Finance Bill

House of Commons

Session 2007 - 08
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax - general
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Research and development
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Rates of R&D relief and vaccine research relief
Schedule 8 contains provision about the rates of research and development
relief and vaccine research relief.
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Companies in difficulty: SME R&D relief and vaccine research relief
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Schedule 9 contains provision preventing a company from claiming research
and development relief and vaccine research relief if it is not a going concern.
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Cap on R&D aid
(1)
A company is only entitled to R&D relief in respect of expenditure attributable
to a research and development project if, or to the extent that, at that time, the
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total R&D aid in respect of expenditure by the company attributable to the
project would not exceed 7.5 million euros.
(2)
In subsection (1)—
“R&D relief” means any relief or tax credit under—
(a)
Schedule 20 to FA 2000 (tax relief for expenditure by SMEs on
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research and development), or
(b)
Schedule 13 to FA 2002 (tax relief on expenditure on vaccine
research etc), and
“total R&D aid” means the total R&D aid calculated—
(a)
in accordance with Part 1 of Schedule 10, and
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(b)
as if a claim or election had been made for the R&D relief
mentioned in subsection (1).
(3)
The Treasury may by regulations—
(a)
increase the amount specified in subsection (1), and
(b)
amend Part 1 of Schedule 10.
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(4)
Part 2 of Schedule 10 contains amendments consequential on this section.
(5)
Subsections (1) to (4) and that Schedule come into force on such day as the
Treasury may by order appoint.
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Vaccine research relief: declaration about effect of relief
(1)
In paragraph 21 of Schedule 13 to FA 2002 (tax relief for expenditure by large
30
companies on vaccine research etc), after sub-paragraph (3) insert—
   “(3A)
A claim under this paragraph must include a declaration that the
availability of the relief claimed has resulted in an increase in—
(a)
the amount, scope or speed of the research and development
undertaken by the company, or
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(b)
the company’s expenditure on research and development.”
(2)
The amendment made by subsection (1) has effect in relation to claims made
on or after such day as the Treasury may by order appoint.

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax - general
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Venture capital schemes etc
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Enterprise investment scheme: increase in amount of relief
(1)
In section 158(2)(b) of ITA 2007 (form and amount of EIS relief), for “£400,000”
substitute “£500,000”.
(2)
The amendment made by subsection (1) has effect for—
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(a)
such tax year as the Treasury may by order specify, and
(b)
all tax years subsequent to the specified tax year.
(3)
An order under subsection (2) may specify the tax year in which it is made.
(4)
Section 1014(4) of ITA 2007 (orders etc subject to annulment) does not apply in
relation to an order under subsection (2).
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Venture capital schemes
Schedule 11 contains provision about venture capital schemes.
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Enterprise management incentives: qualifying companies
(1)
Part 3 of Schedule 5 to ITEPA 2003 (enterprise management incentives:
qualifying companies) is amended as follows.
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(2)
In paragraph 8 (qualifying companies: introduction), omit the “and” at the end
of the entry relating to paragraph 12, and after that entry insert—
“number of employees (see paragraph 12A), and”.
(3)
After paragraph 12 insert—
“The number of employees requirement
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12A   (1)
The number of employees requirement in the case of a single
company is that the full-time equivalent employee number for it is
less than 250.
      (2)
The number of employees requirement in the case of a parent
company is that the sum of—
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(a)
the full-time equivalent employee number for it, and
(b)
the full-time equivalent employee numbers for each of its
qualifying subsidiaries,

is less than 250.
      (3)
The full-time equivalent employee number for a company is
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calculated as follows—

Step 1

Find the number of full-time employees of the company.

Step 2

Add, for each employee of the company who is not a full-time
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employee, such fraction as is just and reasonable.

The result is the full-time equivalent employee number.
      (4)
In this paragraph references to an employee—
(a)
include a director, but

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax - general
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(b)
do not include—
(i)
an employee on maternity or paternity leave, or
(ii)
a student on vocational training.”
(4)
In paragraph 16 (excluded activities), after paragraph (i) insert—
“(ia)
shipbuilding (see also paragraph 20A);
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(ib)
producing coal (see also paragraph 20B);
(ic)
producing steel (see also paragraph 20C);”.
(5)
After paragraph 20 insert—
“Excluded activities: shipbuilding
20A
In paragraph 16(1)(ia) “shipbuilding” has the same meaning as in the
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Framework on state aid to shipbuilding (2003/C 317/06), published
in the Official Journal on 30 December 2003.
Excluded activities: producing coal
20B   (1)
This paragraph supplements paragraph 16(1)(ib).
      (2)
“Coal” has the meaning given by Article 2 of Council Regulation (EC)
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No. 1407/2002 (state aid to coal industry).
      (3)
The production of coal includes the extraction of it.
Excluded activities: producing steel
20C
In paragraph 16(1)(ic) “steel” means any of the steel products listed
in Annex 1 to the Guidelines on national regional aid (2006/C 54/
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08), published in the Official Journal on 4 March 2006.”
(6)
The amendments made by this section have effect in relation to options
granted on or after the day on which this Act is passed.
Other business and investment measures
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Tax credits for certain foreign distributions
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(1)
Schedule 12 contains provision about tax credits for certain foreign
distributions.
(2)
The amendments made by that Schedule have effect for the tax year 2008-09
and subsequent tax years.
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Small companies’ relief: associated companies
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(1)
Section 13 of ICTA (small companies’ relief) is amended as follows.
(2)
In the second sentence of subsection (4) (meaning of “control” for purposes of
definition of “associated company”), insert at the end “except that, in the
application of subsection (6) of that section in relation to the company (“the
taxpayer company”) and another company or companies for the purposes of
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this section, the references to an associate of a person (“P”) include a partner of
the person only if the condition in subsection (4A) below is met.”

