Office of Public Sector Information
PART IV continued CHAPTER II continued
(1) Chapter II of Part IV of the [1994 c. 9.] Finance Act 1994 (provisions relating to certain financial instruments) shall not apply to any profit or loss which, in accordance with that Chapter, accrues to a company for any accounting period on a qualifying contract by virtue of which the company is a party to any loan relationship if—
(a) an amount representing that profit or loss, or
(b) an amount representing the profit or loss accruing to that company on that contract,
is brought into account for that period for the purposes of this Chapter.
(2) After section 147 of that Act (qualifying contracts) there shall be inserted the following section—
(1) For the purposes of this Chapter a debt contract or option is a qualifying contract as regards a qualifying company if the company becomes entitled to rights, or subject to duties, under the contract or option at any time on or after 1st April 1996.
(2) For the purposes of this Chapter a qualifying company which is entitled to rights, or subject to duties, under a debt contract or option both immediately before and on 1st April 1996 shall be deemed to have become entitled or subject to those rights or duties on that date.
(3) This section has effect subject to paragraph 25 of Schedule 15 to the Finance Act 1996 (transitional provisions).”
(3) After section 150 of that Act (qualifying contracts) there shall be inserted the section set out in Schedule 12 to this Act (which defines debt contracts and options by reference to contracts and options conferring rights and duties to participate in loan relationships).
(4) In section 151 of that Act (provisions that may be included in contracts and options), for the words “or a currency contract or option,”, in each place where they occur, there shall be substituted “a currency contract or option or a debt contract or option”.
(5) In section 152(1) of that Act (disregard of provisions for relatively small payments in contracts and options), after “150” there shall be inserted “or 150A”.
(6) In section 153(1) of that Act (qualifying payments), for the word “and” at the end of paragraph (c) there shall be substituted—
“(ca) in relation to a qualifying contract which is a debt contract, a payment falling within section 150A(5) or (6) above; and”.
Schedule 13 to this Act (which, in connection with the provisions of this Chapter relating to corporation tax, makes provision for income tax purposes about discounted securities) shall have effect.
(1) In this Chapter—
“authorised accounting method”, “authorised accruals basis of accounting” and “authorised mark to market basis of accounting” shall be construed in accordance with section 85 above;
“creditor relationship”, in relation to a company, means any loan relationship of that company in the case of which it stands in the position of a creditor as respects the debt in question;
“debt” includes a debt the amount of which falls to be ascertained by reference to matters which vary from time to time;
“debtor relationship”, in relation to a company, means any loan relationship of that company in the case of which it stands in the position of a debtor as respects the debt in question;
“gilt-edged securities” means any securities which—
are gilt-edged securities for the purposes of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992; or
will be such securities on the making of any order under paragraph 1 of Schedule 9 to that Act the making of which is anticipated in the prospectus under which they are issued;
“an independent person” means a knowledgeable and willing party dealing at arm’s length;
“international organisation” means an organisation of which two or more sovereign powers, or the governments of two or more sovereign powers, are members;
“loan” includes any advance of money, and cognate expressions shall be construed accordingly;
“money” shall be construed in accordance with section 81(6) above and subsection (5) below;
“money debt” shall be construed in accordance with section 81(2) above;
“non-trading credit” and “non-trading debit” shall be construed in accordance with section 82(3) above;
“retail prices index” has the same meaning as it has, by virtue of section 833(2) of the Taxes Act 1988, in the Income Tax Acts;
“share”, in relation to a company, means any share in the company under which an entitlement to receive distributions may arise.
(2) For the purposes of this Chapter a company shall be taken to be a party to a creditor relationship for the purposes of a trade carried on by that company only if it is a party to that relationship in the course of activities forming an integral part of that trade.
(3) For the purposes of this Chapter, and of so much of any other enactment as contains provision by reference to which amounts fall to be brought into account for the purposes of this Chapter, activities carried on by a company in the course of—
(a) any mutual trading, or
(b) any mutual insurance or other mutual business which is not life assurance business (within the meaning of Chapter I of Part XII of the Taxes Act 1988),
shall be deemed not to constitute the whole or any part of a trade.
(4) If, in any proceedings, any question arises whether a person is an international organisation for the purposes of any provision of this Chapter, a certificate issued by or under the authority of the Secretary of State stating any fact relevant to that question shall be conclusive evidence of that fact.
(5) For the purposes of this Chapter the European currency unit (as for the time being defined in Council Regulation No. 3180/78/EEC or in any Community instrument replacing it) shall be taken to be a currency other than sterling.
