Finance (No. 2) Act 1987
In this Chapter—
“employment” means an office or employment whose emoluments fall to be assessed under Schedule E, and related expressions have corresponding meanings;
a person authorised under section 3 or 4 of the Insurance Companies Act 1982 to carry on long term business and acting through a branch or office in the United Kingdom, or
“pay” (except in the expression “profit-related pay”) means emoluments paid under deduction of tax pursuant to section 204 of the Taxes Act (pay as you earn), reduced by any amounts included in them by virtue of Chapter II of Part III of the Finance Act 1976;
“profit period” means an accounting period by reference to which any profit-related pay is calculated;
“scheme administrator” means the person referred to in section 27 below.
a society registered as a friendly society under the Friendly Societies Act 1974 or the Friendly Societies Act (Northern Ireland) 1970;
in relation to arrangements, means made in accordance with a scheme which is for the time being, and was when the arrangements were made, an approved scheme,
“profit-related pay” means emoluments from an employment which are paid in accordance with a profit-related pay scheme;
References in this Chapter to the employees to whom a profit-related pay scheme relates are references to the employees who will receive any payments of profit-related pay under the scheme.
Any charge to income tax on profit-related pay paid in accordance with a registered scheme shall be made for the year of assessment in which it is paid (rather than the period for which it is paid).
One half of any profit-related pay to which this section applies shall be exempt from income tax.
This section applies to any profit-related pay paid to an employee by reference to a profit period and in accordance with a registered scheme, but only so far as it does not exceed the lower of the two limits specified in the following provisions of this section.
The first of the limits referred to in subsection (2) above is one fifth of the aggregate of—
the pay (but not any profit-related pay) paid to the employee in the profit period in respect of his employment in the employment unit concerned (or, if the employee is eligible to receive profit-related pay by reference to part only of the period, so much of his pay, but not any profit-related pay, as is paid in that part), and
the profit-related pay paid to him by reference to that period in respect of that employment.
The second of the limits referred to in subsection (2) above is £3000 (or, if the profit period is less than twelve months or the employee is eligible to receive profit-related pay by reference to part only of the profit period, a proportionately reduced amount).
Profit-related pay shall not be exempt from income tax by virtue of section 3 above if—
it is paid to an employee in respect of his employment in an employment unit during a time when he also has another employment, and
he receives in respect of his other employment during that time profit-related pay which is exempt from income tax by virtue of that section.
Subject to subsection (3) below, profit-related pay in respect of which no secondary Class 1 contributions under Part I of the Social Security Act 1975 or Part I of the Social Security (Northern Ireland) Act 1975 are payable shall not be exempt from income tax by virtue of section 3 above.
Subsection (2) above shall not apply to profit-related pay in respect of which no Class 1 contributions are payable only because the employee’s earnings are below the lower earnings limit for such contributions.
Where the emoluments of all the employees to whom a profit-related pay scheme relates are paid by the same person, an application to register the scheme under this Chapter may be made to the Board by that person.
Where subsection (1) above does not apply to a profit-related pay scheme, no application to register it may be made unless all the persons who pay emoluments to employees to whom the scheme relates are bodies corporate which are members of the same group; and in that case an application may be made by the parent company of the group.
In subsection (2) above “group” means a body corporate and its 51 per cent. subsidiaries, and “parent company” means that body corporate; and in applying for the purposes of this section the definition of “51 per cent. subsidiary” in section 532 of the Taxes Act, any share capital of a registered industrial and provident society (within the meaning of section 340 of the Taxes Act) shall be treated as ordinary share capital.
No application may be made to register a scheme under this Chapter if any employment to which the scheme relates is—
employment in an office under the Crown or otherwise in the service of the Crown, or
employment by an excluded employer.
For the purposes of this section “excluded employer” means—
a person in an employment within subsection (1) above;
a body under the control of the Crown, or of one or more persons acting on behalf of the Crown;
a local authority;
a body under the control of one or more local authorities, or of the Crown (or one or more persons acting on behalf of the Crown) and one or more local authorities.
For the purposes of this section a person has control of a body only if one or more of the following conditions is satisfied—
in the case of a body whose affairs are managed by its members, he has the power to appoint more than half of the members;
in the case of a body having a share capital, he holds more than half of its issued share capital;
in the case of a body whose members vote in general meeting, he has the power to exercise more than half of the votes exercisable in general meeting;
the articles of association or other rules regulating the body give him the power to secure that the affairs of the body are conducted in accordance with his wishes.
For the purposes of this section a person shall be taken to possess any rights and powers possessed by— including rights and powers which such an officer or body is taken to possess by virtue of this subsection.
a person appointed by him to an office by virtue of which the rights or powers are exercisable, or
a body which he controls,
Subsections (3) and (4) above apply with the necessary modifications for the purpose of determining whether persons together have control of a body.
An application for the registration of a profit-related pay scheme under this Chapter—
shall be in such form as the Board may prescribe;
shall contain a declaration by the applicant that the scheme complies with the requirements of Schedule 1 to this Act;
shall contain an undertaking by the applicant that the emoluments paid to any employee to whom the scheme relates and to whom minimum wage legislation applies will satisfy that legislation without taking account of profit-related pay;
shall specify the profit period or periods to which the scheme relates;
shall be supported by such information as the Board may require.
An application for the registration of a profit-related pay scheme under this Chapter shall be accompanied by a report by an independent accountant, in a form prescribed by the Board, to the effect that in his opinion—
the scheme complies with the requirements of Schedule 1 to this Act;
the books and records maintained and proposed to be maintained by the applicant are adequate for the purpose of enabling the documents required by section 12(1) below to be produced.
An application for the registration of a profit-related pay scheme under this Chapter shall be made within the period of six months ending immediately before the beginning of the profit period, or the first of the profit periods, to which the scheme relates.
In subsection (1) above, “minimum wage legislation” means the provisions relating to remuneration in Part II of the Wages Act 1986, the Wages Councils (Northern Ireland) Order 1982, the Agricultural Wages Act 1948, the Agricultural Wages (Scotland) Act 1949 and the Agricultural Wages (Regulation) (Northern Ireland) Order 1977.
If an application for the registration of a profit-related pay scheme under this Chapter is made more than three months (but not more than six months) before the beginning of the profit period, or the first of the profit periods, to which the scheme relates, then, subject to subsection (2) below, the Board shall register the scheme before the beginning of that period.
If the Board are not satisfied that an application made as mentioned in subsection (1) above complies with the requirements of this Chapter, they may within thirty days after the day on which they receive the application—
refuse the application, or
by written notice to the applicant either require him to amend the application or require him to give them such further information as may be specified in the notice, and in either case to do so within such time, not exceeding thirty days after the day on which the notice is given, as may be so specified.
If a notice under subsection (2) above is complied with and the Board are satisfied that the application complies with the requirements of this Chapter, the Board shall register the scheme before the beginning of the profit period.
If a notice under subsection (2) above is complied with but the Board remain not satisfied that the application complies with the requirements of this Chapter, the Board shall refuse the application.
If a notice under subsection (2) above is not complied with but the Board are before the beginning of the profit period satisfied that the application complies with the requirements of this Chapter, the Board may register the scheme before the beginning of the period; but if they do not do so, the application shall be regarded as having been refused.
If an application for the registration of a profit-related pay scheme under this Chapter is made within the period of three months before the beginning of the profit period, or the first of the profit periods, to which the scheme relates, then—
if before the beginning of the profit period the Board are satisfied that the application complies with the requirements of this Chapter, they shall register the scheme before the beginning of the period; but
in any other case, the application shall be regarded as having been refused.
After registering a scheme under this Chapter, the Board shall by written notice inform the applicant that they have done so.
The Board shall give written notice to the applicant if they refuse his application under subsection (2) or (4) above.
For the purposes of this section an application does not comply with the requirements of this Chapter if the scheme to which it relates does not comply with the requirements of Schedule 1 to this Act.
Where— the scheme employer and his successor may make a joint written application to the Board under this section for the amendment of the registration of the scheme.
a scheme employer ceases to fulfil the conditions which section 5 above requires to be fulfilled by an applicant for registration of the scheme, and
he is succeeded by a person who would be eligible to apply for registration of the scheme, and
there is otherwise no other material change in the employment unit or in the circumstances relating to the scheme,
If on receiving an application under this section the Board are satisfied— the Board shall amend the registration of the scheme by substituting the successor for the previous scheme employer.
that the conditions in subsection (1)(a), (b) and (c) above are fulfilled, and
that, apart from the change of scheme employer, there would be no grounds for cancelling the registration of the scheme,
An application under this section shall be made before the end of the period of one month beginning with the date of the succession.
Where the Board amend the registration of a scheme under this section, this Chapter shall (subject to any necessary modifications) have effect as if the successor had been the scheme employer throughout.
The Board shall give written notice to the applicants if they refuse an application under this section.
If after a scheme has been registered under this Chapter it appears to the Board— the Board may cancel the registration and, subject to subsection (5) below, the cancellation shall have effect from the beginning of that profit period.
that the scheme has not been or will not be administered in accordance with its terms or in accordance with this Chapter in relation to a profit period, or
that the circumstances relating to the scheme have during a profit period become such that (if it were not registered) an application to register it under this Chapter would be excluded by section 6 above, or
in the case of a scheme which employs (as the method of determining the distributable pool for a profit period) the method described as method B in paragraph 14 of Schedule 1 to this Act, that losses were incurred in a profit period or in the preceding period of twelve months, or
that the undertaking given in compliance with section 7(1)(c) above has not been complied with in relation to employment at any time during a profit period,
If after a scheme has been registered under this Chapter it appears to the Board— the Board may cancel the registration with effect from the beginning of the profit period (or first profit period) to which the scheme related.
that at the time of registration the scheme did not comply with the requirements of Schedule 1 to this Act or that the application did not comply with the requirements of this Chapter, or
in the case of a scheme which employs (as the method of determining the distributable pool for a profit period) the method described as method A in paragraph 13 of Schedule 1, that losses were incurred in the base year specified in the scheme,
If after a scheme has been registered under this Chapter the scheme employer fails to comply with the requirements of section 12 below in relation to a profit period, the Board may cancel the registration with effect from the beginning of that profit period.
If the scheme employer, by written notice, requests the Board to cancel the registration of the scheme with effect from the beginning of a profit period specified in the notice, the Board shall comply with the request.
Where— then, if the notice is given before the end of the period of one month beginning with that date, the Board shall comply with the request.
the scheme employer has given to the Board in accordance with section 13(3) below notice of a change in the employment unit, or in the circumstances relating to the scheme, which is a ground for cancellation of the registration of the scheme by virtue of subsection (1)(a) or (b) above, and
the Board are satisfied that the change is not brought about with a view to the registration of a new scheme, and
in the notice the scheme employer requests the Board to cancel the registration of the scheme with effect from the date of the change,
The Board shall give written notice to the scheme employer of the cancellation of a scheme’s registration.
This section applies where—
payments of profit-related pay are made to an employee in accordance with a registered scheme, and
in consequence of the relief given by this Chapter in respect of registered schemes, less income tax is deducted from the payments in accordance with section 204 of the Taxes Act (pay as you earn) than would have been deducted if the scheme had not been registered, and
the registration of the scheme is subsequently cancelled with effect from a time before that relevant for the purposes of the relief.
Where this section applies, an amount equal to the shortfall in the deductions made in accordance with section 204 shall be payable by the scheme employer to the Board; and regulations under that section may include provision as to the collection and recovery of any such amount.
After every profit period of a registered scheme, the scheme employer shall, within the period allowed by subsection (2) below, send to the Board—
a return in such form and containing such information as the Board may prescribe, and
a report by an independent accountant in such form and containing such information as the Board may prescribe, and stating that in his opinion the terms of the scheme have been complied with in respect of the profit period.
Subject to subsection (3) below, the period allowed for complying with subsection (1) above is—
seven months from the end of the profit period if the employment unit to which the scheme relates is an undertaking or part of an undertaking of a public company, and
ten months from the end of the profit period in any other case.
If before the end of the period allowed by subsection (2) above the scheme employer gives the Board written notice that an extension of three months has been allowed under section 242(3) of the Companies Act 1985, or under Article 250(3) of the Companies (Northern Ireland) Order 1986, in relation to a financial year of the employer which corresponds with the profit period in question, then the period allowed by subsection (2) above shall be correspondingly extended.
In subsection (2)(a) above, “public company” has the meaning given by section 1(3) of the Companies Act 1985 or Article 12(3) of the Companies (Northern Ireland) Order 1986.
The Board may by written notice require any person to give them, within a period of thirty days or such longer period as may be specified in the notice, any information which is so specified and which—
that person has or can reasonably be required to obtain, and
the Board consider they need to have in order to perform their functions under this Chapter.
Without prejudice to the generality of subsection (1)(b) above, the Board may in particular require a person under subsection (1) to give them—
information to enable them to determine whether the registration of a scheme should be cancelled;
information to enable them to determine the liability to tax of any person who is or has been an employee to whom a registered scheme relates or who pays or has paid emoluments to such an employee;
information about the administration of a profit-related pay scheme which is or has been a registered scheme;
information about any change of person paying emoluments to employees to whom a registered scheme relates.
The scheme employer of a registered scheme shall by written notice inform the Board without delay if he becomes aware of anything that is or may be a ground for cancellation of the registration of the scheme.
Section 13(1) of the Finance (No. 2) Act 1987
Section 12(1) of the Finance (No. 2) Act 1987
An appeal to the Special Commissioners may be made by a scheme employer—
against a refusal by the Board under section 8(2) or (4) above of an application for registration of the scheme;
against a refusal by the Board of an application under section 9 above;
against the cancellation by the Board of the registration of the scheme.
An appeal under this section shall be made by written notice given to the Board within thirty days of the day on which the scheme employer was notified of the refusal or, as the case may be, the cancellation.
—For the purposes of this Chapter the members of a partnership which is a scheme employer shall be treated as a single continuing body of persons notwithstanding any change in their identity.
For the purposes of this Chapter, “independent accountant”, in relation to a profit-related pay scheme, means a person who—
is within section 389(1)(a) or (b) of the Companies Act 1985 or Article 397(1)(a) or (b) of the Companies (Northern Ireland) Order 1986 (qualification for appointment as auditor), and
is not excluded by subsections (2) to (5) below.
A person is not an independent accountant in relation to a profit-related pay scheme if—
he is the employer of employees to whom the scheme relates, or
he is a partner or an employee of, or a partner of an employee of, a person within subsection (3) below, or
he is an employee of a person within paragraph (b) above.
The persons within this subsection are—
any person having employees to whom the scheme relates;
any body corporate which is the subsidiary or holding company of a body corporate within paragraph (a) above or a subsidiary of such a body’s holding company.
For the purposes of this section—
an auditor of a company is not to be regarded as an employee of it, and
“holding company” and “subsidiary” are to be construed in accordance with section 736 of the Companies Act 1985 or Article 4 of the Companies (Northern Ireland) Order 1986.
A body corporate cannot be an independent accountant in relation to a scheme.
For the purposes of this Chapter, “independent accountant”, in relation to a scheme, includes a Scottish firm all the partners of which are independent accountants in relation to the scheme.
An application to the Board for their approval of a personal pension scheme shall be in such form, shall contain such information, and shall be accompanied by such documents (in such form) as the Board may prescribe.
The Board may at their discretion grant or refuse an application for approval of a personal pension scheme, but their discretion shall be subject to the restrictions set out in sections 20 to 30 below.
