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Finance (No. 3) Bill


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

95

 

(b)   

is remitted,

   

is to be apportioned between the relevant persons on a just and

reasonable basis with subsections (3) to (5) applying accordingly.

554Z12  

Subsequent income tax liability

(1)   

This section applies if—

5

(a)   

after the relevant step is taken, another event (“the later

event”) occurs,

(b)   

other than by virtue of—

(i)   

this Chapter,

(ii)   

Chapters 2 to 5 of Part 7, or

10

(iii)   

Part 9,

   

the later event would (apart from this section) give rise to a

liability for income tax of A or any other person on an amount

(“the later amount”), and

(c)   

it is just and reasonable for this section to apply in order to

15

avoid a double charge to income tax in respect of the sum of

money or asset which is the subject of the relevant step.

(2)   

So far as it is just and reasonable in order to avoid a double charge to

income tax as mentioned in subsection (1)(c), there is to be no liability

to income tax on the later amount by virtue of the later event.

20

554Z13  

Relief where earmarking not followed by further relevant step

(1)   

An application for relief may be made by A (or, if A has died, A’s

personal representatives) to an officer of Revenue and Customs if—

(a)   

this Chapter has applied by reason of a relevant step (“the

original relevant step”) within section 554B taken by a person

25

(“P”),

(b)   

there occurs an event (“the relevant event”) which is not a

relevant step in relation to a relevant sum or asset,

(c)   

by reason of the relevant event no further relevant step is or

will be taken by P or any other person in relation to any

30

relevant sum or asset, and

(d)   

there is no connection (direct or indirect) between the

relevant event and a tax avoidance arrangement.

(2)   

In section 554Y(14) the reference to the avoidance of tax includes (in

particular) a reference to the avoidance of tax by way of obtaining

35

relief under this section.

(3)   

In subsection (1) “relevant sum or asset” means—

(a)   

the sum of money or asset which is the subject of the original

relevant step, or

(b)   

a sum of money or asset which (directly or indirectly) has

40

arisen or derived, or may arise or derive, from the sum of

money or asset mentioned in paragraph (a).

(4)   

The application for relief must be made within four years from the

time when the relevant event occurs.

(5)   

If an officer of Revenue and Customs is satisfied that the

45

requirements in subsection (1) are met, the officer must give such

 
 

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

96

 

relief as the officer considers just and reasonable (if any) in respect of

income tax paid on any previously charged amount.

(6)   

In subsection (5) “previously charged amount” means—

(a)   

the amount which counted as employment income of A

under this Chapter as a result of this Chapter applying by

5

reason of the original relevant step, or

(b)   

any amount treated by section 222 as earnings of A in relation

to the notional payment (within the meaning of that section)

which B is treated as having made by virtue of the original

relevant step.

10

(7)   

Subsection (8) applies if, by virtue of this Chapter having applied by

reason of the original relevant step, any tax liability of A or any other

person arising from another event is reduced (including to nil) by

virtue of section 554Z4 or 554Z12 or otherwise.

(8)   

In determining what is a just and reasonable amount of relief, the

15

officer of Revenue and Customs must have regard (in particular) to

the reduction in the tax liability and reduce the amount of relief

which would otherwise have been given accordingly (including to

nil).

(9)   

The relief is to be given by repayment or otherwise as appropriate.

20

554Z14  

Location of employment duties

   

The following provisions apply for the purposes of this Chapter—

(a)   

section 38 (but as if references to general earnings were to the

value of the relevant step or a part of it),

(b)   

section 39(1) and (2),

25

(c)   

section 40 (but as if in subsections (3) and (4) references to

section 24(1)(b) were to section 554Z8(4)(b)), and

(d)   

section 41 (but as if references to general earnings were to the

value of the relevant step or a part of it).”

Other amendments to ITEPA 2003

30

2          

ITEPA 2003 is amended as follows.

3          

In section 1(1)(a) (overview of contents of Act) for “7” substitute “7A”.

4     (1)  

Amend section 3 (structure of employment income Parts) as follows.

      (2)  

At the end of subsection (1) insert—

   

“Part 7A deals with employment income provided through

35

third parties.”

      (3)  

In subsection (2) for “7” substitute “7A”.

5          

For the “or” after section 7(6)(b) (meaning of “specific employment income”)

substitute—

“(ba)   

Part 7A (employment income provided through third

40

parties), or”.

6     (1)  

Amend section 10 (provision relating to “taxable specific income”) as

follows.

 
 

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

97

 

      (2)  

In subsection (3) for “or 7” substitute “, 7 or 7A”.

      (3)  

After subsection (4) insert—

“(5)   

Subsection (3) is also subject to sections 554Z8 to 554Z10

(employment income under Part 7A: remittance basis).”

7     (1)  

Amend section 13 (person liable for tax) as follows.

5

      (2)  

In subsection (3) for “or 7” substitute “, 7 or 7A”.

      (3)  

After subsection (4A) insert—

“(4B)   

Subject to section 554Z11, if—

(a)   

the tax is on specific employment income under Chapter 2 of

Part 7A, and

10

(b)   

the relevant step is taken, or (if relevant) the income is

remitted to the United Kingdom, after the death of A,

   

A’s personal representatives are liable for the tax.