Schedule 14 to this Act (which, for the purposes of both corporation tax and income tax, makes certain minor and consequential amendments in connection with the provisions of this Chapter) shall have effect.
(1) Subject to Schedule 15 to this Act, this Chapter has effect—
(a) for the purposes of corporation tax, in relation to accounting periods ending after 31st March 1996; and
(b) so far as it makes provision for the purposes of income tax, in relation to the year 1996-97 and subsequent years of assessment.
(2) Schedule 15 to this Act (which contains transitional provisions and savings in connection with the coming into force of this Chapter) shall have effect.
(1) In subsection (1) of section 145 of the Taxes Act 1988 (living accommodation provided for employees), the words “and is not otherwise made the subject of any charge to him by way of income tax” shall be omitted.
(2) After section 146 of that Act there shall be inserted the following section—
(1) This section applies where, within the meaning of section 145, living accommodation is provided in any period for any person by reason of his employment.
(2) The question whether the employee is to be treated under section 145 or 146 as in receipt of emoluments in respect of the provision of the accommodation shall be determined before any other question whether there is an amount falling to be treated in respect of the provision of that accommodation as emoluments.
(3) Tax under Schedule E in respect of the provision of the accommodation shall be chargeable on the employee otherwise than in pursuance of sections 145 and 146 to the extent only that the amount on which it is chargeable by virtue of those sections is exceeded by the amount on which it would be chargeable apart from those sections.”
(3) This section applies for the year 1996-97 and subsequent years of assessment.
(1) For section 160(1B) of the Taxes Act 1988 (aggregation of loans) there shall be substituted the following subsections—
“(1B) Where, in relation to any year—
(a) there are loans between the same lender and borrower which are aggregable with each other,
(b) the lender elects, by notice given to the inspector, for aggregation to apply in the case of that borrower, and
(c) that notice is given before the end of the period of 92 days after the end of that year,
all the loans between that lender and that borrower which are aggregable with each other shall be treated for the purposes of subsections (1) and (1A) above and Part II of Schedule 7 as a single loan.
(1BA) For the purposes of subsection (1B) above loans are aggregable with each other for any year where—
(a) in the case of each of the loans, there is a time in that year, while the loan is outstanding as to any amount, when the lender is a close company and the borrower a director of that company;
(b) the benefit of each of the loans is obtained by reason of the borrower’s employment;
(c) in the case of each of the loans, there is no time in that year when a rate of interest is applied to the loan which is equal to or more than whatever is the official rate at that time;
(d) the loans are loans made in the same currency; and
(e) none of the loans is a qualifying loan.”
(2) In paragraph 5 of Schedule 7 to that Act (alternative method of calculation)—
(a) in sub-paragraph (1)(a), for the words from “for the purpose” to “appeal)” there shall be substituted “at a time allowed by sub-paragraph (2) below”; and
(b) in sub-paragraph (1)(b), for “within the time allowed by sub-paragraph (2) below” there shall be substituted “at such a time”.
(3) For sub-paragraph (2) of that paragraph there shall be substituted the following sub-paragraph—
“(2) A notice containing a requirement or election for the purposes of sub-paragraph (1) above is allowed to be given at any time before the end of the period of 12 months beginning with the 31st January next following the relevant year.”
(4) This section has effect for the year 1996-97 and subsequent years of assessment and applies to loans whenever made.
(1) After section 200 of the Taxes Act 1988 (expenses of Members of Parliament) there shall be inserted the following section—
(1) A person holding any of the offices mentioned in subsection (2) below shall not be charged to tax under Schedule E in respect of—
(a) any transport or subsistence provided or made available by or on behalf of the Crown to the office-holder or any member of his family or household; or
(b) the payment or reimbursement by or on behalf of the Crown of any expenses incurred in connection with the provision of transport or subsistence to the office-holder or any member of his family or household.
(2) Those offices are—
(a) any office in Her Majesty’s Government in the United Kingdom, and
(b) any other office which is one of the offices and positions in respect of which salaries are payable under section 1 of the [1975 c. 27.] Ministerial and other Salaries Act 1975 (whether or not the person holding it is a person to whom a salary is paid or payable under the Act).
(3) Nothing in this section shall prevent a person from being chargeable to tax under Schedule E in respect of the benefit of a mobile telephone (within the meaning of section 159A).
(4) References in this section to a member of the family or household of an office-holder shall be construed in accordance with section 168(4).
(5) References in this section to the provision of transport to any person include references to the following—
(a) the provision or making available to that person of any car (whether with or without a driver);
(b) the provision of any fuel for a car provided or made available to that person;
(c) the provision of any other benefit in connection with a car provided or made available to that person.
