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Finance Bill
Schedule 3 — Managed service companies
Part 1 — Amendments of ITEPA 2003

94

 

by the worker in the worker’s personal capacity and not as income of

the partnership.

(7)   

Where—

(a)   

the worker is resident in the United Kingdom, and

(b)   

the relevant services are provided in the United Kingdom,

5

   

the MSC is treated as having a place of business in the United

Kingdom, whether or not it in fact does so.

Supplementary provisions

61H     

Relief in case of distributions by managed service company

(1)   

A claim for relief may be made under this section where the MSC—

10

(a)   

is a body corporate,

(b)   

is treated as making a deemed employment payment in any

tax year, and

(c)   

either in that tax year (whether before or after that payment

is treated as made), or in a subsequent tax year, makes a

15

distribution (a “relevant distribution”).

(2)   

A claim for relief under this section must be made—

(a)   

by the MSC by notice to an officer of Revenue and Customs,

and

(b)   

within 5 years after 31st January following the tax year in

20

which the distribution is made.

(3)   

If on a claim being made an officer of Revenue and Customs is

satisfied that relief should be given in order to avoid a double charge

to tax, the officer must direct the giving of such relief by way of

amending any assessment, by discharge or repayment of tax, or

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otherwise, as appears to the officer appropriate.

(4)   

Relief under this section is given by setting the amount of the

deemed employment payment against the relevant distribution so as

to reduce the distribution.

(5)   

In the case of more than one relevant distribution, an officer of

30

Revenue and Customs must exercise the power conferred by this

section so as to secure that so far as practicable relief is given by

setting the amount of a deemed employment payment—

(a)   

against relevant distributions of the same tax year before

those of other years,

35

(b)   

against relevant distributions received by the worker before

those received by another person, and

(c)   

against relevant distributions of earlier years before those of

later years.

(6)   

Where the amount of a relevant distribution is reduced under this

40

section, the amount of any associated tax credit is reduced

accordingly.

61I     

Meaning of “associate”

(1)   

Subsections (2) to (4) apply for the purposes of this Chapter.

(2)   

“Associate”, in relation to an individual, means—

45

 

 

Finance Bill
Schedule 3 — Managed service companies
Part 1 — Amendments of ITEPA 2003

95

 

(a)   

a member of the individual’s family or household,

(b)   

a relative of the individual,

(c)   

a partner of the individual, or

(d)   

the trustee of any settlement in relation to which the

individual, or a relative of the individual or member of the

5

individual’s family (living or dead), is or was a settlor.

(3)   

“Associate”, in relation to a company, means a person connected

with the company.

(4)   

“Associate”, in relation to a partnership, means any associate of a

member of the partnership.

10

(5)   

If—

(a)   

a managed service company (“the MSC”) is a partnership,

and

(b)   

a person is an associate of another person by virtue only of

being a member of the partnership,

15

   

the person is to be treated, for the purposes of this Chapter as it

applies in relation to the MSC, as if the person were not an associate

of that other person.

(6)   

In subsection (2), “relative” means ancestor, lineal descendant,

brother or sister.

20

(7)   

For the purposes of subsection (2)—

(a)   

a man and woman living together as husband and wife are

treated as if they were married to each other, and

(b)   

two persons of the same sex living together as if they were

civil partners of each other are treated as if they were civil

25

partners of each other.

61J     

Interpretation of Chapter

(1)   

In this Chapter—

“associate” has the meaning given by section 61I,

“business” means any trade, profession or vocation,

30

“the client” has the meaning given by section 61D(4),

“employer’s national insurance contributions” means

secondary Class 1 or Class 1A national insurance

contributions,

“managed service company” has the meaning given by section

35

61B,

“national insurance contributions” means contributions under

Part 1 of SSCBA 1992 or Part 1 of SSCB(NI)A 1992,

“PAYE provisions” means the provisions of Part 11 or PAYE

regulations,

40

“the relevant services” has the meaning given by section 61D(4),

and

“the worker” has the meaning given by section 61D(4).

(2)   

Nothing in section 995 of ITA 2007 (meaning of control) applies for

the purposes of this Chapter.”

45

5          

In section 218(1) (exclusion of lower-paid employments from parts of

 

 

Finance Bill
Schedule 3 — Managed service companies
Part 1 — Amendments of ITEPA 2003

96

 

benefits code: calculation of earnings rate), in Step 1, at the end of paragraph

(d) insert “and

(e)   

in the case of an employment within section 61G(2) (deemed

employment payment by managed service company), the

total amount of deemed employment payments for the year.”

5

6          

After section 688 insert—

“688A   

 Managed service companies: recovery from other persons

(1)   

PAYE regulations may make provision authorising the recovery

from a person within subsection (2) of any amount that an officer of

Revenue and Customs considers should have been deducted by a

10

managed service company (“the MSC”) from a payment of, or on

account of, PAYE income of an individual.

