Corporation Tax Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 12 — Other relief for employee share acquisitions
Chapter 4 — Additional relief in cases involving restricted shares
484

(4)
This Chapter applies as if the employee had been a UK employee as mentioned
in subsection (3)(b).
(5)
The employee is a UK employee if—
(a)
the employee is UK resident and ordinarily UK resident, and
(b)
the duties of the relevant employment are performed in the United
5
Kingdom.
(6)
If—
(a)
the original relief is available as a result of section 1015(3) (death of
recipient), and
(b)
the recipient is not the employee,
10

this Chapter applies as if the recipient were alive and the restricted shares were
acquired by the recipient.
(7)
If the original relief is available as a result of section 1022 (takeover of company
whose shares are subject to an option), this Chapter applies as if the restricted
shares were acquired pursuant to the qualifying option mentioned in that
15
section.
(8)
To find out what accounting period the relief is given for and how to calculate
the amount of relief, see—
(a)
section 1026 for relief available as a result of the occurrence of a
chargeable event, and
20
(b)
section 1027 for relief available as a result of the employee’s death.

Those sections are supplemented by section 1028.
(9)
Section 1029 provides for the relief to be given to a successor company if the
qualifying business is transferred by group transfers.
1026
Relief available on occurrence of chargeable event
25
(1)
This section applies in relation to relief available as a result of the occurrence
of a chargeable event.
(2)
The relief is given for the accounting period in which the chargeable event
occurs.
(3)
The amount of relief is equal to the amount that counts as employment income
30
of the employee under section 426 of ITEPA 2003 in relation to the chargeable
event.
(4)
For the purposes of subsection (3) the following are to be ignored—
(a)
any relief under section 428A of ITEPA 2003,
(b)
section 446E(6) of ITEPA 2003, and
35
(c)
the amount of any non-commercial increase (as defined in section
446K(4) of ITEPA 2003) in the market value of the restricted shares after
their acquisition.
1027
Relief available on death of employee
(1)
This section applies in relation to relief available as a result of the employee’s
40
death.
(2)
The relief is given for the accounting period in which the employee dies.

Corporation Tax Bill
Part 12 — Other relief for employee share acquisitions
Chapter 4 — Additional relief in cases involving restricted shares
485

(3)
The amount of relief is equal to the amount that would have counted as
employment income of the employee under section 426 of ITEPA 2003 had a
chargeable event within section 427(3)(c) of that Act occurred immediately
before Chapter 2 of Part 7 of that Act ceased to apply to the restricted shares
because of the employee’s death.
5
(4)
For the purposes of subsection (3)—
(a)
the amount of expenses resulting from section 428(6) of ITEPA 2003 is
to be treated as nil, and
(b)
the following are to be ignored—
(i)
sections 428(9) and 446E(6) of ITEPA 2003, and
10
(ii)
the amount of any non-commercial increase (as defined in
section 446K(4) of ITEPA 2003) in the market value of the
restricted shares after their acquisition.
1028
Supplementary provision for purposes of sections 1026 and 1027
(1)
If section 1012 or 1020 (reduction in amount of relief) applies in relation to the
15
original relief, that section applies in relation to the relief under this Chapter as
it applies in relation to the original relief.
(2)
For the purposes of the giving of the relief under this Chapter—
(a)
if the original relief is available under Chapter 2, apply section 1013(2)
to (5), and
20
(b)
if the original relief is available under Chapter 3, apply section 1021(2)
to (5).
1029
Transfer of qualifying business by group transfers
(1)
This section applies in relation to relief to be given under this Chapter if—
(a)
during the interim period (see subsections (5) to (7)), the whole, or
25
substantially the whole, of the qualifying business is transferred, and
(b)
conditions A and B are met.
(2)
Condition A is that—
(a)
the transfer is a group transfer, or
(b)
if there is more than one transfer, all the transfers are group transfers.
30
(3)
Condition B is that, as a result of the transfer or transfers, at the end of the
interim period—
(a)
the whole, or substantially the whole, of the qualifying business is
carried on by one company (“the successor company”) only and that
company is not the employing company, or
35
(b)
the whole, or substantially the whole, of the qualifying business is
carried on by companies (“the successor companies”) none of which is
the employing company.
(4)
The relief is to be given to—
(a)
the successor company, or
40
(b)
whichever one of the successor companies is nominated by them,

