Finance (No. 3) Bill

Session 2010 - 11
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Finance (No. 3) Bill

Finance (No. 3) Bill
Schedule 2 — Employment income provided through third parties
102

31
Before section 696 insert—
“695A
Employment income under Part 7A
(1)
This section applies if—
(a)
the value of a relevant step counts as employment income
under Chapter 2 of Part 7A, and
5
(b)
the relevant step is not the payment of a sum of money,

and references to A and B are to be read accordingly.
(2)
For the purposes of PAYE regulations B is treated as making a
payment of PAYE income of A of an amount which, on the basis of
the best estimate which can reasonably be made, is—
10
(a)
the amount of the employment income, less
(b)
so much of that amount (if any) to which section 554Z8(2) or
554Z9(2) applies.
(3)
The payment is treated as made on the latest of the following days—
(a)
the day on which the relevant step is taken,
15
(b)
the day on which A’s employment with B starts, and
(c)
the day which is 30 days after the day on which FA 2011 is
passed.
(4)
Subsection (2) does not apply if the person who takes the relevant
step (whether or not a person to whom PAYE regulations apply)
20
accounts for income tax on the relevant step in accordance with
PAYE regulations.”
32
After section 696(2) (PAYE: readily convertible assets) insert—
“(3)
This section does not apply to any PAYE income so far as it is
employment income under Chapter 2 of Part 7A.”
25
33
In section 710(2)(a) (PAYE: accounting for tax on notional payments) after
“687,” insert “687A,”.
34    (1)
Amend section 716A (priority rule in relation to certain dividend income) as
follows.
      (2)
Make the existing text subsection (1).
30
      (3)
After subsection (1) insert—
“(2)
Subsection (1) is subject to section 554Z1(2).”
Amendments to ITTOIA 2005
35
ITTOIA 2005 is amended as follows.
36    (1)
Amend section 39 (employee benefit contributions: meaning of “employee
35
benefit scheme” etc) as follows.
      (2)
In subsection (2) after “employer” insert “or persons linked with present or
former employees of the employer”.

Finance (No. 3) Bill
Schedule 2 — Employment income provided through third parties
103

      (3)
After subsection (2) insert—
“(3)
Section 554Z of ITEPA 2003 applies for the purposes of subsection (2)
but as if references to A were to a present or former employee of the
employer.
(4)
So far as it is not covered by subsection (2), “employee benefit
5
scheme” also means—
(a)
an arrangement (“the relevant arrangement”) within
subsection (1)(b) of section 554A of ITEPA 2003 to which
subsection (1)(c) of that section applies, or
(b)
any other arrangement connected (directly or indirectly) with
10
the relevant arrangement.”
37    (1)
Amend section 40 (employee benefit contributions: provision of qualifying
benefits) as follows.
      (2)
In subsection (5) after “scheme” insert “and the payment or transfer—
(a)
gives rise to an employment income tax charge under
15
Chapter 2 of Part 6 of ITEPA 2003 or under Part 9 of that Act,
or
(b)
is an excluded benefit as defined in section 393B(3) of that
Act.”
      (3)
After subsection (6) insert—
20
“(6A)
For the purposes of section 38 qualifying benefits are also provided
if—
(a)
a relevant step within the meaning of Part 7A of ITEPA 2003
is taken, and
(b)
Chapter 2 of that Part applies by reason of the step.”
25
38    (1)
Amend section 41 (employee benefit contributions: timing of qualifying
benefits etc) as follows.
      (2)
For subsection (1) substitute—
“(1)
If the provision of a qualifying benefit takes the form of a payment of
money, the benefit, so far as Chapter 4 of Part 2 of ITEPA 2003 applies
30
to the money, is provided for the purposes of section 38 when the
money is treated as received for the purposes of that Chapter
(applying the rules in section 18 of that Act (receipt of money
earnings)).”
      (3)
After subsection (1) insert—
35
“(1A)
Except so far as subsection (1) applies to the provision of the
qualifying benefit, if the provision of a qualifying benefit is a
chargeable relevant step, for the purposes of section 38—
(a)
the benefit is provided when A’s employment with B starts if
the chargeable relevant step is taken before then, or
40
(b)
otherwise, the benefit is provided when the chargeable
relevant step is taken.”
      (4)
In subsection (2)—
(a)
after “an asset” insert “which meets condition A, B, C or D in section
40”,
45