(2)   

The persons are—

(a)   

a director or other office-holder, or an associate, of the MSC,

(b)   

an MSC provider,

15

(c)   

a person who (directly or indirectly) has encouraged,

facilitated or otherwise been actively involved in the

provision by the MSC of the services of the individual, and

(d)   

a director or other office-holder, or an associate, of a person

(other than an individual) who is within paragraph (b) or (c).

20

(3)   

A person does not fall within subsection (2)(c) merely by providing

legal or accountancy advice in a professional capacity.

(4)   

The supplementary provision that may be made by the regulations

includes provision as to the liability of one person within subsection

(2) to another such person.

25

(5)   

In this section—

“associate” has the meaning given by section 61I,

“director” has the meaning given by section 67,

“managed service company” has the meaning given by section

61B, and

30

“MSC provider” means an MSC provider who is involved with

the MSC (within the meaning of section 61B).

(6)   

Section 61C(4) (extended meaning of “associate”) applies for the

purposes of subsection (2)(d).

(7)   

The Treasury may by order amend this section (but not this

35

subsection or subsection (8)).

(8)   

The Treasury must not make an order under subsection (7) unless a

draft of it has been laid before and approved by a resolution of the

House of Commons.”

7          

In section 717(4) (orders and regulations not subject to negative procedure),

40

insert at the end “or section 688A(7) (PAYE regulations: managed service

companies)”.

 

 

Finance Bill
Schedule 3 — Managed service companies
Part 2 — Calculation of profits of MSCs: deduction for deemed employment payments

97

 

8          

In Part 2 of Schedule 1 (index of defined expressions), insert at the

appropriate places—

 

“associate (in Chapter 9 of Part 2)

section 61I (but see

 
  

section 61C(4))”

 
 

“business (in Chapter 9 of Part 2)

section 61J”

 

5

 

“the client (in Chapter 9 of Part 2)

section 61D(4)”

 
 

“employer’s national insurance

section 61J”

 
 

contributions (in Chapter 9 of

  
 

Part 2)

  
 

“managed service company (in

section 61B”

 

10

 

Chapter 9 of Part 2)

  
 

“national insurance contributions

section 61J”

 
 

(in Chapter 9 of Part 2)

  
 

“PAYE provisions (in Chapter 9 of

section 61J”

 
 

Part 2)

  

15

 

“the relevant services (in Chapter

section 61D(4)”

 
 

9 of Part 2)

  
 

“the worker (in Chapter 9 of Part

section 61D(4)”.

 
 

2)

  

Part 2

20

Calculation of profits of MSCs: deduction for deemed employment payments

Deduction for deemed employment payments for income tax purposes

9          

In ITTOIA 2005, after section 164 insert—

“Managed service companies

164A    

Deduction for deemed employment payments

25

(1)   

This section applies for the purpose of calculating the profits of a

trade, profession or vocation carried on by a managed service

company (“the MSC”) which is treated as making a deemed

employment payment in connection with the trade, profession or

vocation.

30

(2)   

A deduction is allowed for—

(a)   

the amount of the deemed employment payment, and

(b)   

the amount of any employer’s national insurance

contributions paid by the MSC in respect of it.

(3)   

The deduction is allowed for the period of account in which the

35

deemed employment payment is treated as made.

(4)   

The amount of the deduction allowed under subsection (2) is limited

to the amount that reduces the profits of the firm for the tax year to

nil.

 

 

Finance Bill
Schedule 4 — Restrictions on trade loss relief for partners

98

 

(5)   

No deduction in respect of—

(a)   

the deemed employment payment, or

(b)   

any employer’s national insurance contributions paid by the

MSC in respect of it,

   

may be made except in accordance with this section.

5

(6)   

In this section “deemed employment payment”, “employer’s

national insurance contributions” and “managed service company”

have the same meaning as in Chapter 9 of Part 2 of ITEPA 2003.”

Deduction for deemed employment payments for corporation tax purposes

10    (1)  

This paragraph applies for the purpose of calculating for corporation tax

10

purposes the profits of a business carried on by a managed service company

(“the MSC”) which is treated as making a deemed employment payment in

connection with the business.

      (2)  

A deduction is allowed for—

(a)   

the amount of the deemed employment payment, and

15

(b)   

the amount of any employer’s national insurance contributions paid

by the MSC in respect of it.

      (3)  

The deduction is allowed for the period of account in which the deemed

employment payment is treated as made.

      (4)  

If the MSC is a partnership, the amount of the deduction allowed under sub-

20

paragraph (2) is limited to the amount that reduces the profits of the

partnership for the period of account to nil.

      (5)  

No deduction in respect of—

(a)   

the deemed employment payment, or

(b)   

any employer’s national insurance contributions paid by the MSC in

25

respect of it,

           

may be made except in accordance with this paragraph.

      (6)  

In this paragraph “business”, “deemed employment payment”, “employer’s

national insurance contributions” and “managed service company” have the

same meanings as in Chapter 9 of Part 2 of ITEPA 2003.