instead of the employing company (and references to the employing company
in section 1013(3) and (4) or 1021(3) and (4) (as applied by section 1028(2)) are
to be read as references to the company to which the relief is to be given).

Corporation Tax Bill
Part 12 — Other relief for employee share acquisitions
Chapter 5 — Additional relief in cases involving convertible securities
486

(5)
“The interim period” is to be read in accordance with subsections (6) and (7).
(6)
The interim period begins—
(a)
if the original relief is available under Chapter 2, when the restricted
shares are acquired, and
(b)
if the original relief is available under Chapter 3, when the option is
5
obtained.
(7)
The interim period ends—
(a)
if the relief under this Chapter is available as a result of the occurrence
of a chargeable event, when the chargeable event occurs, and
(b)
if the relief under this Chapter is available as a result of the employee’s
10
death, when the employee dies.
Chapter 5
Additional relief in cases involving convertible securities
1030
Application of Chapter
(1)
This Chapter applies if relief under Chapter 2 or 3 is available in relation to an
15
acquisition of convertible shares.
(2)
This Chapter also applies if—
(a)
there is an acquisition of convertible securities that are not shares, and
(b)
relief under Chapter 2 or 3 would have been available in relation to the
acquisition but for the fact that the securities were not shares in relation
20
to which all the conditions set out in section 1008 or 1016 were met.
(3)
For the purposes of subsections (1) and (2)(b) it does not matter if the amount
of relief is calculated or would have been calculated as nil.
(4)
In this Chapter—
“the acquired securities” means the convertible shares mentioned in
25
subsection (1) or the convertible securities mentioned in subsection (2),
“convertible securities” includes an interest in convertible securities, and
“the original relief” means the relief mentioned in subsection (1) or (2)(b).
(5)
If the original relief is or would have been available as a result of section 1015(3)
(death of recipient), this Chapter applies as if the recipient were alive and the
30
acquired securities were acquired by the recipient.
(6)
If the original relief is or would have been available as a result of section 1022
(takeover of company whose shares are subject to an option), this Chapter
applies as if the acquired securities were acquired pursuant to the qualifying
option mentioned in that section.
35
1031
Additional relief available if shares acquired are convertible shares etc
(1)
Relief under this Chapter is available to the employing company if, after the
acquisition of the acquired securities, a chargeable event (see section 1032)
occurs in relation to those securities.
(2)
Relief under this Chapter is also available to the employing company if the
40
employee—

Corporation Tax Bill
Part 12 — Other relief for employee share acquisitions
Chapter 5 — Additional relief in cases involving convertible securities
487

(a)
is dead when that acquisition occurs, or
(b)
dies after that acquisition.
(3)
But relief resulting from subsection (2) does not become available until the
occurrence of the first event (referred to in this Chapter as “the relief event”)
occurring after the employee’s death that would have been a chargeable event
5
in relation to the acquired securities had the employee been alive.
(4)
To find out what accounting period the relief is given for and how to calculate
the amount of relief, see—
(a)
section 1033 for relief available as a result of the occurrence of a
chargeable event, and
10
(b)
section 1034 for relief available as a result of the employee’s death.