(6) In this section—
“car” means any mechanically propelled road vehicle; and
“subsistence” includes food and drink and temporary living accommodation.”
(2) This section has effect for the year 1996–97 and subsequent years of assessment.
(1) In section 202(7) of the Taxes Act 1988 (which limits to £900 the deductions attracting relief), for “£900” there shall be substituted “£1,200”.
(2) This section has effect for the year 1996-97 and subsequent years of assessment.
After section 206 of the Taxes Act 1988 there shall be inserted the following section—
(1) PAYE regulations may make provision falling within subsection (2) below about the sums which, as sums in respect of income tax under Schedule E on emoluments of a person’s employees, are to be the sums for which the employer is to be accountable to the Board from time to time.
(2) That provision is provision under which the accountability of the employer, and the sums for which he is to be accountable, are to be determined, to such extent as may be prescribed, in accordance with an agreement between the Board and the employer (“a PAYE settlement agreement”), instead of under PAYE regulations made otherwise than by virtue of this section.
(3) PAYE regulations may provide for a PAYE settlement agreement to allow sums for which an employer is to be accountable to the Board in accordance with the agreement—
(a) to be computed, in cases where there are two or more persons holding employments to which the agreement relates, by reference to a number of those persons all taken together;
(b) to include sums representing income tax on an estimated amount taken, in accordance with the agreement, to be the aggregate of the cash equivalents and other amounts chargeable to tax in respect of—
(i) taxable benefits provided or made available by reason of the employments to which the agreement relates; and
(ii) expenses paid to the persons holding those employments;
and
(c) to be computed in a manner under which the sums for which the employer is accountable do not necessarily represent an amount of income tax payable in respect of income which (apart from the regulations) is assessable under Schedule E on persons holding employments to which the agreement relates.
(4) PAYE regulations may provide—
(a) for an employer who is accountable to the Board under a PAYE settlement agreement for any sum to be so accountable without that sum, or any other sum, being treated for any prescribed purpose as tax deducted from emoluments;
(b) for an employee to have no right to be treated as having paid tax in respect of sums for which his employer is accountable under such an agreement;
(c) for an employee to be treated, except—
(i) for the purposes of the obligations imposed on his employer by such an agreement, and
(ii) to such further extent as may be prescribed,
as relieved from any prescribed obligations of his under the Income Tax Acts in respect of emoluments from an employment to which the agreement relates; and
(d) for such emoluments to be treated as excluded from the employee’s income for such further purposes of the Income Tax Acts, and to such extent, as may be prescribed.
(5) For the purposes of any PAYE regulations made by virtue of this section it shall be immaterial that any agreement to which they relate was entered into before the coming into force of the regulations.
(6) PAYE regulations made by virtue of this section may—
(a) make different provision for different cases; and
(b) contain such incidental, supplemental, consequential and transitional provision as the Board may think fit.
(7) Without prejudice to the generality of subsection (6) above, the transitional provision that may be made by virtue of that subsection includes transitional provision for any year of assessment which—
(a) for the purposes of the regulations, treats sums accounted for in that year before the coming into force of the regulations as accounted for in accordance with an agreement as respects which the regulations have effect after they come into force; and
(b) provides, by reference to any provision made by virtue of paragraph (a) above, for income arising in that year before the coming into force of the regulations to be treated as income in relation to which modifications of the Income Tax Acts contained in the regulations apply.
(8) Without prejudice to the generality of subsection (6) above, any power of the Board to make PAYE regulations with respect to sums falling to be accounted for under such regulations shall include power to make the corresponding provision with respect to sums falling, by virtue of this section, to be accounted for in accordance with a PAYE settlement agreement.
(9) In this section—
“employment” means any office or employment the emoluments from which are (or, apart from any regulations made by virtue of this section, would be) assessable to tax under Schedule E, and cognate expressions shall be construed accordingly;
“PAYE regulations” means regulations under section 203;
“prescribed” means prescribed by PAYE regulations;
“taxable benefit”, in relation to an employee, means any benefit provided or made available, otherwise than in the form of a payment of money, to the employee or to a person who is, for the purposes of Chapter II of this Part, a member of his family or household;
and references in this section to a time before the coming into force of any regulations include references to a time before the commencement of section 110 of the Finance Act 1996 (by virtue of which this section was inserted in this Act).”
(1) Section 149A of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 (consideration for grant of option under approved share option schemes not to be deemed to be equal to market value of option) shall be amended as follows.
