Finance (No. 2) Act 2005 (c. 22)

(The document as of February, 2008)

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(b) the transfer is from a Northern Ireland department or persons which include a Northern Ireland department to a company or companies specified in the scheme ("transferee company"), and

(i) is made after the coming into force of this section, and

(ii) relates to the provision of water or sewerage services in Northern Ireland.

(2) In this section "relevant property, rights or liabilities" means property, rights or liabilities connected with the provision of any water or sewerage services.

(3) The Treasury may by regulations make provision for or in connection with varying the way in which a relevant tax or duty would, apart from the regulations, have effect in relation to, or in connection with, any of the following--

(a) anything done for the purpose of, or under or in consequence of, a relevant transfer of relevant property, rights or liabilities from a Northern Ireland department to a transferee company;

(b) any relevant property, rights or liabilities which are the subject of a relevant transfer from a Northern Ireland department to a transferee company;

(4) The provision that may be made by the regulations includes provision for or in connection with any of the following--

(a) a tax provision not to apply or to apply with modifications in prescribed cases or circumstances;

(b) anything done to have or not to have a specified consequence for the purposes of a tax provision in prescribed cases or circumstances;

(c) any relevant property, rights or liabilities which are the subject of a relevant transfer from a Northern Ireland department to a transferee company to be treated in a specified way for the purposes of a tax provision in prescribed cases or circumstances;

(d) the withdrawal of relief (whether or not granted by virtue of the regulations), and the charging of tax, in prescribed cases or circumstances;

(e) requiring or enabling the Secretary of State, with the consent of the Treasury, to determine or to specify the method to be used for determining anything (including amounts or values, or times or periods of time) which needs to be determined for the purposes of any tax provision (whether or not modified by the regulations) as it applies in relation to, or in connection with,--

(i) anything done for the purpose of, or under or in consequence of, a relevant transfer of relevant property, rights or liabilities from a Northern Ireland department to a transferee company, or

(ii) any relevant property, rights or liabilities which are the subject of a relevant transfer from a Northern Ireland department to a transferee company.

(5) A provision of regulations made by virtue only of subsection (3)(c) ("a subsection (3)(c) provision") (whether or not also by virtue of subsection (4)) shall not have effect for an accounting period of a transferee company unless the company is wholly owned by the Crown during the whole of that accounting period.

(6) Regulations under this section may provide that, for the purposes of a subsection (3)(c) provision, an accounting period of a transferee company shall be taken to have ended on the company ceasing to be wholly owned by the Crown.

(7) For the purposes of this section, a company shall be regarded as wholly owned by the Crown at any time when each of the issued shares in the company is held by, or by a nominee of,--

(a) the Treasury,

(b) the Secretary of State,

(d) another company which is wholly owned by the Crown.

(8) In this section--

"enactment" includes a provision comprised in--
(a)
Northern Ireland legislation, or
(b)
an instrument made under an enactment;
"prescribed" means prescribed by or determined in accordance with regulations under this section;
"relevant tax or duty" means income tax, corporation tax, capital gains tax, stamp duty or stamp duty reserve tax;
"tax provision" means a provision of an enactment about a relevant tax or duty.

(9) Any power to make regulations under this section is exercisable by statutory instrument.

(10) A statutory instrument containing regulations under this section shall be subject to annulment in pursuance of a resolution of the House of Commons.

(11) Any power to make regulations under this section includes power--

(a) to make different provision for different cases or circumstances;

(b) to make incidental, supplemental, consequential or transitional provision or savings.

68 EU Mutual Assistance Directive: notifications

(1) This section applies where, in accordance with Article 8a of the Mutual Assistance Directive, the competent authority of another member State ("the applicant authority") requests the Commissioners for Her Majesty's Revenue and Customs to notify an instrument to the person to whom the instrument is addressed.

(2) The Commissioners must take the necessary measures to notify the instrument to that person.