The Board shall give written notice to the applicant of the grant or refusal of an application; and in the case of a refusal the notice shall state the grounds for the refusal.
If an amendment is made to an approved scheme without being approved by the Board, their approval of the scheme shall cease to have effect.
The Board shall not approve a personal pension scheme established by any person other than—
a person who is authorised under Chapter III of Part I of the Financial Services Act 1986 to carry on investment business, and who carries on business of a kind mentioned in subsection (2) below;
a building society within the meaning of the Building Societies Act 1986;
an institution authorised under the Banking Act 1987;
a recognised bank or licensed institution within the meaning of the Banking Act 1979.
The kinds of business referred to in subsection (1)(a) above are—
issuing insurance policies or annuity contracts;
managing unit trust schemes authorised under section 78(1) of the Financial Services Act 1986.
Subsection (1) above shall not apply in relation to a scheme approved by the Board by virtue of section 226(5) of the Taxes Act if it is established before 4th January 1988.
The Treasury may by order amend this section as it has effect for the time being.
An order under this section shall be made by statutory instrument, which shall be subject to annulment in pursuance of a resolution of the House of Commons.
The Board shall not approve a personal pension scheme which makes provision for any benefit other than—
the payment of an annuity satisfying the conditions in section 22 below;
the payment to a member of a lump sum satisfying the conditions in section 23 below;
the payment after the death of a member of an annuity satisfying the conditions in section 24 below;
the payment on the death of a member of a lump sum satisfying the conditions in section 25 below;
the payment on the death of a member of a lump sum satisfying the conditions in section 26 below.
Subsection (1) above shall not prevent the approval of a scheme which makes provision for insurance against a risk relating to the non-payment of contributions.
The annuity must be payable by an authorised insurance company which may be chosen by the member.
Subject to subsection (3) below, the annuity must not commence before the member attains the age of 50 or after he attains the age of 75.
The annuity may commence before the member attains the age of 50 if—
it is payable on his becoming incapable through infirmity of body or mind of carrying on his own occupation or any occupation of a similar nature for which he is trained or fitted, or
the Board are satisfied that his occupation is one in which persons customarily retire before that age.
Subject to subsection (5) below, the annuity must be payable to the member for his life.
The annuity may continue for a term certain not exceeding ten years, notwithstanding the member’s death within that term; and for this purpose an annuity shall be regarded as payable for a term certain notwithstanding that it may terminate, after the death of the member and before the expiry of that term, on the happening of any of the following—
the marriage of the annuitant;
his attaining the age of eighteen;
the later of his attaining that age and ceasing to be in full-time education.
The annuity must not be capable of assignment or surrender, except that an annuity for a term certain may be assigned by will or by the annuitant’s personal representatives in the distribution of his estate so as to give effect to a testamentary disposition, or to the rights of those entitled on an intestacy, or to an appropriation of it to a legacy or to a share or interest in the estate.
The lump sum must be payable only if the member so elects on or before the date on which an annuity satisfying the conditions in section 22 above is first payable to him under the arrangements made in accordance with the scheme.
The lump sum must be payable when that annuity is first payable.
The lump sum must not exceed one quarter of the total value, at the time when the lump sum is paid, of the benefits for the member provided for by the arrangements made by him in accordance with the scheme.
The lump sum must not exceed £150,000 or such other sum as may for the time being be specified in an order made by the Treasury; and an order under this subsection shall be made by statutory instrument, which shall be subject to annulment in pursuance of a resolution of the House of Commons.
The right to payment of the lump sum must not be capable of assignment or surrender.
The annuity must be payable by an authorised insurance company which may be chosen by the member or by the annuitant.
The annuity must be payable to the surviving spouse of the member, or to a person who was at the member’s death a dependant of his.
The aggregate annual amount (or, if that amount varies, the aggregate of the initial annual amounts) of all annuities to which this section applies and which are payable under the same personal pension arrangements shall not exceed—
where before his death the member was in receipt of an annuity under the arrangements, the annual amount (or if it varied, the highest annual amount) of that annuity, or
where paragraph (a) above does not apply, the highest annual amount of the annuity that would have been payable under the arrangements to the member (ignoring any entitlement of his to commute part of it for a lump sum) if it had vested on the day before his death.
Subject to subsections (5) to (9) below, the annuity must be payable for the life of the annuitant.
Where the annuity is payable to the surviving spouse of the member and at the time of the member’s death the surviving spouse is under the age of 60, the annuity may be deferred to a time not later than—
the time when the surviving spouse attains that age, or
where the member’s annuity is payable to the surviving spouse for a term certain as mentioned in section 22(5) above and the surviving spouse attains the age of 60 before the time when the member’s annuity terminates, that time.
The annuity may cease to be payable on the marriage of the annuitant.
Where the annuity is payable to the surviving spouse of the member, it may cease before the death of the surviving spouse if—
the member was survived by one or more dependants under the age of 18 and at the time of the member’s death the surviving spouse was under the age of 45, and
at some time before the surviving spouse attains that age no such dependant remains under the age of 18.
Where the annuity is payable to a person who is under the age of 18 when it is first payable, it must cease to be payable either— unless he was a dependant of the member otherwise than by reason only that he was under the age of 18.
on his attaining that age, or
on the later of his attaining that age and ceasing to be in full-time education,
The annuity may continue for a term certain not exceeding ten years, notwithstanding the original annuitant’s death within that term; and for this purpose an annuity shall be regarded as payable for a term certain notwithstanding that it may terminate, after the death of the original annuitant and before the expiry of that term, on the happening of any of the following—
the marriage of the annuitant to whom it is payable;
his attaining the age of eighteen;
the later of his attaining that age and ceasing to be in full-time education.
The annuity must not be capable of assignment or surrender, except that an annuity for a term certain may be assigned by will or by the annuitant’s personal representatives in the distribution of his estate so as to give effect to a testamentary disposition, or to the rights of those entitled on an intestacy, or to an appropriation of it to a legacy or to a share or interest in the estate.
The lump sum must be payable by an authorised insurance company.
The lump sum must be payable on the death of the member before he attains the age of 75.
The lump sum must be payable only if no annuity satisfying the conditions in either section 22 or section 24 above has become payable.
Subject to subsection (3) below, the lump sum must represent no more than the return of contributions, together with reasonable interest on contributions or bonuses out of profits.
To the extent that contributions are invested in units under a unit trust scheme, the lump sum may represent the sale or redemption price of the units.
The Board shall not approve a personal pension scheme unless they are satisfied that there is a person resident in the United Kingdom who will be responsible for the management of the scheme.
The Board shall not approve a personal pension scheme unless it makes such provision for the making, acceptance and application of transfer payments as satisfies any requirements imposed by or under regulations made by the Board.
Regulations under this section shall be made by statutory instrument, which shall be subject to annulment in pursuance of a resolution of the House of Commons.
The Board shall not approve a personal pension scheme unless it makes provision, in relation to arrangements made in accordance with the scheme, for ensuring that—
the aggregate amount of the contributions that may be made in a year of assessment by the member and an employer of his under the arrangements, together with the aggregate amounts of such contributions under other approved personal pension arrangements made by the member, does not exceed the permitted maximum for that year, and
any excess is repaid to the member to the extent of his contributions and otherwise to his employer.
In subsection (1) above “the permitted maximum” for a year of assessment means an amount equal to the aggregate of— and references in subsection (1) to contributions by the member do not include references to contributions treated by virtue of section 42(3) below as paid by him.
the relevant percentage of the member’s net relevant earnings for the year, and
so much of any relief given under section 31 below for that year as is given by virtue of section 34;
In subsection (2) above “the relevant percentage” means 175 per cent. or, in a case where section 32(2) below applies, the relevant percentage there specified.
The Board shall not approve a personal pension scheme which permits the acceptance of contributions other than—
contributions by members;
contributions by employers of members;
minimum contributions paid by the Secretary of State underPart I of the Social Security Act 1986 or by the Department of Health and Social Services for Northern Ireland under Part II of the Social Security (Northern Ireland) Order 1986.
The Board shall not approve a personal pension scheme which permits the acceptance of minimum contributions paid as mentioned in subsection (1)(c) above in respect of an individual’s service—
as director of a company, if his emoluments as such are within section 35(5) below; or
in an office or employment to which section 36 below applies.
A contribution paid by an individual under approved personal pension arrangements made by him shall, subject to the provisions of this Chapter, be deducted from or set off against any relevant earnings of his for the year of assessment in which the payment is made.
The maximum amount that may be deducted or set off in any year of assessment by virtue of section 31 above shall be 175 per cent. of the individual’s net relevant earnings for that year.
In the case of an individual whose age at the beginning of the year of assessment is within a range specified in the first column of the following table, subsection (1) above shall have effect with the substitution for 175 per cent. of the relevant percentage specified in the second column. 51 to 55 20 per cent. 56 to 60 225 per cent. 61 or more 275 per cent.
Without prejudice to subsection (1) above, the maximum amount that may be deducted or set off in any year of assessment in respect of contributions paid by an individual to secure benefits satisfying the conditions in section 25 above shall be 5 per cent. of the individual’s net relevant earnings for that year.
Where personal pension arrangements are made by an employee whose employer makes contributions under the arrangements, the maximum amount that may be deducted or set off in any year of assessment shall be reduced by the amount of the employer’s contributions in the year.
Any minimum contributions treated by virtue of section 42(3) below as paid by the individual in respect of whom they are paid shall be disregarded for the purposes of this section.
An individual who pays a contribution under approved personal pension arrangements in a year of assessment (whether or not a year for which he has relevant earnings) may elect that the contribution, or part of it, shall be treated as paid—
in the year of assessment preceding that year, or
if he had no net relevant earnings in that preceding year of assessment, in the year of assessment before that.
Where for any year of assessment an individual— the individual may elect that there shall be treated as paid in that year so much of any contributions paid by him under approved personal pension arrangements in the next year of assessment but two as does not exceed the amount of the unused relief.
has relevant earnings as an underwriting member of Lloyd’s or by way of commission calculated by reference to the profits of Lloyd’s underwriting business, and
there is an amount of unused relief attributable to those earnings,
In subsection (2) above, references to an amount of unused relief attributable to the earnings mentioned in subsection (2)(a) are to an amount which could have been deducted from or set off against those earnings under section 31 above if—
the individual had paid contributions under approved personal pension arrangements in the year of assessment for which he has the earnings, or
any such contributions paid by him in that year had been greater.
An election under this section must be made not later than three months after the end of the year of assessment in which the contributions treated as paid in another year are actually paid.
Where an election is made under this section in respect of a contribution or part of a contribution, the other provisions of this Chapter shall have effect as if the contribution or part had been paid in the year specified in the election and not in the year in which it was actually paid.
Where— relief may be given under section 31 above, up to the amount of the unused relief, in respect of so much of any contributions paid by him under approved personal pension arrangements in any of the next six years of assessment as exceeds the maximum applying for that year under section 32 above.
for any year of assessment an individual has relevant earnings from any trade, profession, vocation, office or employment carried on or held by him, and
there is an amount of unused relief for that year,
In this section, references to an amount of unused relief for any year are to an amount which could have been deducted from or set off against the individual’s relevant earnings for that year under section 31 above if—
the individual had paid contributions under approved personal pension arrangements in that year, or
any such contributions paid by him in that year had been greater.
Relief by virtue of this section shall be given for an earlier year rather than a later year, the unused relief taken into account in giving relief for any year being deducted from that available for giving relief in subsequent years and unused relief derived from an earlier year being exhausted before unused relief derived from a later year.
Where a relevant assessment to tax in respect of a year of assessment becomes final and conclusive more than six years after the end of that year and there is an amount of unused relief for that year which results from the making of the assessment— and to the extent to which relief in respect of any contributions is given by virtue of this subsection it shall not be given by virtue of subsection (1) above.
that amount shall not be available for giving relief by virtue of this section for any of the six years following that year; but
the individual may, within the period of six months beginning with the date on which the assessment becomes final and conclusive, elect that relief shall be given under section 31 above, up to that amount, in respect of so much of any contributions paid by him under approved personal pension arrangements within that period as exceeds the maximum applying under section 32 above for the year of assessment in which they are paid;
In this section “a relevant assessment to tax” means an assessment on the individual’s relevant earnings or on the profits or gains of a partnership from which the individual derives relevant earnings.
In this Chapter, “relevant earnings”, in relation to an individual, means any income of his which is chargeable to tax for the year of assessment in question and is within subsection (2) below.
Subject to subsections (3) to (5) below, income is within this subsection if it is—
emoluments chargeable under Schedule E from an office or employment held by the individual;
income from any property which is attached to or forms part of the emoluments of an office or employment held by him;
income which is chargeable under Schedule D and is immediately derived by him from the carrying on or exercise by him of his trade, profession or vocation (either as an individual or as a partner acting personally in a partnership);
income treated as earned income by virtue of section 383 of the Taxes Act (patent rights).
Where section 36 below applies to an office or employment held by the individual, neither emoluments from the office or employment nor income from any property which is attached to it or forms part of its emoluments are within subsection (2) above.
The following are not income within subsection (2) above—
anything in respect of which tax is chargeable under Schedule E and which arises from the acquisition or disposal of shares or an interest in shares or from a right to acquire shares;
anything in respect of which tax is chargeable by virtue of section 187 of the Taxes Act (payments on termination of employment, etc.).
Emoluments of an individual as director of a company are not income within subsection (2) above if—
the income of the company consists wholly or mainly of investment income, and
the individual, either alone or together with any other persons who are or have been at any time directors of the company, controls the company.
For the purposes of subsection (5) above—
“director” includes any person occupying the position of director by whatever name called;
“investment income” shall be construed in accordance with paragraph 11 of Schedule 16 to the Finance Act 1972;
For the purposes of this Chapter, a married woman’s relevant earnings shall not be treated as her husband’s relevant earnings, notwithstanding that her income chargeable to tax is treated as his income.
This section applies to an office or employment held by an individual if—
service in it is service to which a relevant superannuation scheme relates,
the individual is a participant in the scheme, and
neither subsection (4) nor subsection (5) below applies to his participation in the scheme.
This section applies whether or not the duties of the office or employment are performed wholly or partly in the United Kingdom or the individual is chargeable to tax in respect of it.
In subsection (1) above “a relevant superannuation scheme” means a scheme or arrangement—
the object or one of the objects of which is the provision, in respect of persons serving in particular offices or employments, of relevant benefits within the meaning of section 26(1) of the Finance Act 1970, and
which is established by a person other than the individual.
This subsection applies to an individual’s participation in a scheme if the scheme provides no benefits in relation to him other than—
an annuity payable to his surviving spouse or a dependant of his;
a lump sum payable on his death in service.
This subsection applies to an individual’s participation in a scheme if any sums paid pursuant to the scheme with a view to the provision of relevant benefits for him are treated as his income for the purposes of the Income Tax Acts.
Subject to subsections (3) to (7) below, in this Chapter “net relevant earnings”, in relation to an individual, means the amount of his relevant earnings for the year of assessment in question, less the amount of any deductions within subsection (2) below which fall to be made from the relevant earnings in computing for the purposes of income tax his total income for that year.
Deductions are within this subsection if they are—
deductions which but for section 130(1), (n) or (o) of the Taxes Act (annuities, royalties, rents etc.) could be made in computing the profits or gains of the individual;
deductions made by virtue of section 189, section 192 or section 194(3) of the Taxes Act (necessary expenses etc.);
deductions in respect of relief under Schedule 9 or 10 to the Finance Act 1981 (stock relief);
deductions in respect of losses or capital allowances, being losses or capital allowances arising from activities profits or gains of which would be included in computing relevant earnings of the individual or the individual’s wife or husband.