(2) In subsection (1)(b) (restriction to approved share option schemes) for “as mentioned in section 185(1) of the Taxes Act (approved share option schemes)” there shall be substituted “by an individual by reason of his office or employment as a director or employee of that or any other body corporate”.
(3) In subsection (2) (grantor to be treated as if the amount or value of the consideration was its actual amount or value) for “The grantor of the option” there shall be substituted “Both the grantor of the option and the person to whom the option is granted”.
(4) Subsection (4) (section not to affect treatment under that Act of person to whom option granted) shall cease to have effect.
(5) For the side-note to that section there shall be substituted “Share option schemes.”
(6) This section has effect in relation to any right to acquire shares in a body corporate obtained on or after 28th November 1995 by an individual by reason of his office or employment as a director or employee of a body corporate.
(1) After section 237 of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 there shall be inserted—
(1) This section applies in any case where a right to acquire shares in a body corporate (“the old right”) which was obtained by an individual by reason of his office or employment as a director or employee of that or any other body corporate is released in whole or in part for a consideration which consists of or includes the grant to that individual of another right (“the new right”) to acquire shares in that or any other body corporate.
(2) As respects the person to whom the new right is granted—
(a) without prejudice to subsection (1) above, the new right shall not be regarded for the purposes of capital gains tax as consideration for the release of the old right;
(b) the amount or value of the consideration given by him or on his behalf for the acquisition of the new right shall be taken for the purposes of section 38(1) to be the amount or value of the consideration given by him or on his behalf for the old right; and
(c) any consideration paid for the acquisition of the new right shall be taken to be expenditure falling within section 38(1)(b).
(3) As respects the grantor of the new right, in determining for the purposes of this Act the amount or value of the consideration received for the new right, the release of the old right shall be disregarded.”
(2) Section 238(4) of that Act (which provides that the release of an option under an approved share option scheme in exchange for another option, in connection with a company take-over, is not to involve a disposal, and which is superseded by subsection (1) above) shall cease to have effect.
(3) This section has effect in relation to transactions effected on or after 28th November 1995.
(1) In paragraph 21 of Schedule 9 to the Taxes Act 1988 (provisions which an approved savings-related share option scheme may make with respect to the exercise of rights under the scheme) in sub-paragraph (1), the word “and” immediately preceding paragraph (e) shall be omitted and after that paragraph there shall be inserted “and
(f) if, at the bonus date, a person who has obtained rights under the scheme holds an office or employment in a company which is not a participating company but which is—
(i) an associated company of the grantor, or
(ii) a company of which the grantor has control,
those rights may be exercised within six months of that date.”
(2) After sub-paragraph (3) of that paragraph there shall be inserted—
“(4) Where a scheme approved before the date of the passing of the Finance Act 1996 is altered before 5th May 1998 so as to include such a provision as is specified in sub-paragraph (1)(f) above, the scheme may apply the provision to rights obtained under the scheme before the alteration takes effect, whether the bonus date in relation to the rights occurred before or after the passing of that Act; and where the provision is applied to such rights by virtue of this sub-paragraph, its application to such rights shall not itself be regarded as the acquisition of a right for the purposes of this Schedule.
This sub-paragraph has effect subject to paragraph 4 above.”
(3) In paragraph 26(3) of that Schedule (only directors or employees of grantor or participating company to be eligible to participate, except as provided by paragraph 19 or pursuant to such a provision as is referred to in paragraph 21(1)(e)) after “21(1)(e)” there shall be inserted “or (f)”.
(1) Part IV of Schedule 9 to the Taxes Act 1988 (requirements applicable to approved share option schemes which are not savings-related) shall be amended in accordance with subsections (2) and (3) below.
(2) In paragraph 28 (scheme must impose limit on aggregate market value of shares which may be acquired in pursuance of rights obtained under the scheme or certain related schemes)—
(a) in sub-paragraph (1) (aggregate market value of shares not to exceed the appropriate limit) for “the appropriate limit” there shall be substituted “£30,000”; and
(b) sub-paragraphs (2) and (4) (meaning of the appropriate limit and, for the purposes of that definition, the relevant emoluments) shall cease to have effect.
(3) In paragraph 29 (price at which shares may be acquired to be stated and to be not manifestly less than the market value, or, in certain circumstances, 85 per cent. of the market value, of shares of the same class) for sub-paragraphs (1) to (6) there shall be substituted—
“(1) The price at which scheme shares may be acquired by the exercise of a right obtained under the scheme—
(a) must be stated at the time the right is obtained, and
(b) must not be manifestly less than the market value of shares of the same class at that time or, if the Board and the grantor agree in writing, at such earlier time or times as may be provided in the agreement.”