Finance (No. 3) Bill
Schedule 2 — Employment income provided through third parties
104

(b)
omit the “and” after paragraph (a), and
(c)
after paragraph (b) insert “, and
(c)
if the transfer is a chargeable relevant step, the cost of
the relevant step so far as not covered by paragraph
(a) or (b)”.
5
      (5)
After subsection (3) insert—
“(4)
If the provision of a qualifying benefit is a chargeable relevant step
which does not involve a sum of money (see section 554Y(9) of
ITEPA 2003) and is not covered by subsection (2), the amount
provided for the purposes of section 38 is the cost of the relevant step
10
(subject to subsection (5)).
(5)
If the provision of a qualifying benefit is a chargeable relevant step
which is not covered by subsection (2) (whether or not it involves a
sum of money), the amount provided for the purposes of section 38
is not to exceed the amount that—
15
(a)
is charged to tax under ITEPA 2003 in relation to the relevant
step (whether under Part 7A of that Act or otherwise), or
(b)
would be charged had not A been non-UK resident in any tax
year.
(6)
In this section—
20
(a)
“chargeable relevant step” means a relevant step within the
meaning of Part 7A of ITEPA 2003 by reason of which
Chapter 2 of that Part applies (and references to A and B are
to be read accordingly), and
(b)
references to the cost of a chargeable relevant step are to be
25
read in accordance with section 554Z2(6) of that Act.”
39
In section 44(1) (employee benefit contributions: interpretation)—
(a)
in the definition of “employee benefit scheme” for “39(2)” substitute
“39(2) to (4)”, and
(b)
in the definition of “employer-financed retirement benefits scheme”
30
after “Act)” insert “but ignoring section 393B(2)(a) and (c) of that
Act”.
Amendments to ITA 2007
40
ITA 2007 is amended as follows.
41
After section 809F(5) (remittance basis: effect) insert—
35
“(5A)
For the effect on amounts which count as employment income under
Chapter 2 of Part 7A of ITEPA 2003, see sections 554Z8 to 554Z10 of
that Act.”
42
After section 809K(1)(c) (remittance basis: application of sections 809L to
809Z6) insert—
40
“(ca)
sections 554Z8 to 554Z10 of that Act (employment income
provided through third parties charged on remittance
basis),”.
43
For section 809Z7(4) (remittance basis: meaning of “foreign specific

Finance (No. 3) Bill
Schedule 2 — Employment income provided through third parties
105

employment income”) substitute—
“(4)
An individual’s “foreign specific employment income” for a tax year
(“the relevant tax year”) consists of the income (if any) within
subsections (4A) and (4B).
(4A)
The income within this subsection is the individual’s specific
5
employment income for the relevant tax year so far as it consists of
foreign securities income for the purposes of section 41A of ITEPA
2003.
(4B)
The income within this subsection is any income, or any part of any
income, of the individual—
10
(a)
to which section 554Z8(2) or 554Z9(2) of ITEPA 2003 applies,
and
(b)
which consists of the value of a relevant step, or a part of the
value of a relevant step, which is “for” the relevant tax year as
determined under section 554Z3 of ITEPA 2003.”
15
Amendments to CTA 2009
44
CTA 2009 is amended as follows.
45    (1)
Amend section 1291 (employee benefit contributions: meaning of “employee
benefit scheme” etc) as follows.
      (2)
In subsection (2) after “employer” insert “or persons linked with present or
20
former employees of the employer”.
      (3)
After subsection (2) insert—
“(3)
Section 554Z of ITEPA 2003 applies for the purposes of subsection (2)
but as if references to A were to a present or former employee of the
employer.
25
(4)
So far as it is not covered by subsection (2), “employee benefit
scheme” also means—
(a)
an arrangement (“the relevant arrangement”) within
subsection (1)(b) of section 554A of ITEPA 2003 to which
subsection (1)(c) of that section applies, or
30
(b)
any other arrangement connected (directly or indirectly) with
the relevant arrangement.”
46    (1)
Amend section 1292 (employee benefit contributions: provision of
qualifying benefits) as follows.
      (2)
In subsection (5) after “scheme” insert “and the payment or transfer—
35
(a)
gives rise to an employment income tax charge under
Chapter 2 of Part 6 of ITEPA 2003 or under Part 9 of that Act,
or
(b)
is an excluded benefit as defined in section 393B(3) of that
Act.”
40
      (3)
After subsection (6) insert—
“(6A)
For the purposes of section 1290 qualifying benefits are also
provided if—

