Finance Bill

House of Commons

Session 2008 - 09
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
24

(a)
the individual is UK resident in the tax year but not domiciled
in the United Kingdom in the tax year,
(b)
section 809B does not apply to the individual for the tax year,
and
(c)
conditions A to F in section 828B are met.
5
828B
Conditions to be met
(1)
Condition A is that in the tax year the individual has income from an
employment the duties of which are performed wholly or partly in the
United Kingdom.
(2)
Condition B is that, if the individual’s income for the tax year consists
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of or includes relevant foreign earnings—
(a)
the amount of the relevant foreign earnings does not exceed
£10,000, and
(b)
all of that amount is subject to a foreign tax.
(3)
Condition C is that, if the individual’s income for the tax year consists
15
of or includes income that is relevant foreign income by virtue of
section 830(2)(e) of ITTOIA 2005—
(a)
the amount of that income does not exceed £100, and
(b)
all of that amount is subject to a foreign tax.
(4)
Condition D is that the individual has no other foreign income and
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gains for the tax year.
(5)
Condition E is that the individual would not for the tax year be liable to
income tax at a rate other than the basic rate or the starting rate for
savings if this Chapter did not apply to the individual for the tax year.
(6)
Condition F is that the individual does not make a return under section
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8 of TMA 1970 for the tax year.
828C
The exemption
(1)
The exemption is given by deducting the relevant amount from what
would otherwise be the amount of the individual’s liability to income
tax for the tax year under section 23.
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(2)
“The relevant amount” is so much of the amount of the individual’s
liability to income tax as is attributable to the individual’s foreign
income or gains for the tax year.
(3)
But if for the tax year the individual’s total income is reduced by any
deductions which fall to be made at Step 3 of the calculation in section
35
23 from the individual’s foreign income or gains for the tax year,
subsection (2) has effect as if the individual’s foreign income or gains
for the tax year were reduced by the amount of the deductions.
(4)
And if the individual is entitled under—
(a)
section 788 of ICTA (double taxation arrangements: relief by
40
agreement), or
(b)
section 790(1) of that Act (relief for foreign tax where no double
taxation arrangements),

to a tax reduction in respect of the individual’s foreign income or gains
for the tax year, what would otherwise be the relevant amount is
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reduced by the amount of that reduction.

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Part 2 — Income tax, corporation tax and capital gains tax
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828D
Interpretation of Chapter
(1)
This section applies for the purposes of this Chapter.
(2)
“Employed” and “employment” have the same meaning as in the
employment income Parts of ITEPA 2003: see Chapter 1 of Part 2 of that
Act.
5
(3)
“Foreign income and gains”, in relation to an individual, means what
would be the individual’s foreign income and gains for the purposes of
Chapter A1 of this Part if section 809B applied to the individual (see
section 809Z7(2)).
(4)
“Foreign tax” means any tax chargeable under the law of a territory
10
outside the United Kingdom.
(5)
“Relevant foreign earnings”, in relation to an individual, means what
would be the individual’s relevant foreign earnings for the purposes of
Chapter A1 of this Part if section 809B applied to the individual (see
section 809Z7(3)).”
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(2)
In section 2(14) of ITA 2007 (overview), after paragraph (a) insert—
“(aa)
exemption for persons not domiciled in United Kingdom
(Chapter 1A),”.
(3)
The amendments made by this section have effect for the tax year 2008-09 and
subsequent tax years.
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Employment income
53
Taxable benefits: cars
Schedule 28 contains provision about taxable benefits arising from cars made
available to employees etc by reason of employment.
54
Taxable benefit of cars: price of automatic car for disabled employee
25
(1)
Chapter 6 of Part 3 of ITEPA 2003 (taxable benefits: cars etc) is amended as
follows.
(2)
In section 116(3) (meaning of when car is available), after “to section” insert
“124A or”.
(3)
In section 121(1) (method of calculating cash equivalent of benefit of car), in
30
step 1, for “124” substitute “124A”.
(4)
In section 122 (price of car), the existing provision becomes subsection (1) of
that section and after that subsection insert—
“(2)
This is subject to section 124A (automatic car for a disabled employee).”
(5)
After section 124 insert—
35
“124A
Automatic car for a disabled employee
(1)
This section applies where—
(a)
a car has automatic transmission (“the automatic car”),

