Finance Act 2006 (c. 25)

(The document as of February, 2008)

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a charitable housing trust,

(f)

a housing action trust established under Part 3 of the Housing Act 1988,

(g)

the Housing Corporation, or

(h)

the Northern Ireland Housing Executive; and

"service charge" has the meaning given by section 18(1) of the Landlord and Tenant Act 1985.

(6ZB) In subsection (6ZA)--

"charitable housing association" means a society, body or company which--
(a)
satisfies the conditions in section 5(1)(a) and (b) of the Housing Act 1985, and
(b)
is registered in a register kept under section 3 of the Charities Act 1993 or section 3 of the Charities and Trustee Investment (Scotland) Act 2005;
"charitable housing trust" means a corporation or body which--
(a)
satisfies the condition in section 6(a) or (b) of the Housing Act 1985, and
(b)
is registered in a register kept under section 3 of the Charities Act 1993 or section 3 of the Charities and Trustee Investment (Scotland) Act 2005;
"Northern Ireland housing association" means a body which is registered in the register maintained under Article 14 of the Housing (Northern Ireland) Order 1992; and
"registered social landlord" means a body which is registered in a register maintained under section 1 of the Housing Act 1996 or section 57 of the Housing (Scotland) Act 2001. "

(4) This section has effect for the year 2006-07 and subsequent years of assessment.

Investment reliefs

91 Venture capital schemes

(1) Schedule 14 contains amendments of the provisions relating to--

the enterprise investment scheme,
venture capital trusts, and
the corporate venturing scheme.

(2) Those amendments have effect as mentioned in that Schedule.

Employment-related securities

92 Avoidance using options etc

(1) Section 420 of ITEPA 2003 (meaning of securities etc) is amended as follows.

(2) In subsection (1)(f), insert at the beginning "options and".

(3) In subsection (5)(e), insert at the beginning "securities".

(4) In subsection (8), in the definition of "securities option", after "acquire securities" insert "other than a right to acquire securities which is acquired pursuant to a right or opportunity made available under arrangements the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions".

(5) This section has effect in relation to options acquired on or after 2nd December 2004; but subsection (4) also has effect in relation to an option acquired before that date where something is done on or after that date as part of the arrangements under which it was made available.

93 Corporation tax relief for shares acquired under EMI option

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

(2) In paragraph 21 (amount of relief in case of restricted shares), after sub-paragraph (4) insert--

" (4A) But if the option is a qualifying option, the amount mentioned in sub-paragraph (4) is increased by (or, if that amount is nil, is taken to be) the amount equal to any difference between--

(a) the amount that would have counted as employment income of the employee under section 476 of the Income Tax (Earnings and Pensions) Act 2003 in respect of the acquisition apart from the EMI code, and

(b) the amount (if any) that in fact counts as such income in accordance with the EMI code. "

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

" (4ZA) But if the option is a qualifying option, the amount mentioned in sub-paragraph (4) is increased by (or, if that amount is nil, is taken to be) the amount equal to any difference between--

(a) the amount that would have counted as employment income of the employee under section 476 of the Income Tax (Earnings and Pensions) Act 2003 (as modified by section 437 of that Act) in respect of the acquisition apart from the EMI code, and

(b) the amount (if any) that in fact counts as such income in accordance with the EMI code. "

(4) In paragraph 30 (minor definitions) insert at the appropriate places--

" "the EMI code" has the meaning given by section 527(3) of the Income Tax (Earnings and Pensions) Act 2003; " , and

" "qualifying option" has the same meaning as in the EMI code (see section 527(4) of the Income Tax (Earnings and Pensions) Act 2003); " .

(5) In paragraph 31 (index of defined expressions) insert at the appropriate places--

" the EMI code

paragraph 30 " , and

" qualifying option

paragraph 30 " .

(6) This section applies in relation to an acquisition of shares made on or after 1st September 2003 (and for this purpose shares are acquired when the recipient acquires a beneficial interest in the shares and not, if different, the time the shares are conveyed or transferred).

PAYE

94 PAYE: retrospective notional payments

(1) ITEPA 2003 is amended as follows.