For the purposes of this section, an individual’s relevant earnings shall be taken to be those earnings before giving effect to any capital allowances, other than deductions allowable in computing profits or gains, but after taking into account the amounts on which charges fall to be made under the Capital Allowances Act 1968 (including the enactments which under the Taxes Act are to be treated as contained in Part I of the Capital Allowances Act 1968); and in subsections (4) and (5) below references to income (other than references to total income) shall be construed similarly.
In the case of an individual’s partnership profits, the amount to be included in arriving at his net relevant earnings shall be his share of the partnership income (estimated in accordance with the Income Tax Acts) after making from it any such deductions in respect of— as would be made in computing the tax payable in respect of that income.
payments made by the partnership,
relief given to the partnership under Schedule 9 or 10 to the Finance Act 1981, and
capital allowances falling to be made to the partnership,
Where, in a year of assessment for which an amount is deducted or set off under section 31 above against the net relevant earnings of an individual,— the amount of the deduction made from that other income shall be treated as reducing the individual’s net relevant earnings for subsequent years of assessment in accordance with subsection (6) below.
a deduction in respect of such a loss or allowance of the individual as is mentioned in subsection (2)(d) above falls to be made in computing the total income of the individual or the individual’s wife or husband, and
the deduction or part of it falls to be so made from income other than relevant earnings,
The deduction shall be made so far as possible from the individual’s net relevant earnings for the first of the subsequent years of assessment (whether or not he is entitled to relief under section 31 above for that year), and then, so far as it cannot be so made, from those of the next year, and so on.
An individual’s net relevant earnings for any year of assessment shall be computed without regard to any deduction or set-off under section 31 above which falls to be made for that year in respect of the individual or the individual’s wife or husband.
Where contributions are paid by an employer under approved personal pension arrangements made by his employee, those contributions shall not be regarded as emoluments of the employment chargeable to tax under Schedule E.
Income derived by a person from investments or deposits held by him for the purposes of an approved personal pension scheme shall be exempt from income tax.
A gain accruing to a person on his disposal of investments held by him for the purposes of an approved personal pension scheme shall not be a chargeable gain for the purposes of capital gains tax.
In section 323(4) of the Taxes Act (which lists the premiums referable to an insurance company’s pension business) after paragraph (aa) there shall be inserted—; and nothing in the preceding provisions of this section shall be construed as affording relief in respect of any sums to be brought into account under section 314 of the Taxes Act.
In section 6 of the Finance Act 1975 (investment by pension funds in building societies) at the end of subsection (3) there shall be added “and section 39 of the Finance (No. 2) Act 1987”.
Subsection (2) of section 354 and subsection (3) of section 354A of the Taxes Act (which treat unit holders under unit trust schemes as receiving certain payments) shall not apply to any authorised unit trust which is also an approved personal pension scheme.
A gain accruing to a unit holder on his disposal of units in an authorised unit trust which is also an approved personal pension scheme shall not be a chargeable gain for the purposes of capital gains tax.
An annuity payable under approved personal pension arrangements shall be treated as earned income of the annuitant.
Subsection (1) above applies only in relation to the annuitant to whom the annuity is made payable by the terms of the arrangements.
In section 230 of the Taxes Act (which gives special treatment to purchased life annuities) at the end of subsection (7) (exclusions) there shall be added—, or.
Where under Part I of the Social Security Act 1986 the Secretary of State pays minimum contributions for the purposes of approved personal pension arrangements, the amount of the employee’s share of those contributions shall, instead of being the amount provided for in that Part, be the grossed-up equivalent of the amount so provided for.
For the purposes of this section—
The employee’s share of minimum contributions paid for a year of assessment by the Secretary of State for the purposes of approved personal pension arrangements shall be treated for the purposes of income tax—
as income for that year of the individual in respect of whom it is paid, and
as contributions paid in that year by that individual under those arrangements.
The Board may make regulations—
providing for the recovery by the Secretary of State from the Board, in such circumstances as may be prescribed by the regulations, of any increase attributable to this section in the sums paid by the Secretary of State out of the National Insurance Fund;
requiring the Secretary of State to give the Board such information as may be so prescribed about minimum contributions paid by the Secretary of State;
prescribing circumstances in which this section or any provision of it shall not apply;
making such provision as appears to the Board to be necessary or expedient for the purposes of supplementing the provisions of this section.
Any payment received by the Secretary of State by virtue of this section shall be paid into the National Insurance Fund.
Regulations under this section shall be made by statutory instrument, which shall be subject to annulment in pursuance of a resolution of the House of Commons.
In relation to Northern Ireland, this section shall have effect as if—
references to the Secretary of State were references to the Department of Health and Social Services for Northern Ireland;
references to Part I and section 3(3) of the Social Security Act 1986 were references to Part II and Article 5(3) of the Social Security (Northern Ireland) Order 1986; and
references to the National Insurance Fund were references to the Northern Ireland National Insurance Fund.
If in the opinion of the Board the facts concerning an approved personal pension scheme or its administration or arrangements made in accordance with it do not warrant the continuance of their approval of the scheme, they may at any time by written notice given to the scheme administrator withdraw their approval of the scheme.
If in the opinion of the Board the facts concerning any approved personal pension arrangements do not warrant the continuance of their approval in relation to the arrangements, they may at any time by written notice given to the individual who made them and to the scheme administrator withdraw their approval in relation to the arrangements.
Without prejudice to the generality of subsection (2) above, the Board may withdraw their approval in relation to any personal pension arrangements if they are of the opinion that securing the provision of benefits under the arrangements was not the sole purpose of the individual in making them.
A notice under subsection (1) or subsection (2) above shall state the grounds on which, and the date from which, approval is withdrawn.
The Board may not withdraw their approval from a date earlier than the date when the facts were first such that they did not warrant the continuance of their approval (so, however, that in a case within subsection (3) above their approval may be withdrawn from the day the arrangements in question were made).
This section applies to any payment within subsection (2) below which is made—
out of funds which are or have been held for the purposes of a personal pension scheme which is or has at any time been approved, and
to or for the benefit of an individual who has made personal pension arrangements in accordance with the scheme.
A payment is within this subsection if—
it is not expressly authorised by the rules of the scheme, or
it is made at a time when the scheme or the arrangements are not approved and it would not have been expressly authorised by the rules of the scheme or by the arrangements when the scheme or, as the case may be, the arrangements were last so approved.
The individual referred to in subsection (1)(b) above, whether or not he is the recipient of the payment, shall be chargeable to tax under Schedule E on the amount of the payment for the year of assessment in which the payment is made.
This section applies to a transfer of assets or other transfer of money’s worth as it applies to a payment, and in relation to such a transfer the reference in subsection (3) above to the amount of the payment shall be read as a reference to the value of the transfer.
In such cases and subject to such conditions as the Board may prescribe in regulations, relief under section 31 above shall be given in accordance with subsections (2) and (3) below.
An individual who is entitled to such relief in respect of a contribution may deduct from the contribution when he pays it, and may retain, an amount equal to income tax at the basic rate on the contribution.
The scheme administrator—
shall accept the amount paid after the deduction in discharge of the individual’s liability to the same extent as if the deduction had not been made, and
may recover an amount equal to the deduction from the Board.
Regulations under this section may make provision for carrying subsections (2) and (3) above into effect and, without prejudice to the generality of that, may—
provide for the manner in which claims for the recovery of a sum under subsection (3)(b) may be made;
provide for the giving of such information, in such form, as may be prescribed by or under the regulations;
provide for the inspection by persons authorised by the Board of books, documents and other records.
Regulations under this section shall be made by statutory instrument, which shall be subject to annulment in pursuance of a resolution of the House of Commons.
Except where section 45 above applies, relief under section 31 above in respect of a contribution shall be given only on a claim made for the purpose.
Where the Board— the person to whom the notice is given may appeal to the Special Commissioners against the refusal or, as the case may be, the withdrawal.
refuse an application by notice under section 19 above, or
withdraw an approval by notice under section 43 above,
An appeal under this section shall be made by written notice stating the grounds for the appeal and given to the Board before the end of the period of thirty days beginning with the day on which the notice of refusal or withdrawal was given to the appellant.
On an appeal under this section against the withdrawal of an approval, the Special Commissioners may, instead of allowing or dismissing the appeal, order that the withdrawal shall have effect from a date other than that determined by the Board.
The bringing of an appeal under this section shall not affect the validity of the decision appealed against pending the determination of the proceedings.
Where relief under section 31 above for any year of assessment is claimed and allowed (whether or not it then falls to be given for that year), and afterwards an assessment, alteration of an assessment, or other adjustment of the claimant’s liability to tax is made, there shall also be made such consequential adjustments in the relief allowed or given under section 31 for that or any subsequent year as are appropriate.
Where relief under section 31 above is claimed and allowed for any year of assessment in respect of a contribution, relief shall not be given in respect of it under any other provision of the Income Tax Acts for the same or any subsequent year, nor (in the case of a contribution under an annuity contract) in respect of any other premium or consideration for an annuity under the same contract.
References in the Income Tax Acts to relief in respect of life assurance premiums shall not be taken to include relief under section 31 above.
An inspector may give a notice to a scheme administrator requiring him to provide the inspector with—
such particulars as the notice may require relating to contributions paid under approved personal pension arrangements made in accordance with the scheme;
such particulars as the notice may require relating to payments by way of return of contributions;
copies of such accounts as the notice may require.
A person to whom a notice is given under this section shall comply with the notice within the period of thirty days beginning with the day on which it is given.
A person who knowingly makes a false statement or false representation on making an application under section 19 above or for the purpose of obtaining for himself or any other person any relief from or repayment of tax under this Chapter shall be liable to a penalty not exceeding £500.
Regulations under section 45 of the Finance (No. 2) Act 1987 Section 50 of that Act
Regulations under section 45 of the Finance (No. 2) Act 1987
This section applies to any salary—
payable to the holder of a qualifying office who is also a Member of the House of Commons, and
payable for a period in respect of which the holder is not a participant in relation to that office in arrangements contained in the Parliamentary pension scheme but is a participant in relation to his membership of the House of Commons in any such arrangements, or for any part of such a period.
So much of any salary to which this section applies as is equal to the difference between a Member’s pensionable salary and the salary which (in accordance with any such resolution as is mentioned in subsection (4)(a) below) is payable to him as a Member holding that qualifying office, shall be treated for the purposes of this Chapter as remuneration from the office of Member and not from the qualifying office.
In this section— and, without prejudice to the power conferred by virtue of paragraph 13 of Schedule 1 to that Act, regulations under section 2 of that Act may make provision specifying the circumstances in which a person is to be regarded for the purposes of this section as being or not being a participant in relation to his membership of the House of Commons, or in relation to any office, in arrangements contained in the Parliamentary pension scheme.
“qualifying office” means an office mentioned in paragraph (b), (c) or (d) of subsection (2) of section 2 of the Parliamentary and other Pensions Act 1987;
In subsection (3) above “a Member’s ordinary salary”, in relation to any resolution of the House of Commons, means—
if the resolution provides for salary to be paid to Members at different rates according to whether or not they are holders of particular offices, or are in receipt of salaries or pensions as the holders or former holders of particular offices, a Member’s yearly salary at the higher or highest rate; and
in any other case, a Member’s yearly salary at the rate specified in or determined under the resolution.
Where contributions are paid by an employer under personal pension arrangements made by his employee then, if those arrangements are not approved arrangements and the contributions are not otherwise chargeable to income tax as income of the employee, the contributions shall be regarded for all the purposes of the Income Tax Acts as emoluments of the employment chargeable to tax under Schedule E.
Nothing in Chapter III of Part IX of the Taxes Act shall apply in relation to—
a contract made or trust scheme established on or after 4th January 1988, or
a person by whom contributions are first paid on or after that date under a trust scheme established before that date.
For the year 1987–88 and subsequent years of assessment the Taxes Act shall have effect with the substitution of the following section for section 228—.
Subject to subsection (5) below, the terms of a contract made, or the rules of a trust scheme established, on or after 17th March 1987 and before 4th January 1988 and approved by the Board under section 226 of the Taxes Act shall have effect (notwithstanding anything in them to the contrary) as if they did not allow the payment to the individual by whom the contract is made, or an individual paying contributions under the scheme, of a lump sum exceeding £150,000 or such other sum as may for the time being be specified in an order under section 23(4) above.
Subject to subsection (6) below, the rules of a trust scheme established before 17th March 1987 and approved by the Board under section 226 of the Taxes Act shall have effect (notwithstanding anything in them to the contrary) as if they did not allow the payment to any person first paying contributions under the scheme on or after 17th March 1987 of a lump sum such as is mentioned in subsection (3) above.
Subsection (3) above shall not apply— and where notice is given to the Board under this subsection, the contract or scheme shall, with effect from the date with effect from which it was approved, cease to be approved.
to a contract if, before the end of January 1988, the persons by and to whom premiums are payable under it jointly give written notice to the Board that subsection (3) is not to apply, or
to a scheme if, before the end of January 1988, the trustees or other persons having the management of the scheme give written notice to the Board that subsection (3) is not to apply;
Subsection (4) above shall not apply in the case of any person paying contributions under a scheme if, before the end of January 1988, he and the trustees or other persons having the management of the scheme jointly give written notice to the Board that subsection (4) is not to apply; and where notice is given to the Board under this subsection, the scheme shall cease to be approved in relation to the contributor with effect from the date on which he first paid a contribution under it or (if later) the date with effect from which it was approved.
Where approved personal pension arrangements are made by an individual who pays qualifying premiums within the meaning of section 226(1)(b) of the Taxes Act—
the amount that may be deducted or set off by virtue of section 31 above in any year of assessment shall be reduced by the amount of any qualifying premiums which are paid in the year by the individual and in respect of which relief is given for the year under section 227 of the Taxes Act; and
the relief which, by virtue of section 227A of the Taxes Act, may be given under section 227 by reference to the individual’s unused relief for any year shall be reduced by the amount of any contributions paid by him in that year under the approved personal pension arrangements.
Where an individual elects under section 33 above that a contribution or part of a contribution shall be treated as paid in the year of assessment 1984–85, 1985–86 or 1986–87, the payment shall be treated as the payment of a qualifying premium for the purposes of Chapter III of Part IX of the Taxes Act; and in such a case references in section 33 to an amount of unused relief shall be construed in accordance with section 227A of that Act.
The references in section 34 above to unused relief for any year are, for years of assessment before 1987–88, references to unused relief within the meaning of section 227A of the Taxes Act.
The Board may grant or refuse an application for approval of a personal pension scheme under section 19 above at any time on or after 1st August 1987, but they shall not grant an application so as to approve a scheme with effect from a date earlier than 4th January 1988.
The Board may by regulations make provision for applications for approval of personal pension schemes to be granted provisionally in cases where the applications are made before 1st August 1989, notwithstanding that the Board have not satisfied themselves that the schemes comply with the requirements of sections 20 to 30 above; and such regulations may, in particular, provide— and may make such supplementary provision as appears to the Board to be necessary or expedient.
for the contents and form of certificates or other documents which the Board may require the applicant to give them before they grant an application provisionally;
for the making of such amendments of the rules of the scheme after the provisional grant of an application as are necessary to enable the scheme to comply with the requirements of sections 20 to 30 above, and for those amendments to have effect as from the date of approval of the scheme;
for the withdrawal of approval of the scheme as from that date if it does not comply with the requirements of sections 20 to 30 above and such amendments as are mentioned in paragraph (b) above are not made;
Regulations under this section shall be made by statutory instrument, which shall be subject to annulment in pursuance of a resolution of the House of Commons.