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Part 2 — Income tax, corporation tax and capital gains tax
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(b)
at any time in the year when the automatic car is available to the
employee (“E”), E holds a disabled person’s badge, and
(c)
by reason of E’s disability, E must, in the event of wanting to
drive a car, drive a car which has automatic transmission.
(2)
If, under section 122 to 124, the price of the automatic car is more than
5
it would have been if the automatic car had been an equivalent manual
car, the price of the automatic car is to be the price of an equivalent
manual car.
(3)
In subsection (2) “an equivalent manual car” means a car which—
(a)
is first registered at or about the same time as the automatic car,
10
and
(b)
does not have automatic transmission, but otherwise is the
closest variant available of the make and model of the automatic
car.
(4)
For the purposes of this section a car has automatic transmission if—
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(a)
the driver of the car is not provided with any means by which
the driver may vary the gear ratio between the engine and the
road wheels independently of the accelerator and the brakes, or
(b)
the driver is provided with such means, but they do not
include—
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(i)
a clutch pedal, or
(ii)
a lever which the driver may operate manually.
(5)
For the purposes of this section a car is available to an employee at a
particular time if it is then made available, by reason of the employment
and without any transfer of the property in it, to the employee.”
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(6)
The amendments made by this section have effect for the tax year 2009-10 and
subsequent tax years.
55
Exemption of benefit consisting of health-screening or medical check-up
(1)
Part 4 of ITEPA 2003 (employment income: exemptions) is amended as follows.
(2)
In section 266(3) (exemption of non-cash vouchers for exempt benefits), omit
30
the “or” at the end of paragraph (e) and insert at the end “or
(g)
section 320B (health screening and medical check-ups).”
(3)
In section 267(2) (exemption of credit-tokens used for exempt benefits), omit
the “and” at the end of paragraph (g) and insert at the end “and
(i)
section 320B (health screening and medical check-ups).”
35
(4)
After section 320A insert—
“Health-screening and medical check-ups
320B
Health-screening and medical check-ups
(1)
No liability to income tax arises in respect of the provision for an
employee, on behalf of an employer, of a health-screening assessment
40
or a medical check-up.
(2)
Subsection (1) does not apply—

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Part 2 — Income tax, corporation tax and capital gains tax
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(a)
to more than one health-screening assessment provided in a tax
year by any one employer or by any of a number of persons who
are employers of the employee at the same time, or
(b)
to more than one medical check-up so provided.
(3)
In this section—
5
“health-screening assessment” means an assessment to identify
employees who might be at particular risk of ill-health, and
“medical check-up” means a physical examination of the
employee by a health professional for (and only for)
determining the employee’s state of health.”
10
(5)
The amendments made by this section have effect for the tax year 2009-10 and
subsequent tax years.
56
MEPs’ pay, allowances and pensions under European Parliament Statute
(1)
Part 18 of ICTA (double tax relief) has effect as if tax for the benefit of the
Communities payable in respect of any income under—
15
(a)
Articles 9.1 and 10 (salaries),
(b)
Article 13 (transitional allowances), or
(c)
Article 14, 15 or 17 (pensions for old-age, incapacity and survivors),

of the Statute for Members of the European Parliament (2005/684/EC,
Euratom) were payable under the law of a territory outside the United
20
Kingdom.
(2)
In section 291(2)(c) of ITEPA 2003 (termination payments under section 3 of
European Parliament (Pay and Pensions) Act 1979), insert at the end “or under
Article 13 of the Statute for Members of the European Parliament (transitional
allowances),”.
25
(3)
This section has effect for the tax year 2009-10 and subsequent tax years.
Double taxation
57
Tax underlying dividends
(1)
Section 799 of ICTA (computation of foreign tax on dividends) is amended as
follows.
30
(2)
In subsection (1A), for “in force when the dividend was paid” substitute
“applicable to profits of the company by which the dividend is received for the
accounting period in which it is received or, where there is more than one such
rate, the average rate over the whole of that accounting period”.
(3)
Section 801 of ICTA (dividends paid between related companies) is amended
35
as follows.
(4)
In subsection (2), after “had been paid” insert “(at the time when the dividend
mentioned in subsection (1) above is received)”.
(5)
In the version of section 799(1A) set out in subsection (2B), for “in force when
the dividend was paid” substitute “applicable to profits of the company by
40
which the dividend is received for the accounting period in which it is received
or, where there is more than one such rate, the average rate over the whole of
that accounting period”.

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(6)
The amendment made by subsection (4) has effect in relation to dividends paid
to a company falling within section 801(1A) of ICTA if they are paid on or after
22 April 2009.
(7)
The other amendments made by this section have effect in relation to
dividends paid on or after 1 April 2008.
5
58
Manufactured overseas dividends
Schedule 29 contains provision about the amount of overseas tax treated as
withheld in relation to certain manufactured overseas dividends.
59
Payments by reference to foreign tax etc
(1)
Part 18 of ICTA (double taxation relief) is amended as follows.
10
(2)
Before section 805 insert—
“804G
  Reduction in credit: payment by reference to foreign tax
(1)
This section applies if—
(a)
credit for foreign tax falls to be allowed to a person (“P”) under
any arrangements, and
15
(b)
a payment is made to P, or any person connected with P, by
reference to the foreign tax.
(2)
The amount of that credit is to be reduced by an amount equal to that
payment.
(3)
Section 839 applies for the purposes of determining whether or not a
20
person is connected with P.”
(3)
Section 806 (time limit for claims etc) is amended as follows.
(4)
In subsection (2)—
(a)
after “arrangements” insert “is reduced under section 804G, or”,
(b)
for “to which the adjustment gives rise” substitute “to which the
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reduction or adjustment gives rise”, and
(c)
for “all such assessments, adjustments” substitute “all such
assessments, reductions, adjustments”.
(5)
In subsection (3)—
(a)
in paragraph (b), after “subsequently” insert “reduced under section
30
804G or”, and
(b)
in the words after paragraph (b), after “Board that” insert “a reduction
has been made or that”.
(6)
In subsections (4) and (5), for “the adjustment” substitute “the reduction or
adjustment”.
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(7)
In subsection (6)—
(a)
for “any adjustment” substitute “any reduction or adjustment”, and
(b)
after “allowed” insert “has been reduced or”.
(8)
Section 811 (deduction for foreign tax where no credit allowable) is amended
as follows.
40

