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
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Schedule 2
Section 26

Employment income provided through third parties
Main provision
1
After Part 7 of ITEPA 2003 insert—
“Part 7A
5
Employment income provided through third parties
Chapter 1
Application etc
Application
554A
Application of Chapter 2
10
(1)
Chapter 2 applies if—
(a)
a person (“A”) is an employee, or a former or prospective
employee, of another person (“B”),
(b)
there is an arrangement (“the relevant arrangement”) to
which A is a party or which otherwise (wholly or partly)
15
covers or relates to A,
(c)
it is reasonable to suppose that, in essence—
(i)
the relevant arrangement, or
(ii)
the relevant arrangement so far as it covers or relates
to A,
20

is (wholly or partly) a means of providing, or is otherwise
concerned (wholly or partly) with the provision of, rewards
or recognition or loans in connection with A’s employment,
or former or prospective employment, with B,
(d)
a relevant step is taken by a relevant third person, and
25
(e)
it is reasonable to suppose that, in essence—
(i)
the relevant step is taken (wholly or partly) in
pursuance of the relevant arrangement, or
(ii)
there is some other connection (direct or indirect)
between the relevant step and the relevant
30
arrangement.
(2)
In this Part “relevant step” means a step within section 554B, 554C or
554D.
(3)
Subsection (1) is subject to subsection (4) and sections 554E to 554X.
(4)
Chapter 2 does not apply by reason of a relevant step within section
35
554B taken on or after A’s death.
(5)
In subsection (1)(b) and (c)(ii) references to A include references to
any person linked with A.
(6)
For the purposes of subsection (1)(c) it does not matter if the relevant
arrangement does not include details of the steps which will or may
40

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Schedule 2 — Employment income provided through third parties
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be taken in connection with providing, in essence, rewards or
recognition or loans as mentioned (for example, details of any sums
of money or assets which will or may be involved or details of how
or when or by whom or in whose favour any step will or may be
taken).
5
(7)
Subject to section 554B(5), in subsection (1)(d) “relevant third
person” means—
(a)
A acting as a trustee,
(b)
B acting as a trustee, or
(c)
any person other than A and B.
10
(8)
If B is a company and is a member of a group of companies at the
time the relevant step is taken, in subsection (7) references to B are to
be read as including references to any other company which is a
member of that group at that time.
(9)
If B is a limited liability partnership, in subsection (7) references to B
15
are to be read as including references to any company which is a
wholly-owned subsidiary (as defined in section 1159(2) of the
Companies Act 2006) of B at the time the relevant step is taken.
(10)
Neither subsection (8) nor subsection (9) applies if there is a
connection (direct or indirect) between the relevant step and a tax
20
avoidance arrangement.
(11)
For the purposes of subsection (1)(e)—
(a)
the relevant step is connected with the relevant arrangement
if (for example) the relevant step is taken (wholly or partly) in
pursuance of an arrangement at one end of a series of
25
arrangements with the relevant arrangement being at the
other end, and
(b)
it does not matter if the person taking the relevant step is
unaware of the relevant arrangement.
(12)
For the purposes of subsection (1)(c) and (e) in particular, all relevant
30
circumstances are to be taken into account in order to get to the
essence of the matter.
Relevant steps
554B
Relevant steps: earmarking etc of sum of money or asset
(1)
A person (“P”) takes a step within this section if—
35
(a)
a sum of money or asset held by or on behalf of P is
earmarked (however informally) by P with a view to a later
relevant step being taken by P or any other person (on or
following the meeting of any condition or otherwise) in
relation to—
40
(i)
that sum of money or asset, or
(ii)
any sum of money or asset which may arise or derive
(directly or indirectly) from it, or
(b)
a sum of money or asset otherwise starts being held by or on
behalf of P, specifically with a view, so far as P is concerned,
45
to a later relevant step being taken by P or any other person