Finance (No. 3) Bill
Schedule 2 — Employment income provided through third parties
106

(a)
a relevant step within the meaning of Part 7A of ITEPA 2003
is taken, and
(b)
Chapter 2 of that Part applies by reason of the step.”
47    (1)
Amend section 1293 (employee benefit contributions: timing of qualifying
benefits etc) as follows.
5
      (2)
For subsection (1) substitute—
“(1)
If the provision of a qualifying benefit takes the form of a payment of
money, the benefit, so far as Chapter 4 of Part 2 of ITEPA 2003 applies
to the money, is provided for the purposes of section 1290 when the
money is treated as received for the purposes of that Chapter
10
(applying the rules in section 18 of that Act (receipt of money
earnings)).”
      (3)
After subsection (1) insert—
“(1A)
Except so far as subsection (1) applies to the provision of the
qualifying benefit, if the provision of a qualifying benefit is a
15
chargeable relevant step, for the purposes of section 1290—
(a)
the benefit is provided when A’s employment with B starts if
the chargeable relevant step is taken before then, or
(b)
otherwise, the benefit is provided when the chargeable
relevant step is taken.”
20
      (4)
In subsection (2)—
(a)
after “an asset” insert “which meets condition A, B, C or D in section
1292”,
(b)
omit the “and” after paragraph (a), and
(c)
after paragraph (b) insert “, and
25
(c)
if the transfer is a chargeable relevant step, the cost of
the relevant step so far as not covered by paragraph
(a) or (b)”.
      (5)
After subsection (3) insert—
“(4)
If the provision of a qualifying benefit is a chargeable relevant step
30
which does not involve a sum of money (see section 554Y(9) of
ITEPA 2003) and is not covered by subsection (2), the amount
provided for the purposes of section 1290 is the cost of the relevant
step (subject to subsection (5)).
(5)
If the provision of a qualifying benefit is a chargeable relevant step
35
which is not covered by subsection (2) (whether or not it involves a
sum of money), the amount provided for the purposes of section
1290 is not to exceed the amount that—
(a)
is charged to tax under ITEPA 2003 in relation to the relevant
step (whether under Part 7A of that Act or otherwise), or
40
(b)
would be charged had not A been non-UK resident in any tax
year.
(6)
In this section—
(a)
“chargeable relevant step” means a relevant step within the
meaning of Part 7A of ITEPA 2003 by reason of which
45
Chapter 2 of that Part applies (and references to A and B are
to be read accordingly), and

Finance (No. 3) Bill
Schedule 2 — Employment income provided through third parties
107