(3) The notification shall be given in accordance with the law applicable to notification of similar instruments in the part of the United Kingdom in which it is given.

(4) The Commissioners must--

(a) inform the applicant authority immediately of their response to the request, and

(b) confirm to the applicant authority, as soon as is reasonably practicable, the date on which the instrument was notified to the person concerned.

(5) The Commissioners may request additional information from the applicant authority for the purpose of giving the notification.

(6) In this section "the Mutual Assistance Directive" means Council Directive 77/799/EEC as amended (in particular by Council Directive 2004/56/EC).

(7) In this section references to the Commissioners for Her Majesty's Revenue and Customs include, in relation to any time before 18th April 2005,--

(a) the Commissioners of Customs and Excise;

(b) the Commissioners of Inland Revenue.

(8) In this section "instrument" means any instrument or decision which--

(a) emanates from the administrative authorities of the member State in which the applicant authority is situated, and

(b) concerns the application in that member State of legislation on taxes covered by the Mutual Assistance Directive.

(9) This section has effect in relation to requests received by the Commissioners for Her Majesty's Revenue and Customs on or after 1st January 2005.

69 Abolition of statutory adjudicator for National Savings and Investments

(1) After the coming into force of this section, no further disputes shall be referred to a person appointed under section 84 of the Friendly Societies Act 1992 (c. 40) (adjudicator for disputes under the National Savings Bank Act 1971 and the National Debt Act 1972).

(2) This section comes into force on 1st September 2005.

Part 6 Supplementary provisions

70 Repeals

(1) The enactments mentioned in Schedule 11 (which include provisions that are spent or of no practical utility) are repealed to the extent specified.

(2) The repeals specified in that Schedule have effect subject to the commencement provisions and savings contained or referred to in the notes set out in that Schedule.

71 Interpretation

In this Act--

"CAA 2001" means the Capital Allowances Act 2001 (c. 2);
"FA", followed by a year, means the Finance Act of that year;
"ICTA" means the Income and Corporation Taxes Act 1988 (c. 1);
"ITEPA 2003" means the Income Tax (Earnings and Pensions) Act 2003 (c. 1);
"ITTOIA 2005" means the Income Tax (Trading and Other Income) Act 2005 (c. 5);
"TCGA 1992" means the Taxation of Chargeable Gains Act 1992 (c. 12);
"VATA 1994" means the Value Added Tax Act 1994 (c. 23);
"VERA 1994" means the Vehicle Excise and Registration Act 1994 (c. 22).

72 Short title

This Act may be cited as the Finance (No. 2) Act 2005.

SCHEDULES

Section 6

SCHEDULE 1 Disclosure of value added tax avoidance schemes

Introduction

1 Schedule 11A to VATA 1994 (disclosure of avoidance schemes) is amended in accordance with this Schedule.

Interpretative provisions

2 In paragraph 1 (interpretation), after the definition of "designated scheme" insert--

" "non-deductible tax", in relation to a taxable person, has the meaning given by paragraph 2A; " .

3 For paragraph 2 substitute--

" 2 (1) For the purposes of this Schedule, a taxable person obtains a tax advantage if--

(a) in any prescribed accounting period, the amount by which the output tax accounted for by him exceeds the input tax deducted by him is less than it would otherwise be,

(b) he obtains a VAT credit when he would not otherwise do so, or obtains a larger VAT credit or obtains a VAT credit earlier than would otherwise be the case,

(c) in a case where he recovers input tax as a recipient of a supply before the supplier accounts for the output tax, the period between the time when the input tax is recovered and the time when the output tax is accounted for is greater than would otherwise be the case, or

(d) in any prescribed accounting period, the amount of his non-deductible tax is less than it would otherwise be.

(2) For the purposes of this Schedule, a person who is not a taxable person obtains a tax advantage if his non-refundable tax is less than it would otherwise be.