Schedule 2 to this Act (which makes minor and consequential amendments to certain enactments relating to retirement annuities etc.) shall have effect.
In subsection (2A) of section 47 of the Finance Act 1980 (savings-related share option schemes) and in subsection (6A) of section 38 of the Finance Act 1984 (approved share option schemes), both of which subsections are set out in Part III of Schedule 4 to the Finance Act 1987,—
for the words “exchanged for” there shall be substituted “released in consideration of the grant of”; and
for the word “exchange” there shall be substituted “transaction”.
In Schedule 10 to the Finance Act 1980, paragraph 10A (which was inserted by paragraph 1(1) of Schedule 4 to the Finance Act 1987) shall be amended as follows— and the amendment of paragraph 11 of the said Schedule 10 made by paragraph 1(2) of Schedule 4 to the Finance Act 1987 shall be deemed not to have been made.
in sub-paragraph (1), in the words following paragraph (c), for the words “transfer to the acquiring company” there shall be substituted “release”;
in sub-paragraph (3)(b) for the word “exchange” there shall be substituted “release of the old rights”; and
in sub-paragraph (3)(c) for the word “exchange”, in the first place where it occurs, there shall be substituted “release” and for the word “exchange”, in the second place where it occurs, there shall be substituted “grant”;
In Schedule 10 to the Finance Act 1984, paragraph 4A (which was inserted by paragraph 2(1) of Schedule 4 to the Finance Act 1987) shall be amended as follows— and the amendment of paragraph 12 of the said Schedule 10 made by paragraph 2(2) of Schedule 4 to the Finance Act 1987 shall be deemed not to have been made.
in sub-paragraph (1), in the words following paragraph (c), for the words “transfer to the acquiring company” there shall be substituted “release”;
in sub-paragraph (3)(b) for the word “exchange” there shall be substituted “release of the old rights”; and
in sub-paragraph (3)(c) for the word “exchange”, in the first place where it occurs, there shall be substituted “release” and for the word “exchange”, in the second place where it occurs, there shall be substituted “grant”;
This section applies where—
the relationship between two companies is as mentioned in subsection (2) below;
one of the companies makes to the other a payment which, for the purposes of corporation tax, is a charge on income of the company making it; and
in the hands of the company receiving it, the payment is chargeable to tax under Case III of Schedule D.
The relationship between two companies which is referred to in subsection (1)(a) above is— and section 534 of the Taxes Act (meaning of “control”) applies for the purposes of this section.
that one company controls the other; or
that another person controls both companies; or
that one company is a 51 per cent. subsidiary of the other; or
that both companies are 51 per cent. subsidiaries of another company;
In a case where this section applies, the payment referred to in subsection (1)(b) above shall be treated for the purposes of corporation tax as received by the company to which it is paid on the same day as that on which it is for those purposes treated as paid by the company paying it.
Subject to subsection (5) below, where the payment referred to in subsection (1)(b) above is a “relevant payment” for the purposes of Schedule 20 to the Finance Act 1972 (collection of income tax on company payments which are not distributions), it shall be treated for the purposes of that Schedule as received on the same day as that on which, by virtue of subsection (3) above, it is treated as received for the purposes of corporation tax; and the reference in paragraph 5(1) of that Schedule to the accounting period in which the payment is received shall be construed accordingly.
Subsection (4) above does not apply if the day on which the payment would be treated as received apart from that subsection falls within the same accounting period (of the receiving company) as the day on which it would be treated as received under that subsection.
This section applies to payments made on or after 17th March 1987.
The provisions of this section have effect for the purpose of, and in connection with, converting into obligations certain powers conferred on inspectors by Schedule 16 to the Finance Act 1972 (apportionment of income etc. of close companies).
In the heading to Part I of Schedule 16, the words “Powers of” shall be omitted.
In sub-paragraphs (1) to (4) of paragraph 1 of Schedule 16 (apportionment of excess of company’s relevant income over its distributions) for the word “may” there shall be substituted “shall”, and, accordingly, in the heading to that paragraph for the words “Power to apportion” there shall be substituted “Apportionment of”.
In paragraphs 3(1) and 3A(1) of Schedule 16 (apportionment of amounts deducted in respect of annual payments and of interest) for the word “may” there shall be substituted “shall” and, accordingly, for the heading preceding paragraph 3 there shall be substituted “Apportionment of amounts deducted in respect of annual payments and of interest”.
In paragraph 17 of Schedule 16 (revision of apportionment) in sub-paragraphs (1) and (2) for the words “may serve on the company” there shall be substituted “shall serve on the company”.
In sub-paragraph (1) of paragraph 20 (power of Board to exercise powers of the inspector) and in the heading to that paragraph for the word “powers” there shall be substituted “functions”.
This section has effect with respect to accounting periods beginning on or after 17th March 1987.
At the end of section 153 of the Taxes Act (partnerships controlled abroad) there shall be added the following subsections—
Nothing in subsection (1) above affects— but, subject to that, the amendment made by subsection (1) above shall be deemed always to have been made.
the determination of any Commissioners or the judgment of any court made or given before 17th March 1987, or
the law to be applied in proceedings on appeal to the Court of Appeal or the House of Lords where the judgment of the High Court or the Court of Session which is in issue was given before that date,
Notwithstanding anything in the enactments relating to group relief, no loss or other amount shall be available for set off by way of group relief in accordance with section 259 of the Taxes Act if, in the material accounting period of the company which would otherwise be the surrendering company, that company is for the purposes of this section a dual resident investing company.
In this section “the material accounting period” means, according to the kind of group relief which would be appropriate, the accounting period— but subsection (1) above does not have effect unless the material accounting period is an accounting period which begins on or after 1st April 1987.
in which the loss is incurred; or
for which the capital allowances fall to be made; or
for which the expenses of management are disbursed; or
for which the amount is paid by way of charges on income;
In Schedule 4 to this Act,—
Part I has effect where an accounting period of a company in which it is a dual resident investing company begins before and ends on or after 1st April 1987 and references in subsections (1) and (2) above to the material accounting period shall be construed accordingly; and
Part II has effect with respect to the time at which certain interest and other payments are to be treated as paid.
A company is for the purposes of this section a dual resident company in any accounting period in which—
it is resident in the United Kingdom; and
it is also within a charge to tax under the laws of a territory outside the United Kingdom,—
because it derives its status as a company from those laws; or
because its place of management is in that territory; or
because, under those laws, it is for any other reason regarded as resident in that territory for the purposes of that charge.
In any accounting period throughout which it is not a trading company, a dual resident company is for the purposes of this section an investing company.
In any accounting period of a dual resident company in which it is a trading company, the company is nevertheless for the purposes of this section an investing company if—
in that period it carries on a trade of such a description that its main function or one of its main functions consists of all or any of the following, namely,—
acquiring and holding, directly or indirectly, shares, securities or investments of any other description, including interests in companies (resident outside, as well as in, the United Kingdom) with which the dual resident company is connected, within the terms of section 533 of the Taxes Act;
making payments which, by virtue of any enactment, are charges on income for the purposes of corporation tax;
making payments (of interest or other sums) which are similar to those referred to in sub-paragraph (ii) above but which are deductible in computing the profits of the company for the purposes of corporation tax;
obtaining funds (by borrowing or in any other manner whatsoever) for the purpose of, or otherwise in connection with, any of the activities referred to in sub-paragraphs (i) to (iii) above; or
it does not fall within paragraph (a) above, but in that accounting period it carries on all or any of the activities referred to in sub-paragraphs (i) to (iv) of that paragraph and does so—
to an extent which does not appear to be justified by any trade which it does carry on; or
for a purpose which does not appear to be appropriate to any such trade; or
in that period—
the amount paid by the company by way of charges on income exceeds its profits of the period, determined as mentioned in section 259(7) of the Taxes Act (group relief); and
those charges include an amount which falls to be treated as a charge on income by virtue of section 42(2) of the Finance Act 1984 (discounts on bills of exchange) or paragraph 3(2) of Schedule 9 to that Act (deep discount securities); and
the paying of those charges by the company is its main activity or one of its main activities.
In this section and Schedule 4 to this Act “the enactments relating to group relief” means sections 258 onwards of Chapter I of Part XI of the Taxes Act; and, except where the context otherwise requires, any expression to which a meaning is assigned for the purposes of those enactments has the same meaning in this section and that Schedule.
In Schedule 7 to the Capital Allowances Act 1968 (special rules for sales of property between connected persons etc.) at the end of sub-paragraph (3) of paragraph 4 (which in certain cases excludes the right to elect to substitute a sale price or other sum for market value for the purposes of Parts I and II of that Act) there shall be added the words “nor may such an election be made if the buyer is a dual resident investing company, within the meaning of section 63 of the Finance (No. 2) Act 1987”.
In section 252 of the Taxes Act (company reconstructions without change of ownership) at the beginning of subsection (2) (which, in relation to capital allowances, provides for continuity as between the successor and the predecessor) there shall be inserted the words “Subject to subsection (2A) below” and at the end of that subsection there shall be inserted the following subsection—
In section 273 of the Taxes Act (disposals of assets within a group of companies to be on a no-gain/no-loss basis) in subsection (2) (exclusions) at the end of paragraph (c) there shall be inserted the words or.
In section 276 of the Taxes Act (replacement of business assets by members of a group) at the beginning of subsection (1) there shall be inserted the words “Subject to subsection (1A) below” and at the end of that subsection there shall be inserted the following subsection—
In subsection (6) of section 44 of the Finance Act 1971 (disposal value of machinery or plant in relation to capital allowances) in paragraph (b) (if sale is at an undervalue, disposal value is equal to market value except where, among other matters, the buyer’s expenditure qualifies for capital allowances) in sub-paragraph (i) after the words “(scientific research allowances)” there shall be inserted “and the buyer is not a dual resident investing company, within the meaning of section 63 of the Finance (No. 2) Act 1987, which is connected with the seller within the terms of section 533 of the Taxes Act”.
In paragraph 13 of Schedule 8 to the Finance Act 1971 (right of connected persons to elect, in relation to capital allowances, for continuity as between the successor and the predecessor) after the words “Taxes Act” there shall be inserted “and the successor is not a dual resident investing company, within the meaning of section 63 of the Finance (No. 2) Act 1987”.
In this section—
subsections (1) and (5) above apply in relation to sales on or after 1st April 1987;
subsections (2) and (6) above apply where the successor in question begins to carry on the trade on or after that date;
subsection (3) above applies in relation to disposals on or after that date; and
subsection (4) above applies where the new assets (within the meaning of section 115 of the Capital Gains Tax Act 1979) are acquired on or after that date.
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In Schedule 17 to the Finance Act 1984 (controlled foreign companies: cases excluded from direction-making powers) Part I (acceptable distribution policy) shall be amended in accordance with this section.
In sub-paragraph (1) of paragraph 2 (payment of dividend for accounting period of controlled foreign company) after paragraph (b) there shall be inserted the following paragraph—.
In sub-paragraph (1) of paragraph 4 (payment of dividend by a third company) after paragraph (b) there shall be inserted the following paragraph—.
This section applies in any case where the dividend concerned is paid on or after 17th March 1987.
In paragraph 1 of Schedule 19 to the Finance Act 1984 (the distribution test for offshore funds) in sub-paragraph (1)(c) (distribution for an account period to be made during that period or not more than six months after its expiry) after the words “six months” there shall be inserted “or such longer period as the Board may in any particular case allow”.
At the end of Part II of the said Schedule 19 (modifications of conditions for certification in certain cases) there shall be inserted the following paragraph—
This section has effect with respect to periods which—
for the purposes of Chapter VII of Part II of the Finance Act 1984 are account periods of offshore funds; and
end after the passing of this Act.
Section 65 of the Finance Act 1982 (restriction of double taxation relief in relation to interest on certain overseas loans) shall be amended in accordance with this section.
In subsection (1), in paragraph (a) the words “in a territory” shall be omitted and at the end of that subsection there shall be added “and for the purpose only of determining whether the condition in paragraph (b) above is fulfilled in a case where the lender has in fact incurred no expenditure related to the earning of the foreign loan interest, it shall be assumed that he has incurred such expenditure”.
After subsection (1) there shall be inserted the following subsection—
In subsection (4) for paragraph (b) there shall be substituted—.
For subsection (5) there shall be substituted the following subsections—
Where the loan on which the foreign loan interest is payable was made pursuant to an agreement entered into before 1st April 1987, this section does not apply in relation to interest payable before 1st April 1989 but, subject thereto, this section (including the power to make regulations conferred by subsection (5) above) applies in relation to interest payable on or after 1st April 1987.
Section 66 of the Finance Act 1982 (restriction of double taxation relief in respect of underlying tax on certain dividends) shall be amended in accordance with this section.
After subsection (1) there shall be inserted the following subsections—
Where the loan referred to in paragraph (c) of subsection (1) of section 66 of the Finance Act 1982 was made pursuant to an agreement entered into before 1st April 1987, this section does not apply in relation to tax payable as mentioned in that paragraph by reference to interest payable before 1st April 1989 but, subject thereto, this section applies in relation to tax so payable by reference to interest payable on or after 1st April 1987.
Section 58 of the Finance Act 1969 (disclosure of information for statistical purposes by Board of Inland Revenue) shall be amended in accordance with this section.
At the end of subsection (4) (cases in which information obtained under the section may be disclosed by officers of the Department of Employment or Manpower Services Commission to other persons) there shall be addedor
In subsection (6) for the words “or paragraph (b) of subsection (4)” there shall be substituted “ paragraph (b) or paragraph (c) of subsection (4) above ”.
This section applies where, in accordance with the rules or practice of Lloyd’s and in consideration of the payment of a premium, one underwriter agrees with another to meet liabilities arising from the latter’s business for an underwriting year so that the accounts of the business for that year may be closed.
In computing for the purposes of income tax the profits or gains of his business, the amount of the premium shall be deductible as an expense of the underwriter by whom it is payable only to the extent that it is shown not to exceed a fair and reasonable assessment of the value of the liabilities in respect of which it is payable.
Any part of a premium which, by virtue of subsection (2) above, is not deductible as an expense of the underwriter by whom it is payable shall be disregarded in computing for the purposes of income tax the profits or gains of the business of the underwriter to whom it is payable.
The assessment referred to in subsection (2) above shall be taken to be fair and reasonable only if it is arrived at with a view to producing the result that a profit does not accrue to the underwriter to whom the premium is payable but he does not suffer a loss.
In this section “underwriter” means an underwriting member of Lloyd's, and expressions used in Schedule 10 to the Taxes Act have the same meanings as in that Schedule.
This section has effect in relation to premiums payable in connection with the closing of the accounts of an underwriter’s business for an underwriting year ending in the year of assessment 1985-86 or any later year of assessment.
Section 37 of the Finance Act 1980 (relief for losses on unquoted shares in trading companies) shall have effect, and be deemed always to have had effect, with the addition, at the end of the definition of “excluded company” in subsection (12), of the words or.
In section 76 of the Finance Act 1982 (capital allowances for dwelling-houses let on assured tenancies) in subsection (2) (provisions to have effect only where expenditure is incurred before 1st April 1987) for “1987” there shall be substituted “1992”.