(4C)   

Terms used in subsection (4B) have the same meanings as in Part

7A.”

15

      (4)  

In subsection (5) for “or (4A)” substitute “, (4A) or (4B) or section 554Z11(3)”.

8          

After section 63(4) (the benefits code) insert—

“(5)   

The benefits code has effect subject to section 554Z1(2).”

9          

Under Step 1 in section 218(1) (exclusion of lower-paid employments from

benefits code: calculation of earnings rate for tax year)—

20

(a)   

omit the “and” after paragraphs (c) and (d), and

(b)   

after paragraph (e) insert “, and

(f)   

the total amount which counts as employment

income in respect of the employment for the year

under Chapter 2 of Part 7A.”

25

10         

In section 222(1)(a) and (3) (payments treated as earnings: payments by

employer on account of tax where deduction not possible) after “687,” insert

“687A,”.

11         

After section 227(4) (scope of exemptions to income tax under Part 4)

insert—

30

“(5)   

In relation to the interaction between this Part and Part 7A, see

section 554O(1).”

12    (1)  

Amend section 271 (income tax exemptions: removal benefits and expenses)

as follows.

      (2)  

In subsection (1) after “earnings” insert “or by virtue of Part 7A”.

35

      (3)  

In subsection (2) for “Subsection” substitute “In relation to earnings,

subsection”.

      (4)  

After subsection (2) insert—

“(2A)   

In relation to Part 7A, subsection (1) does not apply to any amount so

far as the amount (disregarding this section and section 554O) would

40

 
 

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

98

 

count as employment income to which section 554Z8 or 554Z9 would

apply.”

13    (1)  

Amend section 287 (income tax exemptions: limit on exemption for removal

benefits and expenses) as follows.

      (2)  

In subsection (2)—

5

(a)   

omit the “and” after paragraph (a), and

(b)   

after paragraph (b) insert “, and

(c)   

the Part 7A employment income”.

      (3)  

After subsection (5) insert—

“(6)   

In this section “the Part 7A employment income” means the amount

10

in respect of which section 271 (when read with section 554O) would

prevent liability to income tax arising if this section were to be

disregarded.”

14    (1)  

Amend section 394 (employer-financed retirement benefits: charge on

benefit received) as follows.

15

      (2)  

After subsection (4) insert—

“(4A)   

Subsection (4B) applies if the receipt of a benefit to which this

Chapter applies gives rise to other relevant income of the employee,

or the former employee, to or in respect of whom the benefit is

provided.

20

(4B)   

Subsection (1) or (2) (as the case may be) applies to the amount of the

benefit only so far as that amount exceeds the other relevant income.

(4C)   

In subsections (4A) and (4B) “other relevant income” means—

(a)   

general earnings of the employee or former employee which

are chargeable to income tax,

25

(b)   

an amount which counts as employment income of the

employee or former employee under Chapter 2 of Part 7A, or

(c)   

an amount which would be within paragraph (a) or (b) apart

from the employee or former employee having been non-UK

resident for any tax year.”

30

      (3)  

After subsection (5) insert—

“(6)   

Subsection (5) does not affect—

(a)   

any liability to income tax on general earnings, or

(b)   

any liability to income tax on an amount which counts as

employment income under Chapter 2 of Part 7A.”

35

15         

After section 428(6) (restricted employment-related securities: amount of

charge) insert—

“(6A)   

CE also includes any amount that has counted as employment

income of the employee in respect of the employment under Chapter

2 of Part 7A in relation to the employment-related securities where

40

the relevant step (within the meaning of that Part) was taken before

the chargeable event occurred.”

16         

In section 431(3) (restricted employment-related securities: election for

disapplication of Chapter 2 of Part 7)—

 
 

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

99

 

(a)   

omit the “and” after paragraph (c), and

(b)   

after paragraph (d) insert “, and

(e)   

determining any amount that counts as employment

income of the employee in respect of the employment

under Chapter 2 of Part 7A (employment income

5

provided through third parties)”.

17         

In section 437(1)(a) (convertible employment-related securities: market

value) after “option)” insert “or Chapter 2 of Part 7A (employment income

provided through third parties)”.

18         

After section 441(9) (convertible employment-related securities: amount of

10

gain realised) insert—

“(10)   

Subsection (11) applies for the purposes of subsection (2) or (3) if—

(a)   

prior to the acquisition, the employment-related securities

were the subject of a relevant step within the meaning of Part

7A by reason of which Chapter 2 of that Part applied in

15

respect of the employment, and

(b)   

the amount mentioned in subsection (11)(a) is higher than the

amount mentioned in subsection (11)(b).

(11)   

The amount of the gain realised is reduced (but not below nil) by the

amount equal to—

20

(a)   

the amount that counted as employment income of the

employee in respect of the employment under Chapter 2 of

Part 7A, less

(b)   

the market value of the employment-related securities when

the relevant step was taken determined as if they were not

25

convertible securities or an interest in convertible securities.”