(3) In sub-paragraph (2), "non-refundable tax", in relation to a person who is not a taxable person, means--

(a) VAT on the supply to him of any goods or services,

(b) VAT on the acquisition by him from another member State of any goods, and

but excluding (in each case) any VAT in respect of which he is entitled to a refund from the Commissioners by virtue of any provision of this Act. "

4 After paragraph 2 insert--

" Meaning of "non-deductible tax"

2A (1) In this Schedule "non-deductible tax", in relation to a taxable person, means--

(a) input tax for which he is not entitled to credit under section 25, and

(b) any VAT incurred by him which is not input tax and in respect of which he is not entitled to a refund from the Commissioners by virtue of any provision of this Act.

(2) For the purposes of sub-paragraph (1)(b), the VAT "incurred" by a taxable person is--

(a) VAT on the supply to him of any goods or services,

(b) VAT on the acquisition by him from another member State of any goods, and

Duty to notify Commissioners

5 (1) Paragraph 6 (duty to notify Commissioners) is amended as follows.

(2) In sub-paragraph (1)--

(a) omit the word "or" at the end of paragraph (a), and

(b) after paragraph (b) insert " , or

(c) the amount of his non-deductible tax in respect of any prescribed accounting period is less than it would be but for such a scheme. "

(3) After sub-paragraph (2) insert--

" (2A) Sub-paragraph (2) does not apply to a taxable person in relation to any scheme if he has on a previous occasion--

(a) notified the Commissioners under that sub-paragraph in relation to the scheme, or

(b) provided the Commissioners with prescribed information under sub-paragraph (3) (as it applied before the scheme became a designated scheme) in relation to the scheme. "

(4) For sub-paragraph (5) substitute--

" (5) Sub-paragraph (3) also does not apply where the scheme is one in respect of which the taxable person has on a previous occasion provided the Commissioners with prescribed information under that sub-paragraph. "

6 In paragraph 7 (exemptions from duty to notify) in the definition of "relevant period" in sub-paragraph (9) for "6(1)(a) or (b)" substitute "6(1)(a), (b) or (c)".

Amount of penalty

7 (1) Paragraph 11 (amount of penalty) is amended as follows.

(2) In sub-paragraph (3)--

(a) omit the word "and" at the end of paragraph (a), and

(b) after paragraph (b) insert " , and

(i) the case falls within paragraph 6(1)(c), and

(ii) the excess of the notional non-deductible tax of the taxable person for the relevant periods over his non-deductible tax for those periods is not represented by a corresponding amount which by virtue of paragraph (a) or (b) is part of the VAT saving,

the amount of the excess. "

(3) In sub-paragraph (4), after "(3)(a)" insert "and (c)".

(4) After sub-paragraph (4) insert--

" (5) In sub-paragraph (3)(c), "notional non-deductible tax", in relation to a taxable person, means the amount that would, but for the scheme, have been the amount of his non-deductible tax. "

Penalty assessments

8 In paragraph 12 (penalty assessments) for sub-paragraph (3) substitute--

" (3) In a case where--

(a) the penalty falls to be calculated by reference to the VAT saving as determined under paragraph 11(3), and

(b) the notional tax cannot readily be attributed to any one or more prescribed accounting periods,

the notional tax shall be treated for the purposes of this Schedule as attributable to such period or periods as the Commissioners may determine to the best of their judgment and notify to the person liable for the penalty.

(3A) In sub-paragraph (3) "the notional tax" means--

(a) the VAT that would, but for the scheme, have been shown in returns as payable by or to the taxable person, or

(b) any amount that would, but for the scheme, have been the amount of the non-deductible tax of the taxable person. "

Section 12

SCHEDULE 2 Employee securities: anti-avoidance

Introductory

1 ITEPA 2003 is amended as follows.

Rights under certain insurance contracts to be securities

2 (1) Section 420 (income and exemptions relating to securities: meaning of "securities" etc.) is amended as follows.