In any case where— then, if a claim is made in that behalf before 1st April 1988, all such adjustments shall be made as may be necessary to give effect to that initial allowance.
by reason only of the enactment (by the Housing and Planning Act 1986) of section 56B of the Housing Act 1980 (extension of assured tenancies scheme to cases where works have been carried out) an approved body is entitled to an initial allowance in respect of any expenditure under Schedule 12 to the Finance Act 1982 (capital allowances for dwelling-houses let on assured tenancies); and
effect has not been and, apart from this subsection, no longer can be given to the initial allowance referred to in paragraph (a) above,
Expressions used in subsection (2) above have the same meaning as in Schedule 12 to the Finance Act 1982.
The Board may by regulations make provision securing that enactments relating to income tax, corporation tax or capital gains tax and referring to The Stock Exchange have effect, for such purposes and subject to such modifications as may be prescribed by the regulations, in relation to all other recognised investment exchanges (within the meaning of the Financial Services Act 1986), or in relation to such of those exchanges as may be so prescribed.
The power to make regulations under this section shall be exercisable by statutory instrument, which shall be subject to annulment in pursuance of a resolution of the House of Commons.
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This section has effect with respect to the liability of a company to corporation tax where a chargeable gain accrues to the company on or after 17th March 1987; and in the following provisions of this section—
“the 1987 date” means 17th March 1987; and
a “new accounting period” means an accounting period beginning on or after the 1987 date.
With respect to any new accounting period, section 85 of the Finance Act 1972 (set off of advance corporation tax against liability to corporation tax on income) shall have effect as follows—
in subsections (1) to (3), for the word “income”, in each place where it occurs, there shall be substituted “profits”; and
in subsection (6) for the word “income”, in the first place where it occurs, there shall be substituted “profits” and the words from “exclusive” onwards shall be omitted.
Section 93 of the Finance Act 1972 (reduction of corporation tax liability in respect of chargeable gains) shall not apply with respect to any new accounting period.
With respect to any new accounting period, section 95 of the Finance Act 1972 (mitigation of corporation tax liability of small companies) shall have effect as follows—
in subsections (1) and (2) for the word “income”, in each place where it occurs, there shall be substituted “basic profits”;
in subsection (7), after the word “profits”, in the first place where it occurs, there shall be inserted “(but not the basic profits)”; and
in subsection (8), for the word “income”, in the first place where it occurs, there shall be substituted “basic profits” and for the words from “is its income”, onwards there shall be substituted “shall be taken to be the amount of its profits for that period on which corporation tax falls finally to be borne”.
With respect to any new accounting period, in sections 101(2) and 103(4) of the Finance Act 1972 (each of which refer to income as defined in section 85(6) of that Act) for the word “income” there shall be substituted “profits”.
In Schedule 5 to this Act—
Part I has effect with respect to the operation of the provisions of the Finance Act 1972 referred to in subsections (2) to (5) above in relation to any accounting period of a company which begins before and ends on or after the 1987 date; and
Part II has effect with respect to the operation of the enactments referred to in sections 75 and 76 below in relation to any such period.
In Schedule 18 to the Finance Act 1972 (taxation of insurance companies) in paragraph 2(4) (modifications of section 85 of that Act)—
for the word “income”, in the first place where it occurs, there shall be substituted “profits”; and
for the words from “an amount” onwards there shall be substituted “deducting therefrom such fraction thereof as is equal to the fraction of the profits of the company in respect of its life assurance business which, under section 309 of the Taxes Act, is excluded from the computation of those profits or would be so excluded if the profits were computed in accordance with the provisions applicable to Case I of Schedule D”.
In subsection (2) of section 26 of the Finance Act 1974 (corporation tax on balance of policy holders' share of life assurance gains)—
for the words from the beginning to “that share” there shall be substituted “Corporation tax charged on so much of the policy holders' share of the life assurance gains”; and
for the words from “as if” onwards there shall be substituted “on the basis of a rate of corporation tax of 30 per cent”.
In subsection (3) of the said section 26—
in paragraph (a) the words “so much of” and the words from “as remains” to “1972” shall be omitted; and
in paragraph (b) the words “as so reduced” shall be omitted.
Subsections (1) to (3) above have effect with respect to accounting periods beginning on or after 17th March 1987.
The provisions of this section have effect with respect to accounting periods beginning on or after 17th March 1987.
Section 16 of the Oil Taxation Act 1975 (restriction on setting advance corporation tax against income from oil extraction activities etc.) shall be amended as follows—
in subsection (1) the words “on its income” shall be omitted; and
in subsection (3) for the words “the company’s income”, in each place where they occur, there shall be substituted “the company’s profits”.
In section 79 of the Finance Act 1984 (gains on certain disposals related to oil fields) subsection (5) shall be amended as follows—
the words from “(reduced” to “Finance Act 1972)” shall be omitted; and
for the words from “section 15” to “income)” there shall be substituted “sections 15 and 16 of the Oil Taxation Act 1975”.
Section 44 of the Finance Act 1987 (limited right to carry back surrendered advance corporation tax) shall be amended as follows—
in subsection (1), in paragraph (e) for the words from “income”, in the first place where it occurs, to the end of the paragraph there shall be substituted “profits which consist of or include ring fence profits”;
in subsection (7) for the word “income” there shall be substituted “profits”; and
at the end there shall be added the following subsection—
In section 45 of the Finance Act 1987 (surrender of advance corporation tax where oil extraction company etc. owned by a consortium) in subsection (4)—
for the word “income”, in the first two places where it occurs, there shall be substituted “profits”; and
for the words from “that income” onwards there shall be substituted “those profits as consists of ring fence profits, as defined in section 79(5) of the Finance Act 1984”.
Section 100 of the Finance Act 1972 (double taxation relief) shall be amended in accordance with this section.
With respect to accounting periods of a company beginning on or after 17th March 1987—
in subsection (6) for the word “income”, in the first place where it occurs, there shall be substituted “profits (within the meaning of that section)”;
in paragraphs (a) and (b) of subsection (6) for the word “income”, in each place where it occurs, there shall be substituted “income or gain”;
in subsection (6) in the final words, for the words “income of the company” there shall be substituted “profits of the company” and for the words “relevant income” there shall be substituted “relevant income or gain”; and
in subsection (6A) for the word “income”, in each place where it occurs, there shall be substituted “income or gain”.
With respect to an accounting period of a company which begins before and ends on or after 17th March 1987, subsection (6) shall have effect as follows— and in paragraph (b) above “relevant income” and “relevant gain” have the meaning assigned by subsection (3) of section 100.
any reference to the company’s income for the accounting period shall be construed as a reference to its income as determined for the purposes of section 85 of the Finance Act 1972, in accordance with paragraph 3 of Schedule 5 to this Act; and
if a relevant gain accrues to the company on or after 17th March 1987, the subsection shall apply in relation to that relevant gain as it applies in relation to relevant income;
Where the accounting period referred to in subsection (3) above began before 3rd June 1986, any reference in that subsection to subsection (6) of section 100 is a reference to that subsection as it had effect before the amendment made by section 49(2) of the Finance Act 1986.
Where the accounting period referred to in subsection (3) above began on or after 3rd June 1986 then (without prejudice to the modifications of subsection (6) of section 100 set out in subsection (3) above), subsection (6A) of section 100 ( as set out in section 49(3) of the Finance Act 1986)—
shall apply in relation to the amount of a relevant gain (as defined in subsection (3) of section 100) accruing on or after 17th March as it applies in relation to an amount of income; and
shall have effect as if the reference in paragraph (a) to income for the relevant accounting period were a reference to that income as determined for the purposes of section 85 of the Finance Act 1972, in accordance with paragraph 3 of Schedule 5 to this Act.
A licence under the Petroleum (Production) Act 1934 or the Petroleum (Production) Act (Northern Ireland) 1964 is not and, subject to subsection (2) below, shall be assumed never to have been an asset falling within any of the classes in section 118 of the Capital Gains Tax Act 1979 (classes of assets for the purposes of roll-over relief under section 115 of that Act)9.
Nothing in subsection (1) above affects the determination of any Commissioners or the judgment of any court made or given before 14th May 1987.
A reference in subsection (1) above to a provision of the Capital Gains Tax Act 1979 includes a reference to the corresponding enactment in Part III of the Finance Act 1965 which is re-enacted in that provision.
In section 72 of the Finance Act 1985 (commodity and financial futures and traded options) in subsection (1) for the words “traded options” and “traded option” there shall be substituted respectively “qualifying options” and “qualifying option”.
In subsection (2) of that section, for paragraph (b) (definition of “traded option”) there shall be substituted—
After that subsection there shall be inserted the following subsections—
In subsection (4) of section 137 of the Capital Gains Tax Act 1979 (options and forfeited deposits) for paragraph (aa) there shall be substituted the following paragraph—.
For subsection (9) of section 137 of the Capital Gains Tax Act 1979 (definitions) there shall be substituted the following subsections—
In subsection (1) of section 138 of the Capital Gains Tax Act 1979 (application of rules as to wasting assets) for paragraph (aa) there shall be substituted the following paragraph—.
In subsection (4) of section 138 of the Capital Gains Tax Act 1979 (definitions for the purpose of that section) for paragraph (a) there shall be substituted the following paragraph—.
This section shall come into force on such day as the Treasury may by order made by statutory instrument appoint.
With respect to any notice served after the appointed day, section 11 of the Management Act (return of profits) shall be amended in accordance with this section.
In subsection (1) for the words from “within the time limited by the notice” to the end there shall be substituted “not later than the final day determined under subsection (4) below a return of the profits and losses of the company containing such information and accompanied by such accounts, statements and reports as, subject to subsection (6) below, may be required in pursuance of the notice.”
For subsection (2) there shall be substituted the following subsection—
For subsections (4) to (6) there shall be substituted the following subsections—
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An amount assessed under this section by way of penalty shall be due at the end of the period of thirty days beginning with the date of the issue of the notice of assessment.
In any case where— all such adjustments shall be made, whether by way of amending the assessment, making a further assessment, repayment or otherwise as may be necessary to take account of the correct amount.
an assessment under this section relates to a penalty the amount of which falls to be determined under subsections (6) to (8) of section 94 of the Management Act, and
after the assessment has been made, it appears to the inspector or the Board that the amount which was taken into account in the making of the assessment as the tax unpaid (as defined in subsection (7) of that section) was incorrect,
At the end of section 70 of the Management Act (evidential certificates) there shall be inserted the following subsection—
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On an appeal against an assessment of an amount by way of penalty under section 94 of the Management Act, subsections (6) to (8) of section 50 of that Act shall not apply but the Commissioners—
may confirm the amount of the assessment or, if it appears to them that the amount assessed is greater or smaller than the penalty provided for under the said section 94, may reduce it or increase it to such an amount as is appropriate having regard to the provisions of that section; and
if it appears to them that no penalty has been incurred, may set the assessment aside.
Nothing in sections 34 to 40 (time limits) of the Management Act applies to an assessment made by virtue of this section and nothing in section 55 of that Act (recovery of tax not postponed) applies to an appeal against such an assessment.
Section 100 of the Management Act (procedure for recovery of penalties) shall not apply to a penalty under section 94 of that Act.
This section has effect with respect to penalties incurred after the appointed day.
With respect to accounting periods ending after the appointed day, after section 87 of the Management Act there shall be inserted the following section—
In any case where— then, for the purposes of the determination at any time of whether any interest is payable under this section or of the amount of interest so payable, the amount mentioned in paragraph (c) above shall be taken to be an amount of unpaid corporation tax for the earlier period except so far as concerns interest for any time after the date on which any corporation tax for the later period became (or, as the case may be, would have become) due and payable as mentioned in subsection (1) above.
on a claim under section 393A(1) of the principal Act, the whole or any part of a loss incurred in an accounting period (“the later period”) has been set off for the purposes of corporation tax against profits of a preceding accounting period (“the earlier period”);
the earlier period does not fall wholly within the period of twelve months immediately preceding the later period; and
if the claim had not been made, there would be an amount or, as the case may be, an additional amount of corporation tax for the earlier period which would carry interest in accordance with this section,
Where, in a case falling within subsection (6)(a) and (b) above— the claim under the said subsection (3) shall be disregarded for the purposes of subsection (6) above but subsection (4) above shall have effect in relation to that claim as if the reference in the words after paragraph (c) to the later period within the meaning of subsection (4) above were a reference to the period which, in relation to the claim under the said section 393A(1), would be the later period for the purposes of subsection (6) above.
there is in the earlier period, as a result of the claim under section 393A(1) of the principal Act, an amount of surplus advance corporation tax, as defined in subsection (3) of section 239 of that Act; and
pursuant to a claim under the said subsection (3), the whole or any part of that amount is to be treated for the purposes of the said section 239 as discharging liability for an amount of corporation tax for an accounting period before the earlier period,
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In section 86 of the Management Act (interest on overdue tax), subsection (2)(d) and paragraph 5 of the Table (which relate to assessed corporation tax) shall be omitted.
References to section 86 of the Management Act in— shall include a reference to section 87A of the Management Act.
sections 70(2) and 92 of that Act (evidence, and remission of interest in certain cases), and
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In section 88 of the Management Act (interest on tax recovered to make good loss due to taxpayer’s fault)—
in subsection (2) (exclusion of certain non-assessed tax) after the words “in relation to” there shall be inserted “ corporation tax or ”; and
in subsection (5), paragraph (e) (which relates to corporation tax) shall be omitted.
In section 91 of the Management Act (effect on interest of reliefs) after subsection (1) there shall be inserted the following subsections—
At the beginning of subsection (2) of that section there shall be inserted the words “ Subject to subsection (2A) below ” and at the end of that subsection there shall be added the following subsection—
This section has effect with respect to accounting periods ending after the appointed day.
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In any case where— then, from the material date until that repayment or payment is made, the repayment or payment shall carry interest at the rate which, under section 89 of the Management Act, is for the time being the prescribed rate for the purposes of this section.
a repayment falls to be made of corporation tax paid by a company for an accounting period which ends after the appointed day, or
a repayment of income tax falls to be made in respect of a payment received by a company in such an accounting period, or
a payment falls to be made to a company of the whole or part of the tax credit comprised in any franked investment income received by the company in such an accounting period,
In relation to corporation tax paid by a company for an accounting period, the material date for the purposes of this section is the date on which the corporation tax was paid or, if it is later, the date on which corporation tax for that accounting period became (or, as the case may be, would have become) due and payable in accordance with section 243(4) of the Taxes Act.
In relation to a repayment of income tax falling within subsection (1)(b) above or a payment of the whole or part of a tax credit falling within subsection (1)(c) above, the material date is the date on which corporation tax became (or, as the case may be, would have become) due and payable for the accounting period in which the payment referred to in subsection (1)(b) above or, as the case may be, the franked investment income referred to in subsection (1)(c) above was received by the company.
For the purposes of this section a repayment of tax made on a claim under subsection (5) of section 286 of the Taxes Act (loans to participators etc.) shall be treated as if it were a repayment of corporation tax for the accounting period in which the repayment of, or of the part in question of, the loan or advance mentioned in that subsection was made but, in relation to such a repayment of tax, the material date for the purposes of this section is—
the date on which the loan or advance (or part thereof) is repaid; or
if it is later, the date on which the tax which is to be repaid was in fact paid.
Interest paid under this section shall be paid without any deduction of income tax and shall not be brought into account in computing any profits or income.
Where a repayment of corporation tax is a repayment of tax paid by a company on different dates, the repayment shall as far as possible be treated for the purposes of this section as a repayment of tax paid on a later rather than an earlier date among those dates.