(2) In section 222 (payments by employer on account of tax where deduction not possible)--

(a) in subsection (1)(c), for "date on which the employer is treated as making the notional payment" substitute "relevant date",

(b) in subsection (2), for "date mentioned in subsection (1)(c)" substitute "relevant date", and

" (4) In this section "the relevant date" means--

(a) if the employer is treated by virtue of any Act as making the notional payment before the date on which the Act is passed, that date, and

(b) in any other case, the date on which the employer is treated as making the notional payment. "

(3) In section 684(2) (PAYE regulations), in item 1--

(a) for "time of the payment" substitute "relevant time", and

(b) after paragraph (b) insert--

" "The relevant time" is--

(a) if the payment is a notional payment for the purposes of section 710 and the person is treated by virtue of any Act as making it at a time before the date on which the Act is passed, that date, and

(b) in any other case, the time when the payment is made. "

(4) In section 710 (notional payments: accounting for tax)--

(a) in subsection (7), after "means" insert "(subject to subsection (7A))", and

(b) after that subsection insert--

" (7A) In a case where the notional payment is treated by virtue of any Act as made before the date on which the Act is passed--

(a) the reference in sub-paragraph (i) of paragraph (a) of subsection (7) to the time when the notional payment is made is to the date on which the Act is passed,

(b) the reference in sub-paragraph (ii) of that paragraph to any occasion falling within the same income tax period is to any occasion falling before the end of the income tax period next after that in which that date falls, and

(c) the reference in paragraph (b) of that subsection to the income tax period in which the notional payment was made is to the income tax period next after that in which that date falls. "

(5) The provisions of ITEPA 2003 amended by this section have effect in relation to notional payments treated by virtue of this Act as made before the date on which this Act is passed as if for the references to the date on which the Act is passed in--

(a) section 222(4)(a),

(b) paragraph (a) of the definition of "the relevant time" in section 684(2), and

there were substituted references to such date as the Commissioners for Her Majesty's Revenue and Customs may by order made by statutory instrument appoint.

Alternative finance arrangements

95 Profit share agency

(1) In section 46(1) of FA 2005 (alternative finance arrangements: definition) for "or 49." substitute ", 49 or 49A."

(2) In section 49 of FA 2005 (profit share return)--

(a) for subsection (2) substitute--

" (2) Amounts paid or credited as mentioned in subsection (1)(c) by a financial institution under arrangements falling within this section are profit share return for the purposes of this Chapter. " , and

(b) in the heading for "profit share return" substitute "deposit".

(3) After section 49 of FA 2005 insert--

" 49A Alternative finance arrangements: profit share agency

(1) Subject to section 52, arrangements fall within this section if they are arrangements under which--

(a) a person ("the principal") appoints a financial institution as his agent,

(b) the agent uses money provided by the principal with a view to producing a profit,

(d) the agent is entitled to any additional profits resulting from the use of the money (and may also be entitled to a fee to be paid by the principal), and

(e) payments in pursuance of the entitlement specified in paragraph (c) equate, in substance, to the return on an investment of the money at interest.

(2) Amounts paid or credited by a financial institution in accordance with an entitlement of the kind specified in subsection (1)(c) are profit share return for the purposes of this Chapter.

(3) The principal shall not be treated for the purposes of the Tax Acts as entitled to profits to which the agent is entitled in accordance with subsection (1)(d). "

(4) After section 50(2) of FA 2005 (treatment of alternative finance arrangements: companies) insert--

" (2A) Where a company is a party to arrangements falling within section 49A, Chapter 2 of Part 4 of FA 1996 (loan relationships) has effect in relation to the arrangements as if--

(a) the arrangements were a loan relationship to which the company is a party,

(b) the amount provided under the arrangements were--

(i) in relation to a company which is the principal under the arrangements, the amount of a loan made by the company to the agent, and

(ii) in relation to a company which is the agent under the arrangements, the amount of a loan made to it by the principal, and

(c) profit share return payable to or by the company under the arrangements were interest payable under that loan relationship. "

(5) In section 52 of FA 2005 (provision not at arm's length)--

(a) in subsection (1)(a) for "or section 49," substitute ", 49 or 49A,"

(b) in subsection (3) for "or section 49." substitute ", 49 or 49A.", and

(6) In the heading to section 54 of FA 2005 "Section 49" becomes "Sections 49 and 49A".

(7) In the definition of "profit share return" in section 57 of FA 2005 for "section 49(2)" substitute "sections 49(2) and 49A(2)".

(8) In paragraph 1(b) of Schedule 2 to FA 2005 after "49" insert "or 49A".

(9) In section 148 of FA 2003 (meaning of "permanent establishment") after subsection (5A) insert--

" (5B) Where profit share return is paid, in accordance with arrangements to which section 49A of FA 2005 applies (alternative finance arrangements: profit share agency), to a company that is not resident in the United Kingdom, the company is not regarded as having a permanent establishment in the United Kingdom merely by virtue of anything done for the purposes of the arrangements by the other party to the arrangements or by any other person acting for the company in relation to the arrangements. "

(10) In section 127(1) of FA 1995 (persons not treated as UK representatives) renumber paragraph (cc) as paragraph (ca) and insert after it--

" (cb) where the income consists of profit share return in accordance with arrangements to which section 49A of FA 2005 applies (alternative finance arrangements: profit share agency), the other party to the arrangements or any other person acting for the non-resident in relation to the arrangements; " .