Finance Bill
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(9)
After subsection (3) insert—
“(3A)
If—
(a)
income of any person (“P”) is treated under subsection (1) as
reduced by a sum paid in respect of tax on that income in the
place where the income has arisen (“foreign tax”), and
5
(b)
a payment is made to P, or any person connected with P, by
reference to the foreign tax,

the amount of P’s income is to be increased by an amount equal to the
payment made to P or the connected person.
(3B)
Section 839 applies for the purposes of determining whether or not a
10
person is connected with P.”
(10)
In subsection (4)—
(a)
before “nothing” insert “or the amount of P’s income is increased under
subsection (3A),”,
(b)
for “adjustment gives rise” substitute “adjustment or increase gives
15
rise”,
(c)
for “all such assessments, adjustments” substitute “all such
assessments, adjustments, increases”, and
(d)
insert at the end “or increase under subsection (3A) falls to be made”.
(11)
In subsection (5)—
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(a)
in paragraph (b), after “United Kingdom” insert “or an increase under
subsection (3A)”, and
(b)
in the words after paragraph (b), after “adjustment” insert “or
increase”.
(12)
In subsections (6), (7) and (8), after “adjustment” insert “or increase”.
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(13)
The amendments made by this section have effect in relation to payments
made on or after 22 April 2009.
60
Anti-fragmentation
(1)
Part 18 of ICTA (double taxation relief) is amended as follows.
(2)
In section 798A (section 797: trade income), after subsection (3) insert—
30
“(3A)
Subsection (3) is subject to subsection (3B) if—
(a)
the taxpayer is a bank or a company connected with a bank, and
(b)
the amount of the included funding costs is significantly less
than the amount of the notional funding costs.
(3B)
The amount of the notional funding costs is to be included in the
35
subsection (3) total, but only to the extent that it exceeds the amount of
the included funding costs.
(3C)
In subsections (3A) and (3B) and this subsection—
“bank” has the meaning given by section 840A;
“connected” has the meaning given by section 839;
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“included funding costs” means the total of the funding costs that
are—

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(a)
incurred by the taxpayer, or any company connected
with the taxpayer, in respect of capital used to fund the
relevant transaction, and
(b)
included in the subsection (3) total (before the
application of subsection (3B));
5
“notional funding costs” means the funding costs that the relevant
bank would incur (on the basis of its average funding costs) in
respect of the capital that would be needed to wholly fund the
relevant transaction if that transaction were funded in that way
(and for this purpose “relevant bank” means the bank that is the
10
taxpayer, or with which the taxpayer is connected);
“relevant transaction” means the transaction, arrangement or asset
from which the income or gain arises;
“subsection (3) total” means the amount to be taken into account
under subsection (3) for the purposes of section 797(1).”
15
(3)
Section 798B (section 798A: special cases), after subsection (4) insert—
“(4A)
Income of a person (“D”) is to be treated for the purposes of section
798A as trade income (if it is not otherwise trade income) of D in a case
where—
(a)
the income is received by D as part of a scheme or arrangement
20
entered into by D and a connected person (“C”),
(b)
if C had received the income, it would be reasonable to assume
that it would be trade income of C, and
(c)
a main purpose of the scheme or arrangement is to produce the
result that section 798A will not have effect in relation to the
25
income because it is received by D.
(4B)
For the purposes of subsection (4A)(b) it is to be assumed that, in the
case of any relevant transaction to which a relevant person is a party, C
were that party to that transaction.
(4C)
In subsections (4A) and (4B) and this subsection—
30
“connected person” means a person with whom D is connected
(within the meaning of section 839);
“relevant person” means—
(a)
D, or
(b)
any other connected person who is a party to the scheme
35
or arrangement;
“relevant transaction” means any of the transactions giving rise to
the income.”
(4)
The amendments made by this section have effect in relation to a credit for
foreign tax which relates to—
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(a)
a payment of foreign tax on or after 22 April 2009, or
(b)
income received on or after that date in respect of which foreign tax has
been deducted at source.