paid by the financial institution for the

acquisition of its beneficial interest were the amount of

a loan made (as the case requires) to the company by, or

by the company to, the other party to the

30

arrangements,”.

(5)   

In section 52 of FA 2005 (provision not at arm’s length)—

(a)   

in subsection (1)(a) after “47” insert “, 47A”,

(b)   

in subsection (3) after “47” insert “, 47A”, and

(c)   

in subsection (4) for “47,” substitute “47 or 47A,”.

35

(6)   

In section 53 of FA 2005 (sale and purchase of asset)—

(a)   

in subsection (1) after “47” insert “or 47A”,

(b)   

after subsection (2) add—

“(3)   

In the application of this section to section 47A a reference to the

effective return is a reference to the alternative finance return.”,

40

and

(c)   

in the heading after “47” insert “or 47A”.

(7)   

In the definition of “alternative finance return” in section 57 of FA 2005 for

“section 47(5)” substitute “sections 47(6) and (7) and 47A(5)”.

(8)   

This section shall have effect in relation to alternative finance arrangements

45

entered into on or after—

(a)   

1st April 2006 in relation to corporation tax, and

 
 

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Miscellaneous provisions

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(b)   

6th April 2006 in relation to income tax.

97      

Beneficial loans to employees

(1)   

For the purposes of Chapter 7 of Part 3 of ITEPA 2003 (taxable benefits: loans)

a reference to a loan includes a reference to an arrangement which—

(a)   

is an alternative finance arrangement to which section 47 or 47A FA

5

2005 applies, or

(b)   

would be an alternative finance arrangement to which one of those

sections applied if one of the parties were a financial institution.

(2)   

In the application of that Chapter by virtue of subsection (1)—

(a)   

a reference to interest shall be treated as including a reference to

10

alternative finance return, and

(b)   

a reference to the amount outstanding shall be taken to be—

(i)   

in the case of arrangements to which section 47 applies, a

reference to the purchase price minus such part of the aggregate

payments made as does not represent alternative finance

15

return, and

(ii)   

in the case of arrangements to which section 47A applies, a

reference to the amount of the financial institution’s original

beneficial interest minus such part of the aggregate payments

made as does not represent alternative finance return.

20

(3)   

This section shall have effect in relation to arrangements entered into on or

after 22nd March 2006.

98      

Regulations

(1)   

The Treasury may by order amend Chapter 5 of Part 2 to FA 2005 (alternative

finance arrangements) so as to introduce provision relating to arrangements

25

which in the Treasury’s opinion—

(a)   

equate in substance to a loan, deposit or other transaction of a kind that

generally involves the payment of interest, but

(b)   

achieve a similar effect without including provision for the payment of

interest.

30

(2)   

An order under subsection (1) may, in particular—

(a)   

include provision of a kind similar to provision already made by

Chapter 5 of Part 2;

(b)   

make other provision about the treatment for the purposes of the Tax

Acts of arrangements to which the order applies;

35

(c)   

make provision generally or only in relation to specified cases or

circumstances;

(d)   

make different provision for different cases or circumstances;

(e)   

include consequential provision (which may include provision

amending a provision of the Tax Acts);

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(f)   

include incidental or transitional provision.

(3)   

An order under subsection (1)—

(a)   

shall be made by statutory instrument, and

(b)   

shall not be made unless a draft has been laid before and approved by

resolution of the House of Commons.

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