Finance Bill
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(3)
After that subsection insert—
“(4A)
The condition referred to in subsection (4) above is that relevant tax
planning arrangements have at any time had effect in relation to the
taxpayer company (whether in connection with its formation or
otherwise).
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(4B)
In subsection (4A) above “relevant tax planning arrangements” means
arrangements which—
(a)
involve P and the partner, and
(b)
secure a relevant tax advantage.
(4C)
In subsection (4B) above—
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“arrangements” includes any agreement, understanding, scheme,
transaction or series of transactions (whether or not legally
enforceable), other than any guarantee, security or charge given
to or taken by a bank, and
“relevant tax advantage” means a reduction of the taxpayer
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company’s liability to corporation tax by virtue of an increase in
relief under this section.”
(4)
The amendments made by this section are treated as having come into force on
1 April 2008.
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Company gains from investment life insurance contracts etc
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(1)
Schedule 13 contains provisions about company gains from investment life
insurance contracts.
(2)
Schedule 14 contains amendments and repeals consequential on that Schedule
etc.
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Trade profits: changes in trading stock
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(1)
Schedule 15 contains provision about the effect of certain changes in trading
stock on the calculation of profits of trades for the purposes of income tax or
corporation tax.
(2)
The amendments made by that Schedule have effect in relation to changes in
trading stock occurring on or after 12 March 2008.
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(3)
In subsection (2) “change in trading stock” means—
(a)
in relation to new section 172B of ITTOIA 2005, or paragraph 6 of
Schedule 15, an appropriation of trading stock,
(b)
in relation to new section 172C of ITTOIA 2005, or paragraph 7 of
Schedule 15, a thing becoming trading stock,
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(c)
in relation to new section 172D of ITTOIA 2005, or paragraph 8 of
Schedule 15, a disposal of trading stock, and
(d)
in relation to new section 172E of ITTOIA 2005, or paragraph 9 of
Schedule 15, an acquisition of trading stock.
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Non-residents: investment managers
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Schedule 16 contains provision about—