(2) In subsection (1), after paragraph (a) insert--

" (aa) rights under contracts of insurance other than excluded contracts of insurance, " .

(3) In paragraph (b) of that subsection, insert at the end "(other than contracts of insurance)".

(4) In paragraph (g) of that subsection, insert at the end "(other than contracts of insurance)".

(5) After that subsection insert--

" (1A) For the purposes of subsection (1)(aa) a contract of insurance is an excluded contract of insurance if it is--

(a) a contract for an annuity which is (or will be) pension income (see Part 9),

(b) a contract of long-term insurance, other than an annuity contract, which does not have a surrender value and is not capable of acquiring one (whether on conversion or in any other circumstances), or

(c) a contract of general insurance other than one which falls, in accordance with generally accepted accounting practice, to be accounted for as a financial asset or liability.

(1B) In this section--

"contract of insurance",
"contract of long-term insurance", and
"contract of general insurance",

have the same meaning as in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. "

(6) In subsection (5)--

(a) at the end of paragraph (c) insert "and", and

(b) omit paragraph (d) (exclusion of insurance contracts).

(7) In Part 2 of Schedule 1 (index of defined expressions), insert at the appropriate place--

" generally accepted accounting practice

Section 832(1) of ICTA "

(8) This paragraph has effect on and after 2nd December 2004 and applies in relation to rights under contracts of insurance acquired before that date, as well as those acquired on or after that date; and--

(a) for the purposes of the application of Chapter 3B of Part 7 of ITEPA 2003 (securities with artificially enhanced market value) by reason of this paragraph in relation to rights under contracts of insurance acquired before that date, section 446O of that Act (meaning of "relevant period") has effect as if they were acquired on that date, and

(b) for the purposes of section 420(1A)(c) of ITEPA 2003, section 50 of FA 2004 (meaning of "generally accepted accounting practice") has effect on and after that date, in spite of subsection (6) of that section.

Restricted securities

3 Chapter 2 of Part 7 (restricted securities) is amended as follows.

4 (1) Section 424 (employment-related securities which are not restricted securities or restricted interest in securities) is renumbered as subsection (1) of that section.

(2) In that subsection--

(a) at the end of paragraph (a) insert "or", and

(b) omit paragraph (c) (employment-related securities which are, or are an interest in, redeemable securities) and the word "or" before it.

(3) After that subsection insert--

(4) This paragraph has effect on and after 2nd December 2004 and applies in relation to employment-related securities acquired before that date, as well as those acquired on or after that date; and section 422 of ITEPA 2003 (application of Chapter 2 of Part 7) applies to employment-related securities in relation to which this paragraph has effect and which were acquired before that date with the omission of the words "at the time of the acquisition".

5 (1) In section 428 (amount of charge under section 426), after subsection (9) insert--

" (10) But subsection (9) does not apply if something which affects the employment-related securities has been done (at or before the time of the chargeable event) as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions. "

(2) This paragraph has effect where something such as is mentioned in section 428(10) of ITEPA 2003 has been done on or after 2nd December 2004.

6 (1) In section 429 (exception from charge under section 426 for certain company shares), for subsection (1A) substitute--

" (1A) This subsection is satisfied unless something which affects the employment-related securities has been done (at or before the time when section 426 would apply) as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions. "

(2) This paragraph has effect where something such as is mentioned in section 429(1A) of ITEPA 2003 has been done on or after 2nd December 2004.

7 (1) After section 431A insert--

" 431B Securities acquired for purpose of avoidance

Where employment-related securities are restricted securities or a restricted interest in securities, the employer and the employee are to be treated as making an election under section 431(1) in relation to the employment-related securities if the main purpose (or one of the main purposes) of the arrangements under which the right or opportunity to acquire the employment-related securities is made available is the avoidance of tax or national insurance contributions. "

(2) This paragraph has effect in relation to employment-related securities acquired on or after 2nd December 2004.