Those sections are supplemented by section 1035.
(5)
Section 1036 provides for the relief to be given to a successor company if the
qualifying business is transferred by group transfers.
1032
Meaning of “chargeable event”
15
(1)
In this Chapter “chargeable event” means an event that—
(a)
is a chargeable event for the purposes of section 438 of ITEPA 2003,
(b)
is within section 439(3)(a) of ITEPA 2003, and
(c)
is within subsection (2).
(2)
An event is within this subsection if it is the conversion of convertible securities
20
into shares in relation to which—
(a)
if the original relief is or would have been available under Chapter 2,
all the conditions set out in section 1008 are met, or
(b)
if the original relief is or would have been available under Chapter 3,
all the conditions set out in section 1016 are met (ignoring paragraph (f)
25
of condition 3).
(3)
Subsection (4) applies if section 438 of ITEPA 2003—
(a)
does not apply in relation to the acquired securities, but
(b)
would apply if at all material times the employee had been a UK
employee.
30
(4)
This Chapter applies as if the employee had been a UK employee as mentioned
in subsection (3)(b).
(5)
The employee is a UK employee if—
(a)
the employee is UK resident and ordinarily UK resident, and
(b)
the duties of the relevant employment are performed in the United
35
Kingdom.
1033
Relief available on occurrence of chargeable event
(1)
This section applies in relation to relief available as a result of the occurrence
of a chargeable event.
(2)
The relief is given for the accounting period in which the chargeable event
40
occurs.

Corporation Tax Bill
Part 12 — Other relief for employee share acquisitions
Chapter 5 — Additional relief in cases involving convertible securities
488

(3)
The amount of relief is equal to the amount that counts as employment income
of the employee under section 438 of ITEPA 2003 in relation to the chargeable
event.
(4)
For the purposes of subsection (3) the following are to be ignored—
(a)
any relief under section 442A of ITEPA 2003, and
5
(b)
sections 446G and 446H of ITEPA 2003.
1034
Relief available following death of employee
(1)
This section applies in relation to relief available as a result of the employee’s
death.
(2)
The relief is given for the accounting period in which the relief event occurs.
10
(3)
The amount of relief is equal to the amount that would have counted as
employment income of the employee under section 438 of ITEPA 2003 in
relation to the relief event had the employee been alive.
(4)
For the purposes of subsection (3) sections 446G and 446H of ITEPA 2003 are
to be ignored.
15
1035
Supplementary provision for purposes of sections 1033 and 1034
(1)
If section 1012 or 1020 (reduction in amount of relief) applies or would have
applied in relation to the original relief, that section applies in relation to the
relief under this Chapter as it applies or would have applied in relation to the
original relief.
20
(2)
For the purposes of the giving of the relief under this Chapter—
(a)
if the original relief is or would have been available under Chapter 2,
apply section 1013(2) to (5), and
(b)
if the original relief is or would have been available under Chapter 3,
apply section 1021(2) to (5).
25
1036
Transfer of qualifying business by group transfers
(1)
This section applies in relation to relief to be given under this Chapter if—
(a)
during the interim period (see subsections (5) to (7)), the whole, or
substantially the whole, of the qualifying business is transferred, and
(b)
conditions A and B are met.
30
(2)
Condition A is that—
(a)
the transfer is a group transfer, or
(b)
if there is more than one transfer, all the transfers are group transfers.
(3)
Condition B is that, as a result of the transfer or transfers, at the end of the
interim period—
35
(a)
the whole, or substantially the whole, of the qualifying business is
carried on by one company (“the successor company”) only and that
company is not the employing company, or
(b)
the whole, or substantially the whole, of the qualifying business is
carried on by companies (“the successor companies”) none of which is
40
the employing company.
(4)
The relief is to be given to—

Corporation Tax Bill
Part 12 — Other relief for employee share acquisitions
Chapter 6 — Relationship between relief under this Part and other reliefs
489