(b)
references to the cost of a chargeable relevant step are to be
read in accordance with section 554Z2(6) of that Act.”
48
In section 1296(1) (employee benefit contributions: interpretation)—
(a)
in the definition of “employee benefit scheme” for “1291(2)”
substitute “1291(2) to (4)”, and
5
(b)
in the definition of “employer-financed retirement benefits scheme”
after “Act)” insert “but ignoring section 393B(2)(a) and (c) of that
Act”.
Other amendments
49    (1)
TCGA 1992 is amended as follows.
10
      (2)
In section 119A (increase in expenditure by reference to tax charged in
relation to employment-related securities)—
(a)
in subsection (5)(a) for “or (b)” substitute “, (b) or (d)”, and
(b)
at the end of subsection (5A) insert “and section 119C (unremitted
Part 7A income)”.
15
      (3)
After section 119B insert—
“119C
Section 119A: unremitted Part 7A income
(1)
This section applies for the purposes of section 119A if an amount
deducted under section 480(5)(d) of ITEPA 2003, which (apart from
this section) would by virtue of section 119A(5)(a) be added back to
20
an amount counting as employment income, is or includes
unremitted Part 7A income.
(2)
So much of the amount deducted as is unremitted Part 7A income is
not to be added back.
(3)
In this section “unremitted Part 7A income” means an amount
25
counting as employment income under Chapter 2 of Part 7A of
ITEPA 2003—
(a)
to which section 554Z8(2) or 554Z9(2) of that Act applies, and
(b)
which has not been remitted to the United Kingdom by the
end of the tax year in which the disposal mentioned in section
30
119A(1) occurs.
(4)
Section 119B(4) to (6) applies if any of the unremitted Part 7A income
is remitted to the United Kingdom after the end of the tax year
referred to in subsection (3)(b).”
50
In the following provisions, in the definition of “the employment income
35
Parts of ITEPA 2003”, for “7” substitute “7A”—
(a)
section 122(1) of the Social Security Contributions and Benefits Act
1992, and
(b)
section 121(1) of the Social Security Contributions and Benefits
(Northern Ireland) Act 1992.
40
51
In Schedule 34 to FA 2004 (non-UK pension schemes) after paragraph 3(6)

Finance (No. 3) Bill
Schedule 2 — Employment income provided through third parties
108

insert—
    “(7)
The provision which may be made under sub-paragraph (6)
includes (in particular) provision in consequence of Part 7A of
ITEPA 2003.”
Commencement and transitional provision relating to Part 7A of ITEPA 2003
5
52    (1)
Part 7A of ITEPA 2003 (as inserted by paragraph 1 of this Schedule) has
effect in relation to relevant steps taken on or after 6 April 2011; and the other
amendments made by this Schedule have effect accordingly.
      (2)
Sub-paragraph (1) is subject to the following paragraphs.
53    (1)
This paragraph applies if—
10
(a)
on or after 9 December 2010 but before 6 April 2011 a relevant step
(“the early step”) within section 554C(1)(a) of ITEPA 2003 is taken,
(b)
Chapter 2 of Part 7A of ITEPA 2003 would have applied by reason of
the early step had the reference in paragraph 52(1) of this Schedule
to 6 April 2011 been a reference to 9 December 2010, and
15
(c)
the early step is not chargeable to income tax by virtue of Schedule
34 to FA 2004 in whole or in part.
      (2)
Subject to what follows, Chapter 2 of Part 7A of ITEPA 2003 is to apply by
reason of the early step; and the amendments made by this Schedule have
effect accordingly.
20
      (3)
In determining the tax year for which the employment income of A counts
for the purposes of section 554Z1(1) of ITEPA 2003, the early step is treated
as having been taken on 6 April 2012; but otherwise Chapter 2 of Part 7A of
that Act applies by reference to when the early step was actually taken.
      (4)
The amount which (apart from this sub-paragraph) would count as
25
employment income of A is to be reduced by an amount to reflect so much
of the sum paid as has been repaid to P before 6 April 2012 by the person to
whom the payment was made; and the Tax Acts are to apply in relation to
the sum paid so far as repaid to P before that date by that person as if
Chapter 2 of Part 7A of ITEPA 2003 had never applied by reason of the early
30
step, with any adjustments that need to be made to any assessment to tax
being made accordingly.
      (5)
The amount of the reduction (if any) under sub-paragraph (4)—
(a)
is to be determined on a just and reasonable basis, and
(b)
may be the full amount of the employment income or nil or an
35
amount in between (depending on the circumstances).
      (6)
Section 554Z4 of ITEPA 2003 does not apply in relation to the early step and,
in the application of that section in relation to any other relevant step
(whenever taken), the early step is to be ignored.
      (7)
Section 554Z11 of ITEPA 2003 does not apply in relation to the early step.
40
      (8)
For the purposes of section 687A(3)(a) of ITEPA 2003 (as inserted by
paragraph 29 of this Schedule), the early step is treated as having been taken
on 6 April 2012.
      (9)
For the purposes of section 41(1A) of ITTOIA 2005 (as inserted by paragraph
38(3) of this Schedule), the early step is treated as having been taken on 6
45