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax - general
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(a)
the eligibility of an investment manager to be the UK representative of
a non-resident, or an agent of independent status in relation to a non-
resident, and
(b)
profits or income of non-residents to be disregarded if derived from
certain investment transactions carried out by investment managers.
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Dormant bank and building society accounts
(1)
The Commissioners for Her Majesty’s Revenue and Customs may by
regulations—
(a)
modify section 17 of TMA 1970 (banks etc required to report interest
payments) in relation to interest paid or credited in respect of a relevant
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dormant account,
(b)
modify Chapters 2 and 3 of Part 15 of ITA 2007 (deduction of income
tax on interest payments at source) in relation to such interest, and
(c)
provide that, for the purposes of Chapter 2 of Part 4 of ITTOIA 2005
(charge to income tax on interest), such interest is to be treated as not
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being paid until the time (if any) at which the balance of the dormant
account is paid out following a claim made by virtue of section 1(2)(b)
or 2(2)(b) of the 2008 Act.
(2)
A relevant dormant account is a dormant account the balance of which is to be,
or has been, transferred—
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(a)
to an authorised reclaim fund, with the result that section 1 of the 2008
Act will apply, or applies, in relation to the account, or
(b)
to an authorised reclaim fund and one or more charities, with the result
that section 2 of the 2008 Act will apply, or applies, in relation to the
account.
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(3)
Interest paid or credited in respect of a relevant dormant account includes
interest paid or credited by a person who administers the account on behalf of
an authorised reclaim fund after the balance has been transferred.
(4)
“The 2008 Act” means the Dormant Bank and Building Society Accounts Act
2008; and terms used in this section and in that Act have the same meaning in
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this section as in that Act.
(5)
Regulations under subsection (1) are to be made by statutory instrument.
(6)
A statutory instrument containing regulations under that subsection is subject
to annulment in pursuance of a resolution of the House of Commons.
(7)
In TCGA 1992, after section 26 insert—
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“26A
Transfer of dormant bank or building society account
(1)
This section applies where the balance of a dormant account held by a
person with a bank or building society is transferred—
(a)
to an authorised reclaim fund, with the result that section 1 of
the Dormant Bank and Building Society Accounts Act 2008
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applies in relation to the account, or
(b)
to an authorised reclaim fund and one or more charities, with
the result that section 2 of that Act applies in relation to the
account.
(2)
For the purposes of this Act—
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(a)
the transfer is not to be treated as involving any acquisition or
disposal of an asset, and
(b)
the person’s rights under Part 1 of that Act are to be treated as
the same asset as the original rights, acquired as the original
rights were acquired and having the same characteristics as
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those rights.
(3)
“The original rights” are the person’s rights against the bank or
building society immediately before the transfer.
(4)
Terms used in this section and in the Dormant Bank and Building
Society Accounts Act 2008 have the same meaning in this section as in
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that Act.”
(8)
Subsection (7) comes into force in accordance with provision made by order
made by the Treasury.
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Individual investment plan regulations
In section 701 of ITTOIA 2005 (investment plan regulations: general and
15
supplementary), insert at the end—
“(4)
They may include provision having effect in relation to times before
they are made if the provision does not impose or increase any liability
to tax.
(5)
They may make different provision for different cases or
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circumstances.”
Offshore funds
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Tax treatment of participants in offshore funds
(1)
The Treasury may by regulations make provision about the treatment of
participants in an offshore fund for the purposes of enactments relating to
25
income tax, capital gains tax or corporation tax.
(2)
In subsection (1)—
(a)
“enactment” includes subordinate legislation (within the meaning of
the Interpretation Act 1978 (c. 30)), and
(b)
“offshore fund” has the same meaning as in Chapter 5 of Part 17 of
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ICTA (see sections 756A to 756C of that Act).
(3)
Regulations under subsection (1) are to be made by statutory instrument.
(4)
A statutory instrument containing the first regulations under subsection (1)
may not be made unless a draft of the instrument has been laid before, and
approved by a resolution of, the House of Commons.
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(5)
Any other statutory instrument containing regulations under subsection (1) is
subject to annulment in pursuance of a resolution of the House of Commons.
(6)
In Chapter 5 of Part 17 of ICTA (offshore funds)—
(a)
in section 756A (general definition of offshore fund), omit subsection
(4),
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(b)
in section 756B (treatment of umbrella funds)—
(i)
in subsection (1), omit the words following paragraph (b), and

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(ii)
omit subsection (3),
(c)
in section 756C (treatment of funds comprising more than one class of
interest)—
(i)
in subsection (2), omit paragraph (b) (and the “or” before it), and
(ii)
omit subsection (3),
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(d)
omit sections 757 to 763 (further provision about offshore funds), and
(e)
omit Schedules 27 and 28 (distributing funds and computation of
offshore gains).
(7)
In consequence of subsection (6), omit—
(a)
paragraph 12 of Schedule 13 to FA 1988,
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(b)
paragraphs 10 and 11 of Schedule 14 to FA 1990,
(c)
paragraph 14(43) to (45), (47) to (49) and (63) of Schedule 10 to TCGA
1992,
(d)
section 134(4) of FA 1995,
(e)
in paragraph 6 of Schedule 28 to FA 1996, “and in paragraph 5(5) of
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Schedule 27 to that Act”,
(f)
paragraph 4(5) and (6) of Schedule 9 to FA 2002,
(g)
paragraphs 1(1), 2(1), 4, 5, 6(3) to (6), 7 to 9, 14(2), (3), (5)(b) and (7), 15
and 16(1) of Schedule 26 to FA 2004,
(h)
paragraphs 308, 309 and 350(4) of Schedule 1 to ITTOIA 2005,
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(i)
section 23 of F(No.2)A 2005,
(j)
paragraph 47(1) of Schedule 12 to FA 2006,
(k)
paragraphs 179(2)(a) and (b), 180 and 181 of Schedule 1 to ITA 2007, and
(l)
in this Act, paragraphs 87 to 89 of Schedule 7 and paragraph 28 of
Schedule 17.
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(8)
Subsections (6) and (7) come into force on such day as the Treasury may
appoint by order made by statutory instrument.
(9)
An order under subsection (8)—
(a)
may appoint different days for different purposes, and
(b)
may include savings.
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Regulations under section 38: supplementary
(1)
Regulations under section 38 may, in particular—
(a)
make provision for an offshore fund, or a trustee or officer of an
offshore fund, to make elections relating to the treatment of
participants in the offshore fund for the purposes of income tax, capital
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gains tax or corporation tax,
(b)
make provision about—
(i)
the provision of information to Her Majesty’s Revenue and
Customs,
(ii)
the provision of information to participants,
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(iii)
the preparation of accounts, and
(iv)
the keeping of records,

by offshore funds or trustees or officers of offshore funds, and
(c)
make other provision about the administration of offshore funds.
(2)
Regulations under section 38 may, in particular, make special provision about
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the treatment of participants in—