(4) Section 185 of the Taxes Act 1988 (approved share option schemes) shall be amended in accordance with subsections (5) to (7) below.
(5) In subsection (2), for “Subject to subsections (6) to (6B) below” there shall be substituted “Subject to subsection (6) below”.
(6) For subsections (6) to (6B) there shall be substituted—
“(6) Where, in the case of a right obtained by a person under a scheme which is not a savings-related share option scheme, the aggregate of—
(a) the amount or value of any consideration given by him for obtaining the right, and
(b) the price at which he may acquire the shares by exercising the right,
is less than the market value, at the time he obtains the right, of the same quantity of issued shares of the same class, he shall be chargeable to tax under Schedule E for the year of assessment in which he obtains the right on the amount of the difference; and the amount so chargeable shall be treated as earned income, whether or not it would otherwise fall to be so treated.”
(7) In subsections (7) and (8) for “(6A)” there shall be substituted “(6)”.
(8) In section 120 of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 (increase in expenditure by reference to tax charged in relation to shares etc) in subsection (6) (which defines the applicable provision) for paragraph (b) (which refers to subsection (6A) of section 185 of the Taxes Act 1988) there shall be substituted—
“(b) subsection (6A) of that section (as that subsection has effect in relation to rights obtained before the day on which the Finance Act 1996 was passed), or
(c) subsection (6) of that section (as that subsection has effect in relation to rights obtained on or after that day).”
(9) Schedule 16 to this Act, which makes provision with respect to share option schemes approved before the day on which this Act is passed, shall have effect.
(10) Subsections (3) to (7) above have effect in relation to rights obtained on or after the day on which this Act is passed.
(1) If, during the period—
(a) beginning with 17th July 1995, and
(b) ending with the day preceding the passing of this Act,
any rights have been obtained by a person under an approved share option scheme in circumstances falling within subsection (2) below, the rights shall be treated for the purposes of sections 185 to 187 of, and Schedule 9 to, the Taxes Act 1988 as being rights obtained otherwise than in accordance with the provisions of an approved share option scheme.
(2) The circumstances mentioned in subsection (1) above are circumstances such that, on the assumptions in subsection (3) below, there would, by virtue of paragraph 28 or 29 of Schedule 9 to the Taxes Act 1988 (limit on what may be obtained and requirements with respect to price), have been, with respect to the operation of the scheme, a contravention of any of the relevant requirements or of the scheme itself.
(3) The assumptions mentioned in subsection (2) above are—
(a) that the amendments made by subsection (2) of section 114 above had effect at all times on and after 17th July 1995;
(b) that the amendments made by subsections (3) to (7) of that section had effect in relation to rights obtained at any time on or after that date; and
(c) that the provisions of paragraphs 1(1) and 2 to 5 of Schedule 16 to this Act had effect at all times on and after 17th July 1995, but with the substitution for references to the day on which this Act is passed of references to that date.
(4) For the purposes of this section, rights obtained by a person on or after 17th July 1995 shall be treated as having been obtained by him before that date if—
(a) the scheme in question is one approved before that date;
(b) an offer of the rights or an invitation to apply for them was made in writing to that person before that date; and
(c) he obtained the rights within the period of thirty days beginning with the day on which the offer or invitation was made.
(5) In this section—
“approved share option scheme” means an approved share option scheme, within the meaning of section 185 of the Taxes Act 1988, other than a savings-related share option scheme;
“relevant requirements” has the meaning given in paragraph 1(1) of Schedule 9 to the Taxes Act 1988;
“savings-related share option scheme” has the meaning given by Schedule 9 to the Taxes Act 1988.
(1) In section 187(2) of the Taxes Act 1988 (interpretation of sections 185 and 186 of, and Schedules 9 and 10 to, that Act) in the definition of “release date” (the fifth anniversary of the date on which shares were appropriated to a participant in a profit sharing scheme) for “fifth” there shall be substituted “third”.
(2) The amendment made by subsection (1) above shall have effect in relation to shares of a participant in a profit sharing scheme if the third anniversary of the appropriation of the shares to the participant occurs on or after the day on which this Act is passed.
(3) If the third anniversary of the appropriation of any shares to a participant in a profit sharing scheme has occurred, but the fifth anniversary of their appropriation to him has not occurred, before the passing of this Act, then, in the application of sections 186 and 187 of, and Schedules 9 and 10 to, the Taxes Act 1988 in relation to those shares, the release date shall be the day on which this Act is passed.
Finance Act 1996