30

Schedule 4

Section 26

 

Restrictions on trade loss relief for partners

Limit on amount of sideways relief and capital gains relief available in any tax year

1     (1)  

In ITA 2007, before section 104 (and the italic cross-heading before it)

insert—

35

“Limit on amount of sideways relief and capital gains relief

103C    

 Limit on reliefs in any tax year not to exceed cap for tax year

(1)   

This section applies if an individual carries on one or more trades—

(a)   

as a non-active partner in a firm during a tax year, or

 

 

Finance Bill
Schedule 4 — Restrictions on trade loss relief for partners

99

 

(b)   

as a limited partner in a firm at a time in that tax year,

   

and the individual makes a loss in any of those trades (an “affected

loss”) in that tax year.

(2)   

There is a restriction on the amount of sideways relief and capital

gains relief which (after applying the restrictions under the other

5

provisions of this Chapter) may be given to the individual for any

affected loss (but see subsections (6) and (7)).

(3)   

The restriction is that the total amount of the sideways relief and

capital gains relief given to the individual for all the affected losses

must not exceed the cap for that tax year.

10

(4)   

The cap for any tax year is £25,000.

(5)   

The Treasury may by order amend the sum for the time being

specified in subsection (4).

(6)   

The restriction under this section does not apply to so much of any

affected loss as derives from qualifying film expenditure (see section

15

103D).

(7)   

The restriction under this section does not affect the giving of

sideways relief for a loss made in a trade against the profits of that

trade.

(8)   

In this section “trade” does not include a trade which consists of the

20

underwriting business of a member of Lloyd’s (within the meaning

of section 184 of FA 1993).”

      (2)  

The amendment made by sub-paragraph (1) has effect in relation to any loss

made by an individual in a trade in the tax year 2007-08 or any subsequent

tax year.

25

      (3)  

But, in the case of a loss made by an individual in a trade in a tax year the

basis period for which begins before 2nd March 2007 (a “straddling basis

period”), the amount of that loss for the purposes of section 103C of ITA 2007

is—

(a)   

the amount of sideways relief and capital gains relief which (after

30

applying the restrictions under the other provisions of Chapter 3 of

Part 4 of that Act) may be given to the individual for that loss, less

(b)   

the amount (if any) of the pre-announcement loss.

      (4)  

“The pre-announcement loss” is determined as follows.

      (5)  

Calculate the profits or losses of the straddling basis period, but without

35

regard to capital allowances and qualifying film expenditure (within the

meaning of section 103D of ITA 2007).

      (6)  

If that calculation produces a loss and the individual has made a

contribution of an amount as capital to the firm or LLP in question—

(a)   

on or before the start of the straddling basis period, or

40

(b)   

after the start of that period but before 2nd March 2007,

           

apportion the loss produced by that calculation to the part of the straddling

basis period which begins with the relevant date and falls before 2nd March

2007 in proportion to the number of days in that part.

 

 

Finance Bill
Schedule 4 — Restrictions on trade loss relief for partners

100

 

      (7)  

Calculate so much of the loss of the straddling basis period as derives from

relevant pre-announcement capital expenditure.

      (8)  

The pre-announcement loss is the sum of—

(a)   

the amount of the loss apportioned under sub-paragraph (6) (if any),

and

5

(b)   

so much of the loss of the straddling basis period (if any) as derives

from relevant pre-announcement capital expenditure.

      (9)  

In sub-paragraph (6) “the relevant date” means—

(a)   

in any case where a contribution was made on or before the start of

the straddling basis period, the start of that period, and

10

(b)   

in any other case, the date on which the contribution was made or, if

more than one contribution was made, the date on which the first

contribution was made.

     (10)  

For the purposes of this paragraph the amount of the loss of the straddling

basis period that derives from relevant pre-announcement capital

15

expenditure is determined on a just and reasonable basis.

     (11)  

In this paragraph “relevant pre-announcement capital expenditure”

means—

(a)   

any capital allowance in respect of expenditure paid before 2nd

March 2007, and

20

(b)   

any capital allowance in respect of expenditure paid on or after that

date pursuant to an unconditional obligation in a contract made

before that date,

           

and for this purpose “an unconditional obligation” means an obligation

which may not be varied or extinguished by the exercise of any right

25

conferred on the firm or LLP in question (whether or not under the contract).

     (12)  

For the purposes of this paragraph—

(a)   

an amount of money is not to be taken as contributed as capital to a

firm or LLP until the money is paid to the firm or LLP, and

(b)   

a right or other asset is not to be taken as contributed as capital to a

30

firm or LLP until it is transferred to the firm or LLP.

     (13)  

Section 62 of ITA 2007 (partners: losses of a tax year etc) applies for the

purposes of this paragraph as it applies for the purposes of Chapter 3 of Part

4 of that Act.

Disregard of contributions made for purpose of accessing sideways relief and capital gains relief

35

2     (1)  

In ITA 2007, before section 114 insert—

“Exclusion of amounts in calculating contribution to the firm or LLP

113A    

Exclusion of amounts contributed to access relief

(1)   

An amount which an individual contributes to a firm as capital is to

be excluded in calculating the individual’s contribution to the firm

40

for the purposes of section 104 or 110 if the contribution was made

for a prohibited purpose (but see subsection (4)).

(2)   

If—

 

 

 
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