(11) Section 56 of FA 2005 (commencement and transitional) shall have effect in relation to the commencement of this section--

(a) as if references to Chapter 5 of Part 2 of that Act were references to this section,

(b) as if references to 6th April 2005 were references to--

(i) 1st April 2006 in relation to corporation tax, and

(ii) 6th April 2006 in relation to income tax, and

96 Diminishing shared ownership

(1) In section 46(1) of FA 2005 (alternative finance arrangements: definition) after "47" insert ", 47A,".

(2) In section 47 of FA 2005 (alternative finance return)--

(a) omit subsection (5),

(b) in subsections (6) and (7) after "is to be taken" insert "for the purposes of this Chapter", and

(3) After section 47 of FA 2005 insert--

" 47A Alternative finance arrangements: diminishing shared ownership

(1) Subject to section 52, arrangements fall within this section if under them--

(a) a financial institution acquires a beneficial interest in an asset, and

(b) another person ("the eventual owner")--

(i) also acquires a beneficial interest in the asset,

(ii) is to make payments to the financial institution amounting in aggregate to the consideration paid for the acquisition of its beneficial interest,

(iii) is to acquire the financial institution's beneficial interest (whether or not in stages) as a result of those payments,

(iv) is to make other payments to the financial institution (whether in pursuance of a lease forming part of the arrangements, or otherwise),

(v) has the exclusive right to occupy or otherwise use the asset,

(vi) is exclusively entitled to any income, profit or gain arising from or attributable to the asset (including, in particular, any increase in the asset's value).

(2) For the purposes of subsection (1)(a) it is immaterial--

(a) whether or not the financial institution acquires its beneficial interest from the eventual owner,

(b) whether the eventual owner or another person other than the financial institution also has a beneficial interest in the asset, and

(3) Subsection (1)(b)(v) does not prevent the eventual owner from granting an interest or right in relation to the asset to someone other than--

(a) the financial institution,

(b) a person controlled by the financial institution within the meaning of section 840 of ICTA, and

(c) a person controlled by a person who also controls the financial institution, in each case within the meaning of section 840 of ICTA;

provided that the grant is not required by the financial institution or by arrangements to which the financial institution is party.

(4) Subsection (1)(b)(vi) does not prevent the financial institution from having responsibility for, or a share in any loss arising out of, any reduction in the asset's value (and subsection (1)(b)(ii) is subject to this subsection).

(5) Payments by the eventual owner under arrangements to which this section applies are alternative finance return for the purposes of this Chapter except in so far as they amount to--

(a) payments of the kind described in subsection (1)(b)(ii), or

(b) payments in respect of any arrangement fee or legal or other costs or expenses which the eventual owner is required under the arrangements to pay.

(6) Arrangements to which this section applies shall not be treated as a partnership for the purposes of the Taxes Acts (within the meaning of the Taxes Management Act 1970). "

(4) In section 50 of FA 2005 (treatment of alternative finance arrangements: companies)--

(a) in subsection (1) after "section 47" insert "or 47A",

(b) at the beginning of subsection (1)(b) add "in the case of arrangements within section 47,", and

" (ba) in the case of arrangements within section 47A, the consideration paid by the financial institution for the acquisition of its beneficial interest were the amount of a loan made (as the case requires) to the company by, or by the company to, the other party to the arrangements, " .

(5) In section 52 of FA 2005 (provision not at arm's length)--

(a) in subsection (1)(a) after "47" insert ", 47A",

(b) in subsection (3) after "47" insert ", 47A", and

(6) In section 53 of FA 2005 (sale and purchase of asset)--

(a) in subsection (1) after "47" insert "or 47A",

(b) after subsection (2) add--

" (3) In the application of this section to section 47A a reference to the effective return is a reference to the alternative finance return. " , and

(7) In the definition of "alternative finance return" in section 57 of FA 2005 for "section 47(5)" substitute "sections 47(6) and (7) and 47A(5)".

(8) This section shall have effect in relation to alternative finance arrangements entered into on or after--

(a) 1st April 2006 in relation to corporation tax, and

(b) 6th April 2006 in relation to income tax.

97 Beneficial loans to employees

(1) For the purposes of Chapter 7 of Part 3 of ITEPA 2003 (taxable benefits: loans) a reference to a loan includes a reference to an arrangement which--

(a) is an alternative finance arrangement to which section 47 or 47A FA 2005 applies, or

(b) would be an alternative finance arrangement to which one of those sections applied if one of the parties were a financial institution.

(2) In the application of that Chapter by virtue of subsection (1)--

(a) a reference to interest shall be treated as including a reference to alternative finance return, and

(b) a reference to the amount outstanding shall be taken to be--

(i) in the case of arrangements to which section 47 applies, a reference to the purchase price minus such part of the aggregate payments made as does not represent alternative finance return, and

(ii) in the case of arrangements to which section 47A applies, a reference to the amount of the financial institution's original beneficial interest minus such part of the aggregate payments made as does not represent alternative finance return.