In any case where— then, in determining the amount of interest (if any) payable under this section on the repayment of corporation tax for the earlier period, no account shall be taken of any increase in the amount of the repayment resulting from the said subsection (3) except so far as concerns interest for any time after the date on which any corporation tax for the later period became due and payable (as mentioned in subsection (2) above).
there is in any accounting period of a company (in this subsection referred to as “the later period”) an amount of surplus advance corporation tax, as defined in subsection (3) of section 85 of the Finance Act 1972, and
pursuant to a claim under the said subsection (3), the whole or any part of that amount is treated for the purposes of the said section 85 as discharging liability for an amount of corporation tax for an earlier accounting period (in this subsection referred to as “the earlier period”), and
a repayment falls to be made of corporation tax paid for the earlier period,
In consequence of the preceding provisions of this section, no repayment supplement, within the meaning of section 48 of the Finance (No. 2) Act 1975, shall be paid in respect of any repayment of tax or payment of tax credit where the relevant accounting period, within the meaning of that section, ends after the appointed day.
In section 30 of the Management Act (recovery of overpayment of tax etc.) after subsection (2) there shall be inserted the following subsection—
After subsection (3) of that section there shall be inserted the following subsection—
shall be treated as an assessment to corporation tax for the accounting period referred to in paragraph (a) or (b) above, as the case may be, and the sum assessed shall carry interest at the prescribed rate for the purposes of section 87A of this Act from the date when the payment being recovered was made until payment.
After subsection (4) of that section there shall be inserted the following subsection—
In section 102 of the Finance Act 1972 (rectification of excessive set-off etc. of advance corporation tax or tax credit) after subsection (1) there shall be inserted the following subsections—
In subsection (2) of that section after the words “tax credit” there shall be inserted “or interest on such a payment”.
Subsections (1) to (4) above have effect with respect to the recovery of— and subsections (5) and (6) above have effect with respect to the recovery of interest on payments of tax credit (within the meaning of Part V of the Finance Act 1972) claimed in respect of accounting periods ending after the appointed day.
repayments of corporation tax paid for accounting periods ending after the appointed day,
repayments of income tax on payments received by a company in any such accounting period, and
interest on such repayments;
In section 89 of the Management Act (prescribed rate of interest) for subsection (1) there shall be substituted the following subsection—
In subsection (2) of that section—
for the words “The Treasury may, by order in a” there shall be substituted “The power to make an order under this section shall be exercisable by”; and
for the words from “from time to time” to “either” there shall be substituted “and any such order may be framed either so as to prescribe a single rate”.
In subsection (3) of that section for the words from the beginning to “(2) above” there shall be substituted “Any rate of interest prescribed by order under this section”.
With respect to accounting periods ending after the appointed day, corporation tax shall be payable without the making of an assessment and, with respect to such periods—
in subsection (3) of section 243 of the Taxes Act (which provides for assessments by reference to accounting periods) for the words from “assessments” to “a company” there shall be substituted “corporation tax shall be computed and chargeable (and any assessments shall accordingly be made)”; and
in subsection (4) of that section (which specifies the date when corporation tax assessed for an accounting period is to be paid) the word “assessed” and the words from “or if it is later” onwards shall be omitted and for the words “paid within” there shall be substituted “due and payable on the day following the expiry of”.
With respect to loans or advances made (or treated as made) in an accounting period ending after the appointed day, in subsection (1) of section 286 of the Taxes Act (loans to participators etc.) for the words “assessed on and recoverable” there shall be substituted “due”.
With respect to loans or advances made (or treated as made) as mentioned in subsection (2) above, for subsection (4) of the said section 286 there shall be substituted—.
Notwithstanding that, by virtue of the preceding provisions of this section, any corporation tax (or any amount due as if it were corporation tax) is due without the making of an assessment, no proceedings for collecting that tax (or other amount) shall be instituted— and the reference in this subsection to proceedings for collecting tax or any other amount includes a reference to proceedings by way of distraint or poinding for that tax or other amount.
unless it has been assessed; and
until the expiry of the period of thirty days beginning on the date on which the notice of assessment is issued;
If, with respect to any accounting period,— the company may, by notice in writing given to the inspector on or after the date which, under section 87 above, is the material date in relation to that tax, make a claim for the repayment to the company of the amount of that excess; and a notice under this subsection shall state the amount which the company considers should be repaid and the grounds referred to in paragraph (b) above.
a company has paid an amount of corporation tax without the making of an assessment; and
at any time before an assessment to corporation tax for the period becomes final, the company has grounds for believing that, by reason of a change in the circumstances of the case since the tax was paid, the amount paid exceeds the company’s probable liability for corporation tax,
If, apart from this subsection, a claim would fall to be made under subsection (5) above at a time when the company concerned has appealed against such an assessment as is referred to in paragraph (b) of that subsection but that appeal has not been finally determined, that subsection shall have effect as if, for the words from “make a claim” to “excess”, there were substituted “apply to the Commissioners to whom the appeal stands referred for a determination of the amount which should be repaid to the company pending a determination of the company’s liability for the accounting period in question”; and such an application shall be determined in the same way as the appeal.
Where, on an appeal against an assessment to corporation tax, a company makes an application under subsection (3) or subsection (4) of section 55 of the Management Act (postponement of tax charged but not paid etc.) that application may be combined with an application under subsections (5) and (6) above (relating to tax which was paid prior to the assessment).
In section 109 of the Management Act (close companies: loans to participators) subsection (2) shall be omitted.
In subsection (3) of that section for “88” there shall be substituted “ 87A ” and for the words from “charged” onwards there shall be substituted “ under the said section 419 became due and payable shall be that determined in accordance with subsection (3) of that section ”.
After subsection (3) of that section there shall be inserted the following subsection—
This section has effect with respect to loans or advances made (or treated as made) in any accounting period ending after the appointed day.
Section 204 of the Taxes Act (pay as you earn) shall be amended in accordance with this section.
In subsection (2) (regulations) after paragraph (c) there shall be inserted the following paragraph—.
After subsection (3) there shall be inserted the following subsection—
Section 70 of the Finance (No. 2) Act 1975 (certificates securing exemption from the deduction scheme applicable to sub-contractors in the construction industry) shall be amended as follows.
After subsection (4) there shall be inserted the following subsection—
In subsection (5) (cancellation of certificates) at the end of paragraph (c) there shall be inserted or.
In subsection (6) (appeals against refusal of certificate)—
after the words “certificate under this section” there shall be inserted “or the cancellation of such a certificate”; and
after the word “refusal”, in the second place where it occurs, there shall be inserted “or as the case may be, cancellation”.
In subsection (7) after paragraph (c) there shall be inserted the following paragraph—; and after paragraph (f) there shall be inserted the following paragraph— .
At the end of the section there shall be added the following subsection—
In section 118(2) of the Management Act (cases where persons are deemed not to have failed to do things which are required to be done within a limited time), after the word “deemed”, in the second place where it occurs, there shall be inserted “ not to have failed to do it unless the excuse ceased and, after the excuse ceased, he shall be deemed ”.
In this Chapter “the Management Act” means the Taxes Management Act 1970.
Subject to subsection (3) below, any reference in this Chapter to the appointed day is a reference to such day as the Treasury may by order made by statutory instrument appoint, and different days may be so appointed for different provisions of this Chapter.
No day may be appointed by virtue of subsection (2) above which falls earlier than 31st March 1992.
The provisions of Schedule 6 to this Act shall have effect, being provisions consequential on and supplementary to the provisions of this Chapter.
With respect to transfers of value made, and other events occurring, on or after 17th March 1987, the Inheritance Tax Act 1984 shall be amended in accordance with this section.
In section 3A (potentially exempt transfers)—
in subsection (2)(a) the words “otherwise than as settled property” shall be omitted;
in subsection (2)(b) the words from “otherwise” onwards shall be omitted; and
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At the end of section 3A there shall be added the following subsection—
In section 49 (treatment of interests in possession) subsection (3) (which was added by paragraph 14 of Schedule 19 to the Finance Act 1986) shall be omitted.
In section 55 (reversionary interest acquired by beneficiary) in subsection (2) the words “and such a disposition is not a potentially exempt transfer” (being words added by paragraph 15 of the said Schedule 19) shall be omitted.
Schedule 7 to this Act shall have effect for the purpose of making further amendments of the Inheritance Tax Act 1984 relating to interests in possession in settled property.
If, under paragraph 17 of Schedule 4 to the Finance Act 1975, the Commissioners of Inland Revenue agree to accept property in satisfaction of an amount of capital transfer tax on terms that the value to be attributed to the property for the purposes of that acceptance is determined as at a date earlier than that on which the property is actually accepted, the terms may provide that the amount of capital transfer tax which is satisfied by the acceptance of that property shall not carry interest under paragraph 19 of that Schedule from that date.
If, under any of the enactments set out in paragraphs (a) to (c) of subsection (3) of section 8 of the National Heritage Act 1980, the Commissioners of Inland Revenue agree to accept property in satisfaction of an amount of estate duty on terms that the value to be attributed to the property for the purposes of that acceptance is determined as at a date earlier than that on which the property is actually accepted, the terms may provide that the amount of estate duty which is satisfied by the acceptance of that property shall not carry interest under section 18 of the Finance Act 1896 from that date.
Subsections (1) and (2) above apply in any case where the acceptance of the property in question occurs on or after 17th March 1987 and paragraph 19 of Schedule 4 to the Finance Act 1975 or, as the case may be, section 18 of the Finance Act 1896 shall have effect subject to any such terms as are referred to in subsection (1) or subsection (2) above.
In this section “estate duty” and “property” have the meaning assigned by section 272 of the Inheritance Tax Act 1984.
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The Inheritance Tax Act 1984 shall be amended as follows.
At the end of section 12(2) (dispositions by employers that are not transfers of value) there shall be added—or.
In section 12(3), for the words “both paragraph (a) and (b)” there shall be substituted the words “more than one paragraph”, and for the word “either” there shall be substituted the words “any one”.
In section 151 (treatment of pension rights etc.) after subsection (1) there shall be inserted—
In section 152 (cash options) for the words from “under a contract” to “annuities)” there shall be substituted the words—.
In section 50 of the Finance Act 1987 (stamp duty exemption for options to acquire, and other interests in, exempt securities), in subsection (1), after the word “acquire” there shall be inserted the words “or to dispose of”.
In subsection (3) of that section, after the words “the Finance Act (Northern Ireland) 1967 ” (in both places) there shall be inserted the words “or section 79(2) of the Finance Act 1986”.
The Finance Act 1986 shall have effect in relation to agreements to transfer securities made on or after 8th May 1987 with the insertion of the following section after section 89 —
Section 91 of the Finance Act 1986 (liability to tax) shall have effect, and shall be deemed always to have had effect, with the omission of subsection (2).
Schedule 10 to the Finance Act 1987 (nomination scheme for disposals and appropriations of oil) shall have effect subject to the amendments in Schedule 8 to this Act.
In section 62 of the Finance Act 1987 (market value of oil to be determined on a monthly basis) subsection (6) (meaning of relevant sale of oil in relation to the additional return required by subsection (4) of that section) shall have effect subject to the following modifications—
after the words “sale of oil”, in the second place where they occur, there shall be inserted the words “ at arm’s length ”;. . .
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Section 63 of the Finance Act 1987 (blends of oil from two or more fields) shall have effect with the omission from subsection (1) of the words from “and in” onwards and with the addition, at the end of that subsection, of the following subsection—
If in any chargeable period oil won from the oil field is mixed as mentioned in section 63 of the Finance Act 1987 so as to give rise to blended oil, within the meaning of that section, then, as respects that chargeable period, for paragraph (a) of sub-paragraph (2) above there shall be substituted the following paragraph—
Subsections (2) to (4) above have effect with respect to chargeable periods ending after 1st January 1987 and ..., Schedule 8 to this Act has effect with respect to calendar months in chargeable periods beginning with March 1987.
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This section applies where a Minister of the Crown of any other person has power under any enactment (whenever passed) to require the payment of, or to determine by subordinate legislation the amount of, any fee or charge (however described) which is payable to the Minister or to any other person who is required to pay the fee or charge into the Consolidated Fund (whether the obligation is so expressed or is expressed as a requirement to make the payment into the Exchequer).
In the following provisions of this section, a power falling within subsection (1) above is referred to as a “power to fix a fee” and, in relation to such a power,—
“fee” includes charge;
“the appropriate authority” means, if the power is exercisable by a Minister of the Crown or any Commissioners, that Minister or those Commissioners and, in any other case, such Minister of the Crown as the Treasury may determine ; and
“the recipient” means the Minister or other person to whom the fee is payable.
In relation to any power to fix a fee, the appropriate authority or any Minister of the Crown with the consent of the appropriate authority may, by order made by statutory instrument, specify functions, whether of the recipient or any other person and whether arising under any enactment, by virtue of the EU obligation or otherwise, the costs of which, in addition to any other matters already required to be taken into account, are to be taken into account in determing the amount of the fee.
In relation to any functions of the costs of which fall to be taken into account on the exercise of any power to fix a fee (whether by virtue of subsection (3) above or otherwise), the appropriate authority or any Minister of the Crown with the consent of the appropriate authority may, by order made by statutory instrument, specify matters which, in addition to any matters already required to be taken into account, are to be taken into account in determining the those costs, and, without prejudice to the generality of the power conferred by this subsection, those matters may include deficits incurred before as well as after the exercise of that power, a requirement to secure a return on an amount of capital and depreciation of assets.
No order shall be made under subsection (3) or subsection (4) above unless a draft of the order has been laid before, and approved by a resolution of, the House of Commons.
An order under subsection (3) or subsection (4) above has effect in relation to any exercise of the power to fix the fee concerned after the making of the order ; but no earlier exercise of that power shall be regarded as having been invalid if, had the order been made before that exercsie of power, the exercise would have been validated by the order.
In this section—
“Minister of the Crown” has the same meaning as in the Ministers of the Crown Act 1975;
“Commissioners” means the Commissioners of Customs and Excise or the Commissioners of Inland Revenue;
“enactment” does not include Northern Ireland legislation, as defined in section 24(5) of the Interpretation Act 1978; and
subject to paragraph (c) above, “subordinate legislation” has the same meaning as in the Interpretation Act 1978.
An Order in Council under paragraph 1(1)(b) of Schedule 1 to the Northern Ireland Act 1974 (legislation for Northern Ireland in the interim period) which states that it only made for purposes corresponding to those of this section—
shall not be subject to sub-paragraphs (4) and (5) of paragraph 1 of that Schedule (affirmative resolution of both House of Parliament); but
shall be subject to annulment in pursuance of a resolution of either House.
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dutiable alcoholic liquor other than beer and cider; or
tobacco products;
In section 1(1) of the Customs and Excise Management Act 1979, at the end of the definition of “transit of transhipment” there shall be added “ or transhipment of those goods for use as stores ”.
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This Act may be cited as the Finance (No. 2) Act 1987.
In this Act “the Taxes Act” means the Income and Corporation Taxes Act 1970.
Part I of this Act, so far as it relates to income tax, shall be construed as one with the Income Tax Acts, so far as it relates to corporation tax, shall be construed as one with the Corporation Tax Acts and, so far as it relates to capital gains tax, shall be construed as one with the Capital Gains Tax Act 1979.
The enactments specified in Schedule 9 to this Act (which include enactments which are spent or otherwise unnecessary) are hereby repealed to the extent specified in the third column of that Schedule, but subject to any provision at the end of any Part of that Schedule.
The terms of the scheme must be set out in writing.
