Finance Act 2011

59(1)This paragraph applies if—U.K.

(a)a relevant step within section 554C or 554D of ITEPA 2003 [F1or paragraph 1 of Schedule 11 to F(No. 2)A 2017] (“the chargeable step”) is taken,

(b)Chapter 2 of Part 7A of ITEPA 2003 applies by reason of the chargeable step,

(c)in a tax year before 6 April 2011 (“the pre-6 April 2011 tax year”) a relevant step (“the pre-6 April 2011 step”) within section 554B of ITEPA 2003 was taken,

(d)before the chargeable step is taken—

(i)an agreement was made between Her Majesty's Revenue and Customs and either A or B (or both) under which it was agreed that the pre-6 April 2011 step was to be treated as giving rise to earnings of A from A's employment with B within Chapter 1 of Part 3 of ITEPA 2003 for the pre-6 April 2011 tax year, or

(ii)the tax payable by A for the pre-6 April 2011 tax year was otherwise decided on the basis that the pre-6 April 2011 step was to be treated as giving rise to earnings of A from A's employment with B within Chapter 1 of Part 3 of ITEPA 2003 for that tax year,

(e)before the chargeable step is taken, A or B has paid, or otherwise accounted for, any tax which A or B is required to pay or otherwise account for as a consequence of—

(i)the agreement mentioned in paragraph (d)(i), or

(ii)the tax payable by A for the pre-6 April 2011 tax year having otherwise been decided on the basis mentioned in paragraph (d)(ii), and

(f)after any reductions under sections 554Z4 [F2and 554Z6] to 554Z8 of ITEPA 2003, it is determined on a just and reasonable basis that the value of the chargeable step represents (or still represents after any such reductions) to any extent—

(i)the earnings treated as arising from the pre-6 April 2011 step as mentioned in paragraph (d)(i) or (ii), or

(ii)any return on those earnings since the taking of the pre-6 April 2011 step (whether income or capital, direct or indirect or realised or unrealised).

(2)After any reductions under sections 554Z4 [F3and 554Z6] to 554Z8 of ITEPA 2003, the value of the chargeable step is to be reduced (but not below nil) by an amount reflecting the extent to which, as determined under sub-paragraph (1)(f), that value represents (or still represents)

[F4(a)where sub-paragraph (2A) or (2B) applies, the earnings mentioned in sub-paragraph (1)(f)(i) or any return on those earnings mentioned in sub-paragraph (1)(f)(ii), and

(b)in any other case, the earnings mentioned in sub-paragraph (1)(f)(i).]

[F5(2A)This sub-paragraph applies where—

(a)the agreement mentioned in sub-paragraph (1)(d)(i) is made before 1 April 2017, and

(b)A or B pays, or otherwise accounts for, any tax as mentioned in sub-paragraph (1)(e) in accordance with that agreement.

(2B)This sub-paragraph applies where—

(a)the decision mentioned in sub-paragraph (1)(d)(ii) is made before 1 April 2017, and

(b)A or B pays, or otherwise accounts for, any tax as mentioned in sub-paragraph (1)(e) before 1 April 2017.]

(3)In sub-paragraph (1)(f)(ii) “return” does not include any return so far as, it is reasonable to suppose, the return exceeds the return which might have been expected applying the assumption that all relevant connected persons are acting at arm's length of each other.

(4)In sub-paragraph (3) “relevant connected person” means a person with a connection (direct or indirect) to an arrangement (within the meaning of Part 7A of ITEPA 2003) by virtue of which the return arises.

[F6(5)For the purposes of sub-paragraph (1)(e), a person is not to be regarded as having paid, or otherwise accounted for, any tax by reason only of making—

(a)a payment on account of income tax,

(b) a payment that is treated as a payment on account under section 223(3) of FA 2014 (accelerated payments), or

(c) a payment pending determination of an appeal made in accordance with section 55 of TMA 1970 . ]