(3) This section shall have effect in relation to arrangements entered into on or after 22nd March 2006.

98 Regulations

(1) The Treasury may by order amend Chapter 5 of Part 2 to FA 2005 (alternative finance arrangements) so as to introduce provision relating to arrangements which in the Treasury's opinion--

(a) equate in substance to a loan, deposit or other transaction of a kind that generally involves the payment of interest, but

(b) achieve a similar effect without including provision for the payment of interest.

(2) An order under subsection (1) may, in particular--

(a) include provision of a kind similar to provision already made by Chapter 5 of Part 2;

(b) make other provision about the treatment for the purposes of the Tax Acts of arrangements to which the order applies;

(d) make different provision for different cases or circumstances;

(e) include consequential provision (which may include provision amending a provision of the Tax Acts);

(f) include incidental or transitional provision.

(3) An order under subsection (1)--

(a) shall be made by statutory instrument, and

(b) shall not be made unless a draft has been laid before and approved by resolution of the House of Commons.

Nuclear decommissioning

99 Amendment of section 29 of the Energy Act 2004

(1) Section 29 of the Energy Act 2004 (c. 20) (disregard for tax purposes of cancellation etc of decommissioning provisions) is amended as follows.

(2) In subsection (1)--

(a) in paragraph (a), for "relevant company" substitute "BNFL company";

(b) for paragraphs (b) and (c) substitute--

" (b) that provision--

(i) relates to decommissioning or cleaning-up which the NDA acquires or has acquired responsibility for securing by virtue of a direction under section 3, but

(ii) is not provision recognised in order to reflect the terms or effect of a management contract between the company and the NDA;

and

(i) includes the financial responsibility under section 21, or

(ii) would do so but for the fact that the amount of the financial responsibility is for the time being subject to a limit imposed by a capping agreement. "

(3) For subsections (3) and (4) substitute--

" (3) This subsection applies to a credit or debit if it arises from--

(a) the recognition in the accounts of the company for a relevant period beginning on or after 1st April 2005 of--

(i) the relevant provision, or

(ii) an asset that, in accordance with generally accepted accounting practice, is recognised in connection with the relevant provision in order to reflect the acquisition of financial responsibility referred to in subsection (1) (a "matching asset");

(b) an adjustment made in the accounts of the company for such a period of--

(i) the relevant provision, or

(ii) a matching asset;

(i) the relevant provision,

(ii) a matching asset, or

(iii) an asset or liability recognised in order to reflect the terms or effect of a contract falling within subsection (3A).

(3A) A contract falls within this subsection if--

(a) it is a contract made before 1st April 2005 and having effect between two or more BNFL companies under which a party to the contract assumed responsibility for securing decommissioning or cleaning-up; and

(b) the rights and obligations under the contract are extinguished by reason of a transfer made under a nuclear transfer scheme. "

(4) In subsection (5)--

(a) for the definition of "BNFL company" substitute--

" "BNFL company" means--

(a) BNFL,

(b) a company that immediately before 1st April 2005 was a wholly-owned subsidiary of BNFL, or

(b) after that definition insert--

" "capping agreement" means an agreement under subsection (9) of section 21, entered into on 1st April 2005, the sole or main effect of which is to impose a limit on the NDA's financial responsibility under that section;

"management contract" has the same meaning as in section 27; " ;

" "relevant period", in relation to a company, means an accounting period during the whole of which the company is publicly owned; " .

(5) After that subsection insert--

" (5A) Where a company ceases to be publicly owned otherwise than at the end of an accounting period--

(a) the accounting period during which it ceases to be publicly owned is treated for the purposes of corporation tax as ending when it so ceases; and

(b) its profits and losses are to be computed accordingly for those purposes. "

(6) The amendments made by this section have effect in relation to accounting periods of a BNFL company ending on or after 22nd March 2006.

"BNFL company" has the same meaning as in section 29 of the Energy Act 2004 (c. 20) as amended by this section.

100 Amendment of section 30 of the Energy Act 2004

(1) Section 30 of the Energy Act 2004 (disregard for tax purposes of decommissioning provisions recognised by Nuclear Decommissioning Authority) is amended as follows.

(2) In subsection (1)--

(a) for paragraph (b) substitute--

" (b) that responsibility--

(i) includes the financial responsibility under section 21, or

(ii) would do so but for the fact that the amount of the financial responsibility is for the time being subject to a limit imposed by a capping agreement; " ;

(b) in paragraph (c) omit "on the coming into force of the direction mentioned in paragraph (a),";

(d) the provision is recognised--

(i) in order to reflect the coming into force of the direction mentioned in paragraph (a), or

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