19         

In section 446B(4) (employment-related securities with artificially depressed

market value: charge on acquisition)—

(a)   

omit the “or” after paragraph (d), and

(b)   

after paragraph (e) insert “, or

30

(f)   

Chapter 2 of Part 7A (employment income provided

through third parties)”.

20         

After section 446C(4) (employment-related securities with artificially

depressed market value: amount of charge) insert—

“(4A)   

Subsection (4B) applies if, prior to the acquisition, the employment-

35

related securities were the subject of a relevant step within the

meaning of Part 7A by reason of which Chapter 2 of that Part applied

in respect of the employment.

(4B)   

If what would be MV in accordance with subsection (3) or (4) (as the

case may be) is less than the amount that counted as employment

40

income of the employee in respect of the employment under Chapter

2 of Part 7A, MV is the amount of that employment income instead

of the amount determined in accordance with subsection (3) or (4).”

21         

After section 446S(3) (employment-related securities acquired for less than

market value: notional loan) insert—

45

“(4)   

This section is not affected by section 554Z1(2).”

 
 

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

100

 

22         

In section 446T(3) (employment-related securities acquired for less than

market value: amount of notional loan)—

(a)   

omit the “and” after paragraph (d), and

(b)   

after paragraph (e) insert “, and

(f)   

any amount that has counted as employment income

5

of the employee in respect of the employment under

Chapter 2 of Part 7A in relation to the employment-

related securities.”

23         

In section 446V (employment-related securities acquired for less than

market value: charges under Chapter 3C of Part 4 to be additional to other

10

charges)—

(a)   

omit the “or” after paragraph (d), and

(b)   

after paragraph (e) insert “, or

(f)   

Chapter 2 of Part 7A (employment income provided

through third parties)”.

15

24         

In section 452(2) (shares in research institution spin-out companies: market

value on acquisition)—

(a)   

omit the “and” after paragraph (c), and

(b)   

after paragraph (d) insert “, and

(e)   

determining any amount that counts as employment

20

income of the employee in respect of the employment

under Chapter 2 of Part 7A (employment income

provided through third parties)”.

25         

In section 480(5) (employment-related securities options: deductible

amounts)—

25

(a)   

omit the “and” after paragraph (b), and

(b)   

after paragraph (c) insert “, and

(d)   

any amount that has counted as employment income

of the employee in respect of the employment under

Chapter 2 of Part 7A in relation to the employment-

30

related securities option or to any sum of money or

asset held solely for the purposes of the option.”

26         

In section 567(5) (pension income: amount charged to tax) before “section

617” insert—

   

“section 567A (deduction to avoid double taxation where

35

Part 7A has applied to the source of the pension income);”.

27         

After section 567 insert—

“567A   

Cases in which Part 7A has applied to source of pension income

(1)   

This section applies if—

(a)   

for a tax year there is an amount (“amount TPI”) of taxable

40

pension income for a pension, annuity or other item of

pension income,

(b)   

the pension, annuity or other item of pension income accrues

or arises out of rights (“the relevant rights”) which represent,

or have arisen or derived (directly or indirectly) from, a sum

45

of money or asset which was the subject of a relevant step

within the meaning of Part 7A, and

(c)   

Chapter 2 of that Part applied by reason of the relevant step.

 
 

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

101

 

(2)   

A deduction is allowed from amount TPI.

(3)   

The amount of the deduction allowed is the amount (“amount EI”)

which counted as employment income of A under Chapter 2 of Part

7A in relation to the relevant step (see section 554Z1(1)).

(4)   

If amount EI exceeds amount TPI, the excess is to be carried forward

5

to future tax years to be deducted under this section (when

applicable) until all of amount EI has been deducted.

(5)   

Subsection (6) applies if it is determined on a just and reasonable

basis that the relevant rights represent, or have arisen or derived

from, only part of the sum of money or asset which was the subject

10

of the relevant step.

(6)   

In subsection (3) the reference to the amount which counted as

employment income is to be read as a reference to the corresponding

proportion of that amount.”

28         

After section 687(4) (PAYE: payments by intermediary) insert—

15

“(5)   

This section does not apply in relation to a payment so far as the sum

paid is employment income under Chapter 2 of Part 7A.”

29         

After section 687 insert—

“687A   

Payment of employment income under Part 7A

(1)   

This section applies if—

20

(a)   

the value of a relevant step counts as employment income

under Chapter 2 of Part  7A, and

(b)   

the relevant step is 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

25

payment of PAYE income of A of an amount which, on the basis of

the best estimate which can reasonably be made, is the amount of the

employment income.

(3)   

The payment is treated as made on the latest of the following days—

(a)   

the day on which the relevant step is taken,

30

(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)

35

deducts income tax from the payment, and accounts for it, in

accordance with PAYE regulations.”

30    (1)  

Amend section 689 (PAYE: employee of non-UK employer) as follows.

      (2)  

After subsection (1) insert—

“(1A)   

Subject to subsection (4), subsection (1)(b) does not apply in relation

40

to a payment so far as the sum paid is employment income under

Chapter 2 of Part 7A.”

      (3)  

In subsection (4) after “sections” insert “687A and”.

 
 

 
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Revised 31 March 2011