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Schedule 2 — Employment income provided through third parties
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(on or following the meeting of any condition or otherwise)
in relation to—
(i)
that sum of money or asset, or
(ii)
any sum of money or asset which may arise or derive
(directly or indirectly) from it.
5
(2)
For the purposes of subsection (1)(a) and (b) it does not matter—
(a)
if details of the later relevant step have not been worked out
(for example, details of the sum of money or asset which will
or may be the subject of the step or details of how or when or
by whom or in whose favour the step will or may be taken),
10
(b)
if any condition which would have to be met before the later
relevant step is taken might never be met, or
(c)
if A, or any person linked with A, has no legal right to have a
relevant step taken in relation to any sum of money or asset
mentioned in subsection (1)(a)(i) or (ii) or (b)(i) or (ii) (as the
15
case may be).
(3)
For the purposes of subsection (1)(b) it does not matter whether or
not the sum of money or asset in question has previously been held
by or on behalf of P on a basis which is different to that mentioned in
subsection (1)(b).
20
(4)
Subsection (5) applies if—
(a)
B (not acting as a trustee) takes a step within this section (“B’s
step”), and
(b)
the sum of money or asset which is the subject of B’s step is
earmarked, or otherwise starts being held, with a view to the
25
meeting of an undertaking given by B to pay, or to secure the
payment of, a contribution to which subsection (7) would
apply.
(5)
This Part applies in relation to B’s step as if B were a relevant third
person for the purposes of section 554A(1)(d).
30
(6)
If B is a company and is a member of a group of companies at any
time (“the relevant time”), in subsections (4) and (5), in relation to
any step within this section taken at the relevant time, references to
B are to be read as including references to any other company which
is a member of that group at the relevant time.
35
(7)
This subsection applies to a contribution if—
(a)
the contribution is paid to an arrangement which is not a
registered pension scheme,
(b)
in connection with that arrangement (directly or indirectly),
relevant benefits are to be provided out of the contribution
40
(directly or indirectly) by a relevant third person,
(c)
the provision of the relevant benefits would be a relevant
step, and
(d)
the contribution is—
(i)
neither a tax-relieved contribution nor tax-exempt
45
provision, and
(ii)
is not paid immediately following the taking of B’s
step.

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Schedule 2 — Employment income provided through third parties
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(8)
In subsection (7)—
“relevant benefits” has the same meaning as in Chapter 2 of Part
6, but ignoring section 393B(2)(a),
“relevant third person” means a person within section
554A(7)(a) to (c) (ignoring subsection (5) above), and
5
“tax-exempt provision” and “tax-relieved contribution” have
the meanings given by paragraph 3(3) and (4) of Schedule 34
to FA 2004.
554C
Relevant steps: payment of sum, transfer of asset etc
(1)
A person (“P”) takes a step within this section if P—
10
(a)
pays a sum of money to a relevant person,
(b)
transfers an asset to a relevant person,
(c)
takes a step by virtue of which a relevant person acquires an
asset within subsection (4),
(d)
makes available a sum of money or asset for use, or makes it
15
available under an arrangement which permits its use—
(i)
as security for a loan made or to be made to a relevant
person, or
(ii)
otherwise as security for the meeting of any liability,
or the performance of any undertaking, which a
20
relevant person has or will have, or
(e)
grants to a relevant person a lease of any premises the
effective duration of which is likely to exceed 21 years.
(2)
In subsection (1) “relevant person”—
(a)
means A or a person chosen by A or within a class of person
25
chosen by A, and
(b)
includes, if P is taking a step on A’s behalf or otherwise at A’s
direction or request, any other person.
(3)
In subsection (2) references to A include references to any person
linked with A.
30
(4)
The following assets are within this subsection—
(a)
securities,
(b)
interests in securities, and
(c)
securities options,

as defined in section 420; and in subsection (1)(c) “acquires” is to be
35
read in accordance with section 421B(2)(a).
(5)
For the purposes of subsection (1)(d)—
(a)
references to making a sum of money or asset available are
references to making it available in any way, however
informal,
40
(b)
it does not matter if the relevant person has no legal right to
have the sum of money or asset used as mentioned, and
(c)
it does not matter if the sum of money or asset is not actually
used as mentioned.
(6)
Subsections (7) and (8) apply for the purpose of determining the
45
likely effective duration of a lease of any premises granted to a

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Schedule 2 — Employment income provided through third parties
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relevant person (“the original lease”) for the purposes of subsection
(1)(e).
(7)
If there are circumstances which make it likely that the original lease
will be extended for any period, the effective duration of the original
lease is to be determined on the assumption that the original lease
5
will be so extended.
(8)
Further, if—
(a)
A is, or is likely to become, entitled to a later lease, or the
grant of a later lease, of the same premises, or
(b)
it is otherwise likely that A will be granted a later lease of the
10
same premises,

the original lease is to be treated as continuing until the end of the
later lease (and subsection (7) also applies for the purpose of
determining the duration of the later lease).
(9)
In subsection (8)—
15
(a)
references to A include references to—
(i)
any person linked with A, and
(ii)
the person to whom the original lease was granted
where the original lease was not granted to A or any
person linked with A, and
20
(b)
references to the same premises include references to any
premises which include the whole or part of the same
premises.
(10)
In this section “lease” and “premises” have the same meaning as they
have in Chapter 4 of Part 3 of ITTOIA 2005.
25
554D
Relevant steps: making asset available
(1)
A person (“P”) takes a step within this section if, without transferring
the asset to the relevant person, P—
(a)
at any time, makes an asset available for a relevant person to
benefit from in a way which is substantially similar to the
30
way in which the relevant person would have been able to
benefit from the asset had the asset been transferred to the
relevant person at that time, or
(b)
at or after the end of the relevant period, makes an asset
available for a relevant person to benefit from.
35
(2)
If—
(a)
before the end of the relevant period, P makes available an
asset for a relevant person to benefit from, and
(b)
at the end of the relevant period, P continues to make the
asset available for the relevant person to benefit from,
40