Convertible securities

8 Chapter 3 of Part 7 (convertible securities) is amended as follows.

9 (1) In section 436(a) (meaning of "convertible securities"), for "immediate or conditional entitlement" substitute "entitlement (whether immediate or deferred and whether conditional or unconditional)".

(2) Section 437 (adjustment of acquisition charge) is renumbered as subsection (1) of that section.

(3) After that subsection insert--

" (2) Subsection (1) does not apply if the main purpose (or one of the main purposes) of the arrangements under which the right or opportunity to acquire the employment-related securities is made available is the avoidance of tax or national insurance contributions unless the market value of the employment-related securities determined under subsection (1) would be greater than that determined under subsection (3).

(3) Where subsection (1) does not apply by virtue of subsection (2) the market value of the employment-related securities is to be determined--

(a) where the securities which are (or an interest in which is) the employment-related securities fall within paragraph (a) of section 436 and the entitlement to convert is not both immediate and unconditional, as if it were,

(b) where they fall within paragraph (b) of that section, as if the circumstances are such that an entitlement to convert arises immediately, and

and in each case is to be determined as if they were immediately and fully convertible.

(4) In subsection (3) "immediately and fully convertible" means convertible immediately after the acquisition of the employment-related securities so as to obtain the maximum gain that would be possible on a conversion at that time (assuming, where the securities into which the securities may be converted were not in existence at that time and it is appropriate to do so, that they were) without giving any consideration for the conversion or incurring any expenses in connection with it. "

(4) This paragraph has effect in relation to acquisitions on or after 2nd December 2004.

10 (1) In section 440 (amount of charge under section 438), after subsection (3) insert--

" (3A) If (because of subsection (2) of section 437) subsection (1) of that section did not apply in relation to the employment-related securities, the taxable amount is to be reduced by the amount by which--

(a) the market value of the employment-related securities for the purposes specified in that subsection, exceeded

(b) what it would have been had that subsection applied,

(less the aggregate of any amount by which the taxable amount on any previous chargeable event relating to the employment-related securities has been reduced under this subsection). "

(2) This paragraph has effect on and after 2nd December 2004.

11 (1) In section 443 (exception from charge under section 438 for certain company shares), for subsection (1A) substitute--

" (1A) This subsection is satisfied unless something which affects the employment-related securities has been done (at or before the time when section 438 would apply) as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions. "

(2) This paragraph has effect where something such as is mentioned in section 443(1A) of ITEPA 2003 has been done on or after 2nd December 2004.

Securities acquired for less than market value

12 Chapter 3C of Part 7 (securities acquired for less than market value) is amended as follows.

13 (1) In section 446R (exception from Chapter for certain company shares), for subsection (1A) substitute--

" (1A) This subsection is satisfied unless something which affects the employment-related securities has been done (at or before the time of the acquisition) as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions. "

(2) This paragraph has effect where something such as is mentioned in section 446R(1A) of ITEPA 2003 has been done on or after 2nd December 2004.

14 (1) In section 446U(1) (discharge of notional loan), insert at the end " or

(c) something which affects the employment-related securities is done as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions. "

(2) This paragraph has effect where something such as is mentioned in section 443U(1)(c) of ITEPA 2003 has been done on or after 2nd December 2004.

15 (1) After section 446U insert--

" 446UA Pre-acquisition avoidance cases

(1) Sections 446S to 446U do not apply if the main purpose (or one of the main purposes) of the arrangements under which the right or opportunity to acquire the employment-related securities is made available is the avoidance of tax or national insurance contributions.

(2) But instead an amount equal to what would (apart from this section) be the amount of the notional loan initially outstanding by virtue of sections 446S and 446T counts as employment income of the employee for the tax year in which the acquisition takes place. "

(2) This paragraph has effect in relation to acquisitions on or after 2nd December 2004.