(a)
the successor company, or
(b)
whichever one of the successor companies is nominated by them,

instead of the employing company (and references to the employing company
in section 1013(3) and (4) or 1021(3) and (4) (as applied by section 1035(2)) are
to be read as references to the company to which the relief is to be given).
5
(5)
“The interim period” is to be read in accordance with subsections (6) and (7).
(6)
The interim period begins—
(a)
if the original relief is or would have been available under Chapter 2,
when the acquired securities are acquired, and
(b)
if the original relief is or would have been available under Chapter 3,
10
when the option is obtained.
(7)
The interim period ends—
(a)
if the relief under this Chapter is available as a result of the occurrence
of a chargeable event, when the chargeable event occurs, and
(b)
if the relief under this Chapter is available as a result of the employee’s
15
death, when the relief event occurs.
Chapter 6
Relationship between relief under this Part and other reliefs
1037
Priority of Chapter 1 of Part 11
(1)
Deductions available under Chapter 1 of Part 11 (relief for particular employee
20
share acquisition schemes: share incentive plans) are to be given priority over
relief under this Part.
(2)
No relief is available under this Part in relation to shares in respect of which a
deduction is allowable, or has been made, under that Chapter.
1038
Exclusion of other deductions
25
(1)
If relief under this Part is or, apart from condition 2 in section 1009(1), would
be available for an accounting period, no other deduction in relation to
expenses within subsection (2) is allowed for the purpose of calculating any
company’s profits for corporation tax purposes for any accounting period.
(2)
The expenses within this subsection are the expenses directly related to the
30
provision of the shares.
(3)
They include, in a case in which the shares are acquired under an employee
share scheme, any amount paid or payable by the employing company in
relation to the participation of the employee in the scheme.
(4)
But they do not include in such a case—
35
(a)
expenses incurred in setting up the scheme,
(b)
expenses incurred in meeting, or contributing to, the costs of
administering the scheme,
(c)
the costs of borrowing for the purposes of the scheme, or
(d)
fees, commission, stamp duty, stamp duty reserve tax, and similar
40
incidental expenses of acquiring the shares.

Corporation Tax Bill
Part 13 — Additional relief for expenditure on research and development
Chapter 1 — Introduction
490

(5)
“Employee share scheme” means a scheme or arrangement for enabling shares
to be acquired because of persons’ employment.
Part 13
Additional relief for expenditure on research and development
Chapter 1
5
Introduction
Introductory
1039
Overview of Part
(1)
This Part provides for corporation tax relief for expenditure on research and
development.
10
(2)
Relief under this Part is in addition to any deduction given under section 87 for
the expenditure.
(3)
Relief under Chapters 2 to 4 is available to a company which is a small or
medium-sized enterprise, in particular—
(a)
Chapter 2 provides for relief where the cost of in-house direct research
15
and development or contracted out research and development is
incurred by the company,
(b)
Chapter 3 provides for relief where research and development is
contracted out to the company, and
(c)
Chapter 4 provides for relief for research and development expenditure
20
which is subsidised or in respect of which the company is prevented
from obtaining relief under Chapter 2 by the cap on aid imposed by
section 1113.
(4)
Relief under Chapter 5 is available to large companies (and insurance
companies treated as large companies).
25
(5)
Chapter 6 contains further provision in relation to relief under Chapters 2 to 5,
in particular—
(a)
section 1081 provides for certain insurance companies to be treated as
large companies,
(b)
section 1082 contains provision about expenditure of group companies,
30
(c)
section 1083 contains provision in relation to refunds of certain
expenditure on which relief has been obtained (treating part of those
refunds as income chargeable to tax), and
(d)
section 1084 contains an anti-avoidance provision dealing with
artificially inflated claims for relief or R&D tax credits (as to which, see
35
subsection (7) below).
(6)
Relief under Chapter 7 is available to companies (whether they are small or
medium-sized enterprises or large companies) where expenditure is incurred
on vaccine or medicine research.
(7)
Chapters 2 and 7 also provide for the payment of tax credits (“R&D tax
40
credits”) where a company which is a small or medium-sized enterprise—
(a)
obtains relief under Chapter 2 or 7, and