The scheme must identify the scheme employer.
If the scheme employer does not pay the emoluments of all the employees to whom the scheme relates, the scheme must identify each of the persons who pays the emoluments of any of those employees.
The scheme must identify the undertaking to which the scheme relates, and that undertaking must be one which is carried on with a view to profit. The references in sub-paragraph (1) above to an undertaking include references to part of an undertaking; and the provisions of a scheme identifying part of an undertaking must do so in such a way as to distinguish it, otherwise than by name only, from other parts of the undertaking.
The scheme must contain provisions by reference to which the employees to whom the scheme relates may be identified.
The scheme must contain provisions ensuring that no payments are made under it by reference to a profit period if the employees to whom the scheme relates constitute less than 80 per cent. of all the employees in the employment unit at the beginning of that profit period; but for this purpose any person who is at that time within paragraph 7 or 8 below shall not be counted.
The scheme must contain provisions ensuring that no payments are made under it to any person who is employed in the employment unit by a company and who has, or is an associate of a person who has, a material interest in the company. For the purposes of this paragraph a person shall be treated as having a material interest in a company— In this paragraph “associate” has the same meaning as in section 303(3) of the Taxes Act and “control” has the meaning given by section 534 of that Act; and the definition of “control” in section 534 applies (with the necessary modifications) in relation to a company which is an unincorporated association as it applies in relation to one that is not.
The persons within this paragraph are any of the following employees who are excluded by the scheme from receiving any payment of profit-related pay— and for this purpose “relevant employer” means the scheme employer or any person who pays the emoluments of any of the employees to whom the scheme relates.
The scheme must identify the accounting period or periods by reference to which any profit-related pay is to be calculated.
Subject to sub-paragraphs (2) and (3) below, any such accounting period must be a period of twelve months. If the scheme is a replacement scheme, the first of two profit periods may be a period of less than twelve months, but the scheme may not provide for more than two profit periods. The scheme may make provision for a profit period to be abbreviated where registration of the scheme is cancelled with effect from a day after the beginning of the period; and a scheme making such provision may exclude the operation of all or any of the provisions of paragraph 13(4) and (5) or (as the case may be) paragraph 14(3)(b), (4) and (5) below in relation to the determination of the distributable pool for an abbreviated period. For the purposes of this paragraph, a scheme is a replacement scheme if—
The scheme must contain provisions by reference to which the aggregate sum that may be paid to employees in respect of a profit period (“the distributable pool”) may be determined.
Except where the scheme is a replacement scheme (within the meaning of paragraph 10 above), the provisions for the determination of the distributable pool must employ either the method specified in paragraph 13 below (“method A”) or the method specified in paragraph 14 below (“method B”).
Method A is that the distributable pool is equal to a fixed percentage of the profits of the employment unit in the profit period. That percentage must be such that, on the assumption as to profits mentioned in sub-paragraph (3) below, it will produce a distributable pool equal to not less than 5 per cent. of the standard pay of the employment unit. The assumption referred to in sub-paragraph (2) above is that the profits in the profit period are the same as those in a base year specified in the scheme; and that base year must be a period of twelve months ending at a time within the period of two years immediately preceding the profit period, or the first of the profit periods, to which the scheme relates. Notwithstanding sub-paragraph (1) above, a scheme employing method A may include provision for disregarding profits in the profit period so far as they exceed 160 per cent. (or such greater percentage as may be specified in the scheme) of— Notwithstanding sub-paragraph (1) above, a scheme employing method A may include provision to the effect that there shall be no distributable pool if the profits in the profit period are less than an amount specified in, or ascertainable by reference to, the scheme; but that amount must be less than the amount which would produce a distributable pool of 5 per cent. of the standard pay of the employment unit. The references in this paragraph to the standard pay of the employment unit are references to the amount which the scheme employer, at the time when he applies for registration of the scheme, reasonably estimates will be the annual equivalent of the pay, at the beginning of the profit period or first profit period, of the employees to whom the scheme will then relate; and for this purpose an estimate shall (in the absence of evidence to the contrary) be taken to be a reasonable one if it is based on the most recent information available to the employer as to the monthly or annual pay of the relevant employees.
Method B is that the distributable pool is— The amount of the notional pool referred to in sub-paragraph (1) above must not be less than 5 per cent. of the standard pay of the employment unit. The percentage referred to in sub-paragraph (1) above must be either— and the reference in paragraph (b) above to a specified fraction is a reference to a fraction of not more than one half specified in the scheme. Notwithstanding sub-paragraph (1) above, a scheme employing method B may include provision for disregarding profits in the profit period so far as they exceed 160 per cent. (or such greater percentage as may be specified in the scheme) of the profits in the preceding period of twelve months. Notwithstanding sub-paragraph (1) above, a scheme employing method B may include provision to the effect that there shall be no distributable pool if the profits in the profit period are less than an amount specified in, or ascertainable by reference to, the scheme; but that amount must be less than the amount which would produce a distributable pool of 5 per cent. of the standard pay of the employment unit. Where by virtue of a provision of the kind described in sub-paragraph (5) above there is no distributable pool for a profit period, any comparison required in accordance with sub-paragraph (1)(b) to be made with the distributable pool for that period shall be made with what would have been the pool but for sub-paragraph (5). In this paragraph “standard pay of the employment unit” has the same meaning as it has in paragraph 13 above.
If the scheme is a replacement scheme (within the meaning of paragraph 10 above), it must provide for the distributable pool for a profit period to be equal to a specified percentage of the profits for the period.
The scheme must provide for the whole of the distributable pool to be paid to employees in the employment unit.
The scheme must make provision as to when payments will be made to employees.
The provisions of the scheme must be such that employees participate in the scheme on similar terms. For the purposes of sub-paragraph (1) above, the fact that the payments to employees vary according to the levels of their remuneration, the length of their service or similar factors shall not be regarded as meaning that they do not participate on similar terms.
The scheme must provide for the preparation of a profit and loss account in respect of— The profit and loss account must give a true and fair view of the profit or loss of the employment unit for the period to which it relates. Subject to sub-paragraph (2) above, the requirements of Schedule 4 to the Companies Act 1985 shall apply (with any necessary modifications) to a profit and loss account prepared for the purposes of the scheme as they apply to a profit and loss account of a company for a financial year. Notwithstanding the preceding provisions of this paragraph, a profit and loss account prepared for the purposes of the scheme must not make any deduction, in arriving at the profits or losses of the employment unit, for the remuneration of any person excluded from the scheme by virtue of paragraph 7 above. Notwithstanding the preceding provisions of this paragraph, if the scheme so provides in relation to any of the items listed in sub-paragraph (6) below, a profit and loss account prepared for the purposes of the scheme may, in arriving at the profits or losses of the employment unit,— The items referred to in sub-paragraph (5) above are— References in this paragraph to Schedule 4 to the Companies Act 1985 shall be construed, in relation to Northern Ireland, as references to Schedule 4 to the Companies (Northern Ireland) Order 1986.
The scheme must provide that, in preparing a profit and loss account for the purposes of this Schedule, no changes may be made from the accounting policies used in preparing accounts for any earlier period relevant for those purposes, or in the methods of applying those policies, if the effect of the changes (either singly or taken together) would be that the amount of profits (or losses) differed by more than 5 per cent. from what would be that amount if no changes were made. Sub-paragraph (1) above has effect subject to paragraph 19(2) above.
Section 57.
In section 226(13) of the Taxes Act, after “means” there shall be inserted “(a)”, and at the end there shall be added—and.
In section 332(2) of the Taxes Act (exceptions to registered friendly societies' exemption from income tax and corporation tax), after paragraph (a) and before the word “and” which follows it there shall be inserted—. In section 337 of the Taxes Act (interpretation of Chapter III of Part XII of that Act etc.)—
In section 14(1) of the Finance Act 1973 (lump sum benefits on retirement not chargeable under Schedule E), at the end there shall be added ; or.
In section 26 of the Finance Act 1978 (open market option for retirement annuities) in subsection (1), for the words from “may require” to the end there shall be substituted—. This paragraph shall be deemed to have come into force on 6th April 1987.
In section 45(2) of the Finance Act 1984, after paragraph (c) there shall be added—.
In paragraph 1 of Schedule 11 to the Finance Act 1984 (treatment of lettings as a trade for the purposes of certain provisions), at the end of sub-paragraph (2) there shall be added—.
Section 58.
In subsection (2A) of section 19 of the Finance Act 1970 (mandatory approval of schemes) in paragraph (d), after the words “final remuneration” there shall be inserted the words “(disregarding any excess of that remuneration over the permitted maximum)”; and after that subsection there shall be inserted— This paragraph shall be deemed to have come into force on 17th March 1987.
In subsection (3) of section 19 (withdrawal of approval) after the words “such date” there shall be inserted the words “(which shall not be earlier than the date when those facts first ceased to warrant the continuance of their approval)”. This paragraph shall be deemed to have come into force on 17th March 1987, but shall not authorise the withdrawal of an approval from a day before that day.
Section 20 (discretionary approval) shall be amended as follows. At the end of subsection (1) there shall be added the words “; but this subsection has effect subject to subsection (4) below.”. For paragraph (g) of subsection (2), there shall be substituted—. After paragraph (g) of subsection (2) there shall be added—or. At the end of the section there shall be added—.
In subsection (4) of section 21 (tax relief for ordinary annual contributions) the words “ordinary annual” shall be omitted; and after that subsection there shall be inserted—. This paragraph shall have effect in relation to contributions paid on or after 6th April 1987.
After subsection (7) of section 21 there shall be inserted—
In subsection (2) of section 22 (tax relief for ordinary annual contributions) the words “ordinary annual” shall be omitted, and for the words “chargeable period” there shall be substituted the words “year of assessment”; and after that subsection there shall be inserted—. This paragraph shall have effect in relation to contributions paid on or after 6th April 1987.
Section 26 (1) shall be amended as follows. After the definition of “pension” there shall be inserted—. After the definition of “relevant benefits” there shall be inserted—.
In section 26(2), after the words “the employer” there shall be inserted the words “or the employee”, and at the end there shall be added the words “; and any reference to pensions or contributions paid, or payments made, under a scheme includes a reference to pensions or contributions paid, or payments made, under such a contract entered into for the purposes of the scheme”.
In Schedule 5 to the Finance Act 1970, in paragraph 3(1)(i), after the words “final remuneration” there shall be inserted the words “(disregarding any excess of that remuneration over the permitted maximum)”. This paragraph applies to any payments made on or after 17th March 1987 except payments made under schemes approved or established before that date to employees who became members before that date.
Where the pension has been secured by means of an annuity contract with an insurance company and the sum receivable is payable under that contract by the insurance company, the references to the administrator of the scheme in sub-paragraph (2) above and paragraph 2(2) and (4) above as applied by sub-paragraph (2) are to be read as references to the insurance company. In sub-paragaph (7) above “insurance company” means—
The form in which an application for approval is to be made, or in which any information is to be given, in pursuance of this paragraph may be prescribed by the Board.
After paragraph 6 of that Schedule there shall be inserted—
Where benefits provided for an employee under an approved scheme or a statutory scheme have been secured by means of an annuity contract with an insurance company (within the meaning given by paragraph 3 above), the insurance company shall, within thirty days from the date of a notice from the inspector requiring it to do so, prepare and deliver to the inspector a return containing particulars of—
In paragraph 8(2)(a) of that Schedule, after the words “such scheme” there shall be inserted the words “to which he contributes”.
Sub-paragraph (1) above does not apply if the employer is not a contributor to the scheme.
In section 323(4) of the Taxes Act (insurance companies: interpretation of “pension business”), after paragraph (ab) there shall be inserted—.
Regulations under paragraph 10 of that Part of that Schedule
This Part of this Schedule shall be deemed to have come into force on 17th March 1987 and, subject to sub-paragraphs (2) and (3) below, applies in relation to any retirement benefits scheme approved by the Board before the passing of this Act. The Board may by regulations provide that this Part of this Schedule, or any provision of it, shall not apply in relation to a scheme or to an employee— and regulations under this sub-paragraph shall be made by statutory instrument, which shall be subject to annulment in pursuance of a resolution of the House of Commons. This Part of this Schedule shall not apply to a retirement benefits scheme if, before the end of 1987, the administrator of the scheme gives written notice to the Board that it is not to apply. Where a notice is given to the Board under sub-paragraph (3) above, the scheme shall, with effect from 17th March 1987 or (if later) the date with effect from which it was approved, cease to be approved.
This paragraph applies where an employee becomes a member of the scheme on or after 17th March 1987. Notwithstanding anything to the contrary in the rules of the scheme, they shall have effect as if they did not allow the provision for the employee of a pension exceeding one-thirtieth of his relevant annual remuneration for each year of service up to a maximum of 20.
This paragraph applies where an employee becomes a member of the scheme on or after 17th March 1987 and the scheme allows him to commute his pension or part of it for a lump sum or sums. If the employee’s full pension (that is, the pension before any commutation) is equal to or less than a basic rate commutable pension, the rules of the scheme shall have effect (notwithstanding anything in them to the contrary) as if they did not allow him to obtain by way of commutation a lump sum or sums exceeding in all a basic rate lump sum. If the employee’s full pension is greater than a basic rate commutable pension but less than a maximum rate commutable pension, the rules of the scheme shall have effect (notwithstanding anything in them to the contrary) as if they did not allow him to obtain by way of commutation a lump sum or sums exceeding in all the aggregate of— In this paragraph, as it applies in relation to an employee— Regulations under this paragraph shall be made by statutory instrument.
This paragraph applies where an employee becomes a member of the scheme on or after 17th March 1987 and the scheme provides a lump sum or sums for him otherwise than by commutation of his pension or part of it. If the employee’s pension is equal to or less than a basic rate non-commutable pension, the rules of the scheme shall have effect (notwithstanding anything in them to the contrary) as if they did not allow the payment to him, otherwise than by way of commutation, of a lump sum or sums exceeding in all a basic rate lump sum. If the employee’s pension is greater than a basic rate non-commutable pension but less than a maximum rate non-commutable pension the rules of the scheme shall have effect (notwithstanding anything in them to the contrary) as if they did not allow the payment to him, otherwise than by way of commutation, of a lump sum or sums exceeding in all the aggregate of— In this paragraph, as it applies in relation to an employee—
This paragraph applies where an employee who is a member of the scheme retires on or after 17th March 1987. The rules of the scheme shall have effect as if they provided that in determining the employee’s relevant annual remuneration for the purpose of calculating benefits, no account should be taken of anything excluded from the definition of “remuneration” in section 26(1) of the Finance Act 1970. In the case of an employee— the rules of the scheme shall have effect as if they provided that his relevant annual remuneration must not exceed his highest average annual remuneration for any period of three or more years ending within the period of ten years which ends with the date on which his service ends. In the case of an employee within paragraph (b) of sub-paragraph (3) above who retires before 6th April 1991, the rules of the scheme shall have effect as if they provided that his relevant annual remuneration must not exceed the higher of— For the purposes of this paragraph a person is a controlling director of a company if— in relation to the company.
This paragraph applies where an employee becomes a member of the scheme on or after 17th March 1987. If the rules of the scheme allow the employee to obtain (by commutation of his pension or otherwise) a lump sum or sums calculated by reference to his relevant annual remuneration, they shall have effect as if they included a rule that in calculating a lump sum any excess of that remuneration over the permitted maximum should be disregarded.
This paragraph applies where— Notwithstanding anything in the rules of the scheme, they shall have effect as if they did not allow the payment to the employee of a lump sum in commutation of a pension if or to the extent that the pension is secured by the voluntary contributions.