16 (1) Section 698 (PAYE: special charges on employment-related securities) is amended as follows.

(2) In subsection (1), after paragraph (e) insert--

" (ea) section 446UA (securities or interest acquired for less than market value: charge in avoidance cases), " .

(3) In subsection (6), after paragraph (d) insert--

" (da) in relation to an amount counting as employment income under section 446UA, the date of the acquisition of the securities or interest in securities in question, " .

(4) This paragraph has effect on and after the day on which this Act is passed.

Post-acquisition benefits from securities

17 Chapter 4 of Part 7 (post-acquisition benefits from securities) is amended as follows.

18 (1) Section 447 (charge on other chargeable benefits from securities) is amended as follows.

(2) In subsection (1), for "by virtue of the ownership of employment-related securities by that person or another associated person" substitute "in connection with employment-related securities".

(3) For subsection (4) substitute--

" (4) If the benefit is otherwise chargeable to income tax this section does not apply unless something has been done which affects the employment-related securities as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions. "

(4) Sub-paragraph (2) has effect on and after 2nd December 2004 and sub-paragraph (3) has effect where something such as is mentioned in section 447(4) of ITEPA 2003 has been done on or after that date.

19 (1) In section 449 (exception from charge under section 447 for certain company shares), for subsection (1A) substitute--

" (1A) This subsection is satisfied unless something which affects the employment-related securities has been done as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions. "

(2) This paragraph has effect where something such as is mentioned in section 449(1A) of ITEPA 2003 has been done on or after 2nd December 2004.

Corporation tax relief: minor and consequential amendments

20 (1) Schedule 23 to FA 2003 (corporation tax relief for employee shares) is amended as follows.

(2) In paragraph 7 (award of shares: income tax position of employee), after sub-paragraph (2) insert--

" (3) It must be the case that section 446UA of the Income Tax (Earnings and Pensions) Act 2003 does not operate in relation to the shares. "

(3) In paragraph 21(8) (amount of relief in case of restricted shares: provision to be disregarded in determining amount of relief on a chargeable event under section 426), for "446E(3)" substitute "446E(6)".

(4) In paragraph 22C (amount of relief in case of convertible shares), after sub-paragraph (4) insert--

" (4A) Subsections (2) and (3) of section 437 of the Income Tax (Earnings and Pensions) Act 2003 are to be disregarded in determining the amounts mentioned in sub-paragraphs (3) and (4). "

(5) In paragraph 25(1) (exclusion of other deductions where relief available under Schedule 23), after "Schedule is" insert "(or, apart from paragraph 7(3), would be)".

(6) Sub-paragraphs (2), (4) and (5) have effect in relation to awards on or after the day on which this Act is passed.

(7) Sub-paragraph (3) is to be treated as having come into force on 7th May 2004.

Section 24

SCHEDULE 3 Qualifying scheme

Part 1 Introductory

1 For the purposes of section 24 a scheme is a qualifying scheme if it falls within any of the following Parts of this Schedule.

Part 2 Schemes involving hybrid entities

2 A scheme falls within this Part if a party to a transaction forming part of the scheme is a hybrid entity.

3 (1) An entity is a hybrid entity if--

(a) under the tax law of any territory, the entity is regarded as being a person, and

(b) the entity's profits or gains are, for the purposes of a relevant tax imposed under the law of any territory, treated as the profits or gains of a person or persons other than that person.

(2) The requirement in sub-paragraph (1)(b) is not to be regarded as satisfied in relation to an entity by reason only of its profits or gains being subject to a rule similar to that in section 747(3) of ICTA (imputation of chargeable profits of controlled foreign company) and having effect under the tax law of any territory outside the United Kingdom.

(3) For the purposes of this paragraph, the following are relevant taxes--

(a) income tax;

(b) corporation tax;

(c) any tax of a similar character to income tax or corporation tax that is imposed by the law of a territory other than the United Kingdom.

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