P is treated as taking a step within this section by virtue of subsection
(1)(b) at the end of the relevant period.
(3)
For the purposes of subsections (1) and (2)—
(a)
references to making an asset available are references to
making it available in any way, however informal,
45
(b)
it does not matter if the relevant person has no legal right to
benefit from the asset, and

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Schedule 2 — Employment income provided through third parties
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(c)
it does not matter if the relevant person does not actually
benefit from the asset.
(4)
In subsections (1) and (2) “the relevant period” means the period of
two years starting with the day on which A’s employment with B
ceases.
5
(5)
In subsections (1) and (2) “relevant person”—
(a)
means A or a person chosen by A or within a class of person
chosen by A, and
(b)
includes, if P is taking a step on A’s behalf or otherwise at A’s
direction or request, any other person.
10
(6)
In subsection (5) references to A include references to any person
linked with A.
(7)
The following factors (among others) may be taken into account in
determining whether a step within this section is taken by virtue of
subsection (1)(a)—
15
(a)
any limitations on the way in which the relevant person may
benefit from the asset,
(b)
the period over which the asset is being made available and
(if relevant) the extent to which that period covers the
expected remaining useful life of the asset,
20
(c)
the extent to which the relevant person has, or is to have, a
say over the disposal of the asset, and
(d)
the extent to which the relevant person may benefit from any
proceeds arising from the disposal of the asset or otherwise
have a say in the way the proceeds are used.
25
Exclusions
554E
Exclusions: steps under certain schemes etc
(1)
Chapter 2 does not apply by reason of a relevant step if the step is
taken under any of the following—
(a)
an approved SIP (within the meaning of Chapter 6 of Part 7),
30
(b)
an approved SAYE option scheme (within the meaning of
Chapter 7 of Part 7),
(c)
an approved CSOP scheme (within the meaning of Chapter 8
of Part 7),
(d)
an arrangement the sole purpose of which is the granting of
35
qualifying options (within the meaning of Chapter 9 of Part
7),
(e)
an excluded share arrangement,
(f)
an arrangement the sole purpose of which is the provision of
excluded benefits (as defined in section 393B(3)),
40
(g)
an arrangement the sole purpose of which is the making of
payments which are to be disregarded in the calculation
mentioned in regulation 25 of the Social Security
(Contributions) Regulations 2001 (S.I. 2001/1004) by virtue of
paragraph 12 of Part 10 of Schedule 3 to those Regulations (as
45
that paragraph has effect by virtue of regulation 2(3) of the

Finance (No. 3) Bill
Schedule 2 — Employment income provided through third parties
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Social Security (Contributions) (Amendment No. 9)
Regulations 2007 (S.I. 2007/2905)),
(h)
a pension scheme set up by a government outside the United
Kingdom for the benefit of its employees or primarily for
their benefit,
5
(i)
a registered pension scheme, or
(j)
an arrangement the sole purpose of which is the making of
payments (within the meaning of Chapter 3 of Part 4 of FA
2004 (see section 161(2) of that Act))—
(i)
to which section 161(4) of FA 2004 applies in relation
10
to a registered pension scheme (or a registered
pension scheme which has been wound up), and
(ii)
which are authorised in relation to that scheme by
section 160(1) of FA 2004.
(2)
In this section “excluded share arrangement” means an
15
arrangement—
(a)
which is between—
(i)
the trustees of an approved SIP,
(ii)
the scheme organiser of an approved SAYE option
scheme,
20
(iii)
the scheme organiser of an approved CSOP scheme,
or
(iv)
the person who grants qualifying options under an
arrangement the sole purpose of which is the granting
of such options,
25

and another person (“P”),
(b)
the sole purpose of which is for P to hold shares—
(i)
to be awarded under the approved SIP, or
(ii)
to be issued pursuant to options granted under the
approved SAYE option scheme, the approved CSOP
30
scheme or the arrangement for granting qualifying
options, and
(c)
which is not, and is not connected (directly or indirectly)
with, a tax avoidance arrangement.
(3)
If subsection (4) applies, subsection (1) does not apply by virtue of
35
subsection (1)(e) to a relevant step taken under an excluded share
arrangement.
(4)
This subsection applies if, immediately before or after the relevant
step is taken, the total number of shares of any type held by P and
any other persons for the purpose mentioned in subsection (2)(b)
40
exceeds the maximum number of shares of that type which might
reasonably be expected to be required for that purpose over the
period of five years starting with the day on which the relevant step
is taken.
(5)
Terms used in subsections (2) to (4) have the same meanings as they
45
have in Chapter 6, 7, 8 or 9 of Part 7 (as the case may be).
(6)
Subsection (7) applies if—