This paragraph applies where an employee who is a member of the scheme (“the main scheme”) is also a member of an approved scheme (“the voluntary scheme”) which provides additional benefits to supplement those provided by the main scheme and to which no contributions are made by any employer of his. Any rules of the main scheme imposing a limit on the amount of a benefit provided for the employee shall have effect (notwithstanding anything in them to the contrary) as if they provided for the limit to be reduced by the amount of any like benefit provided for the employee by the voluntary scheme.
In this Part of this Schedule “relevant annual remuneration” means final remuneration or, if the scheme provides for benefits to be calculated by reference to some other annual remuneration, that other annual remuneration. Expressions used in this Part of this Schedule and in Chapter II of Part II of the Finance Act 1970 have the same meanings in this Part as they have in that Chapter.
Section 63.
This Part of this Schedule has effect in the circumstances set out in subsection (3)(a) of the principal section. In this Part of this Schedule— It shall be assumed for the purposes of subsections (1) and (2) of the principal section, the enactments relating to group relief and Part II of this Schedule,— In this Part of this Schedule “the component accounting periods” means the two accounting periods referred to in sub-paragraph (3) above.
Subject to paragraph 5 below, for the purposes referred to in paragraph 1(3) above, the losses and other amounts of the straddling period of a dual resident investing company, excluding any such excess of charges on income as is referred to in section 259(6) of the Taxes Act, shall be apportioned to the component accounting periods on a time basis according to their lengths.
If, in the straddling period of a dual resident investing company, the company has paid any amount by way of charges on income, then, for the purposes referred to in paragraph 1(3) above, the excess of that amount referred to in section 259(6) of the Taxes Act shall be apportioned to the component accounting periods—
according to the dates on which, subject to paragraph 6 below, the interest or other payments giving rise to those charges were paid (or were treated as paid for the purposes of section 248 of that Act); and
in proportion to the amounts of interest or other payments paid (or treated as paid) on those dates.
In this Part of this Schedule—
“the principal section” means section 63 of this Act;
a “1986 accounting period” means an accounting period which begins or ends (or begins and ends) in the financial year 1986,
a “post-1986 accounting period” means an accounting period which begins on or after 1st April 1987, and
“dual resident investing company” has the same meaning as in the principal section.
If the conditions in sub-paragraph (2) or sub-paragraph (3) below are fulfilled and if the Board so direct, this paragraph applies in relation to a 1986 accounting period of a dual resident investing company. The conditions in this sub-paragraph are applicable only if the company is carrying on a trade in the 1986 accounting period, and those conditions are— The conditions in this sub-paragraph are applicable only if the company is an investment company in the 1986 accounting period, and those conditions are— The Board shall not give a direction under this paragraph with respect to a 1986 accounting period of a dual resident investing company unless it appears to the Board that the sole or main benefit that might be expected to accrue from the early payment or, as the case may be, from the arrangements was that (apart from this paragraph) the company would, for that period, have an amount or, as the case may be, a larger amount available for surrender by way of group relief. If this paragraph applies in relation to a 1986 accounting period of a dual resident investing company which is carrying on a trade then, for the purposes of the enactments relating to group relief and, where appropriate, any apportionment under paragraph 2 above,— If this paragraph applies in relation to a 1986 accounting period of a dual resident investing company which is an investment company, then, for the purposes referred to in sub-paragraph (5) above,—
If, in the case of a dual resident investing company, either of the following conditions is fulfilled,— the interest or other payment shall, if the Board so direct, be treated for the purposes of the enactments relating to group relief and, where appropriate, paragraph 3 above as paid in the post-1986 accounting period referred to in paragraph (a) or, as the case may be, paragraph (b) above. The Board shall not give a direction under this paragraph unless it appears to them that the sole or main benefit that might be expected to accrue from the early payment or, as the case may be, from the arrangements was that (apart from the direction) the interest or other payment would be attributed or apportioned to a 1986 accounting period rather than a post-1986 accounting period, so that, for the 1986 accounting period, the dual resident investing company would have an amount or, as the case may be, a larger amount available for surrender by way of group relief.
Notice of the giving of a direction under paragraph 5 or paragraph 6 above shall be given to the dual resident investing company concerned; and any company to which such a notice is given may, by giving notice of appeal in writing to the Board within sixty days of the date of the notice given to the company, appeal to the Special Commissioners against the direction on either or both of the following grounds,—
that the conditions applicable to the company under sub-paragraph (2) or sub-paragraph (3) of paragraph 5 above are not fulfilled or, as the case may be, that neither of the conditions in paragraph 6(1) above is fulfilled;
that the sole or main benefit that might be expected to accrue from the early payment or, as the case may be, the arrangements was not that stated in paragraph 5(4) or, as the case may be, paragraph 6(2) above.
The preceding provisions of this Schedule have effect in priority to section 262 of the Taxes Act (companies joining or leaving group or consortium) and, accordingly, each of the component accounting periods resulting from the operation of Part I of this Schedule shall be regarded as true accounting periods for the purposes of that section.
Sections 74 to 76.
In this Part of this Schedule—
a “straddling period” means an accounting period of a company which begins before and ends on or after the 1987 date;
“the principal section” means section 74 of this Act;
“the 1987 date” means 17th March 1987;
references to “section 85”, “section 93” and “section 95” are references to those sections of the Finance Act 1972.
It shall be assumed for the purposes of this paragraph that the straddling period of the company consists of two separate accounting periods— In this Part of this Schedule those two notional accounting periods are referred to as “component periods”. A separate computation shall be made under section 265 of the Taxes Act (computation of company’s chargeable gains) for each of the component periods and, by virtue of subsection (3) of the principal section, only the amount (if any) computed for the first component period shall be reduced under section 93. If, in accordance with sub-paragraph (3) above,— any excess for the second component period of allowable losses over chargeable gains shall be treated for the purposes of this paragraph as an allowable loss of the first component period and the amount originally computed for that period shall be recalculated accordingly. The amount which is to be included in respect of chargeable gains in the company’s total profits for the straddling period— The preceding provisions of this paragraph have effect in place of any provision of section 93 under which the amount to be included in respect of chargeable gains in the company’s total profits for the straddling period would fall to be apportioned between different parts of that period.
This paragraph has effect to determine for the purposes of section 85 the income of the company charged to corporation tax for the straddling period and, accordingly (by virtue of subsection (8) of section 95), the income of the company for that period for the purposes of section 95. For the straddling period, subsection (6) of section 85 (meaning of the income of the company charged to tax for any period) shall have effect as if— As it applies to the straddling period, the reference in subsection (8) of section 95 to subsection (6) of section 85 shall be construed as a reference to that subsection as it has effect by virtue of sub-paragraph (2) above.
For the straddling period, any reference in any enactment, other than sections 85 and 95, to subsection (6) of section 85 shall be construed as a reference to that subsection as it has effect by virtue of paragraph 3(2) above.
In this Part of this Schedule “straddling period” has the meaning assigned to it by paragraph 1(a) above and sub-paragraphs (1) and (2) of paragraph 2 above apply for the purposes of this Part.
Subject to the following provisions of this paragraph, where an accounting period of an insurance company carrying on life assurance business is a straddling period, section 26 of the Finance Act 1974 (life assurance gains etc.) shall apply separately in relation to each of the component periods and— For the purposes of the separate application of section 26 in accordance with sub-paragraph (1) above, the relevant reliefs (within the meaning of that section) of the straddling period shall be apportioned to the two component periods on a time basis according to their lengths. If, on a computation under section 26 in accordance with sub-paragraphs (1) and (2) above,— the excess for the component period referred to in paragraph (a) above shall be treated for the purposes of this paragraph as reduced or, as the case may be, extinguished by deducting from that excess so much of the excess referred to in paragraph (b) above as does not exceed it. Section 26 of the Finance Act 1974 shall not apply to the straddling period taken as a whole.
For a straddling period of an insurance company carrying on life assurance business, sub-paragraph (4) of paragraph 2 of Schedule 18 to the Finance Act 1972 shall have effect as if the amount of the reduction provided for by that sub-paragraph were increased by the policy holders' share of the life assurance gains of the second component period (determined under section 26 of the Finance Act 1974, as applied to that period by paragraph 6 above). Sub-paragraph (1) above is without prejudice to the operation of paragraph 4 above in relation to the said sub-paragraph (4).
Subject to the following provisions of this paragraph, a separate computation shall be made under subsections (3) and (7) of section 79 of the Finance Act 1984 (gains on certain disposals related to oil fields) for each of the component periods. If, by virtue of paragraph (a) of subsection (7) of section 79 of the Finance Act 1984, a loss which accrues on a material disposal to a connected person is excluded from those which are taken into account in the computation under subsection (3) of that section for the second component period, then— If, on the initial computation in accordance with sub-paragraphs (1) and (2) above, there would be an aggregate gain for one of the component periods and an aggregate loss for the other, then, for the purposes of this paragraph, that aggregate loss shall be set against that aggregate gain so as to produce— or, if the original aggregate gain was equal to the original aggregate loss, neither an aggregate gain nor an aggregate loss for either component period. Section 93 of the Finance Act 1972 (corporation tax liability in respect of chargeable gains) shall not apply to either component period. The amounts computed for the two component periods in accordance with sub-paragraphs (1) to (4) above shall themselves be aggregated to give an aggregate gain or aggregate loss for the straddling period as a whole and that aggregate gain or loss shall not itself be subject to any reduction under section 93 of the Finance Act 1972 except in accordance with sub-paragraph (7) below. Subsections (4) and (5) of section 79 of the Finance Act 1984 shall apply in relation to the aggregate gain or aggregate loss of the straddling period as a whole (as determined under sub-paragraph (5) above) as if it were the aggregate gain or loss referred to in (and derived from) subsection (3) of that section. If there is an aggregate gain of the straddling period as a whole, only so much (if any) of that gain as does not exceed the aggregate gain of the first component period shall be reduced under section 93 of the Finance Act 1972, and the reference in subsection (5) of section 79 of the Finance Act 1984 to reduction in accordance with the said section 93 shall be construed accordingly. As respects the straddling period, for the purposes of— any reference to income arising from oil extraction activities or from oil rights shall be taken to include a reference to the aggregate gain (if any) of the second component period, as determined under sub-paragraphs (1) to (4) above.
Section 95.
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for the words “when it is payable” there shall be substituted “when it is due and payable or, if later, the date when the assessment is made on the company”;
for the words “the time when the tax became payable” there shall be substituted “the later of those dates”; and
for the words from “a sum” onwards there shall be substituted “from the chargeable company a sum equal to that amount together with any interest paid by him under section 87A of the Taxes Management Act 1970 on that amount”.
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Section 96.
After section 54 of the Inheritance Tax Act 1984 (in this Schedule referred to as “the 1984 Act”) there shall be inserted the following sections—.
In section 56 of the 1984 Act (exclusion of certain exemptions) in subsection (5) after the word “disposition” there shall be inserted “for such consideration”.
Section 201 of the 1984 Act (liability for tax relating to settled property) shall be amended as follows. In subsection (2) after the word “death” there shall be inserted “but is not a potentially exempt transfer”. After subsection (3) there shall be inserted the following subsection—
Section 216 of the 1984 Act (delivery of accounts) shall be amended as follows. In subsection (1) after paragraph (bc) there shall be inserted the following paragraph— In subsection (6)(aa) of that section after the words “subsection (1)(bb)” there shall be inserted “or (bd)”.
In section 265 of the 1984 Act (chargeable transfers affecting more than one property) after the words “subject to” there shall be inserted “section 54B(3) above and to”.
Section 101.
At the end of paragraph 1 (interpretation) there shall be added the following sub-paragraph—.
In paragraph 5 (content of nomination) in sub-paragraph (1)(b)— At the end of sub-paragraph (3) of paragraph 5 (penalty for fraudulent or negligent furnishing of information etc. in connection with a nomination) there shall be added the words “and the nomination shall not be effective”.
In paragraph 8 (revision of nominations) after sub-paragraph (2) there shall be inserted the following sub-paragraphs— In sub-paragraph (3) of paragraph 8— In sub-paragraph (4) of paragraph 8 after the words “sub-paragraph (2)(b)” there shall be inserted “and sub-paragraph (2B)”. In sub-paragraph (5) of paragraph 8 for the words “preceding provisions of this Schedule” there shall be substituted “provisions of this Schedule (other than this paragraph)”.
In paragraph 9 (effective volume for nominated transactions) for sub-paragraph (4) there shall be substituted the following sub-paragraphs—
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In paragraph 12 (nominations of blended oil by a participator in two or more fields)—
for the words from the beginning to “this Act” there shall be substituted “(1) If a person is a participator in two or more oil fields which, in relation to any blended oil, are or are included among the originating fields, then, in accordance with regulations made by the Board, he may make a nomination, having effect with respect to all the originating fields in which he is a participator, of a proposed sale, supply or appropriation of the blended oil”; and
at the end there shall be added—
Section 104.
Chapter Short title Extent of repeal 1970 c. 10. The Income and Corporation Taxes Act 1970. In section 337(2), paragraph (b). 1970 c. 24. The Finance Act 1970. In section 21(4), the words “ordinary annual”. In section 22(2), the words “ordinary annual”. 1982 c. 39. The Finance Act 1982. In section 65(1)(a), the words “in a territory”. 1987 c. 16. The Finance Act 1987. In Schedule 4, paragraphs 1(2) and 2(2).
The repeals in sections 21 and 22 of the Finance Act 1970 have effect in relation to contributions made on or after 6th April 1987.
The repeal in section 65 of the Finance Act 1982 has effect in accordance with section 67(6) of this Act.
Chapter Short title Extent of repeal 1972 c. 41. The Finance Act 1972. In section 85(6) the words from “exclusive” onwards. Section 93. 1974 c. 30. The Finance Act 1974. In section 26(3), in paragraph (a), the words “so much of” and the words from “as remains” to “1972” and, in paragraph (b), the words “as so reduced”. 1975 c. 22. The Oil Taxation Act 1975. In section 16(1), the words “on its income”. 1980 c. 48. The Finance Act 1980. Section 84(2) to (4). 1984 c. 43. The Finance Act 1984. Section 18(6). Section 65. In section 79(5), the words from “(reduced” to “Finance Act 1972)”. 1985 c. 54. The Finance Act 1985. Section 72(5).
The repeals of section 84(2) to (4) of the Finance Act 1980, section 65 of the Finance Act 1984 and section 72(5) of the Finance Act 1985 come into force on the day appointed under section 81(8) of this Act.
The remaining repeals have effect with respect to accounting periods beginning on or after 17th March 1987.
Chapter Short title Extent of repeal 1984 c. 51. The Inheritance Tax Act 1984. In section 3A, in subsection (2), in paragraph (a) the words “otherwise than as settled property” and in paragraph (b) the words from “otherwise” onwards. Section 49(3). In section 55(2), the words “and such a disposition is not a potentially exempt transfer”. 1986 c. 41. The Finance Act 1986. In Schedule 19, paragraphs 14 and 15. These repeals have effect in relation to transfers of value made, and other events occuring, on or after 17th March 1987.
Chapter Short title Extent of repeal 1986 c.41. The Finance Act 1986. Section 91(2). This repeal has effect in accordance with section 100(2) of this Act.
Chapter Short title Extent of repeal 1987 c.16. The Finance Act 1987. In section 63(1), the words from “and in” onwards. This repeal has effect for chargeable periods ending after 1st January 1987.