Part IU.K. Customs and Excise, Value Added Tax and Car Tax

CHAPTER IU.K. Customs and Excise

Hydrocarbon oil dutiesU.K.

1 Rates.U.K.

(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F1

(2)In section 13A of that Act (rebate on unleaded petrol), for “£0.0202” there shall be substituted “£0.0272”.

(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F1

(4)This section shall be deemed to have come into force at 6 o’clock in the evening of 14th March 1989.

2 Reliefs.U.K.

(1)The following section shall be inserted after section 20A of the M1Hydrocarbon Oil Duties Act 1979—

“20AA Power to allow reliefs.

(1)The Commissioners may make regulations allowing reliefs as regards—

(a)any duty of excise which has been charged in respect of hydrocarbon oil, petrol substitute, spirits used for making power methylated spirits, or road fuel gas;

(b)any amount which has been paid to the Commissioners under section 12(2)above;

(c)any amount which would (apart from the regulations) be payable to the Commissioners under section 12(2) above.

(2)The regulations may include such provision as the Commissioners think fit in connection with allowing reliefs, and in particular may—

(a)provide for relief to take the form of a repayment or remission;

(b)provide for relief to be allowed in cases or classes of case set out in the regulations;

(c)provide for relief to be allowed to the extent set out in the regulations;

(d)provide for relief to be allowed subject to conditions imposed by the regulations;

(e)provide for relief to be allowed subject to such conditions as the Commissioners may impose on the person claiming relief;

(f)provide for the taking of samples of hydrocarbon oil in order to as certain whether relief should be allowed or has been properly allowed;

(g)make provision as to administration (which may include provision requiring the making of applications for relief);

(h)make different provision in relation to different cases or classes of case;

(i)include such supplementary, incidental, consequential or transitional provisions as appear to the Commissioners to be necessary or expedient.

(3)The conditions which may be imposed as mentioned in subsection (2)(d) or(e) above may include conditions as to the physical security of premises, the provision (by bond or otherwise) of security for payment, or such other matters as the Commissioners think fit.

(4)Where a person contravenes or fails to comply with any regulation made under this section or any condition imposed by or under such a regulation—

(a)he shall be liable on summary conviction to a penalty of three times the value of any goods in respect of which the contravention or failure occurred or a penalty of an amount represented by level 3 on the standard scale, whichever is the greater, and

(b)any goods in respect of which the contravention or failure occurred shall be liable to forfeiture.

(5)A reference in this section to a duty of excise includes a reference to any addition to such duty by virtue of section 1 of the Excise Duties (Surcharges or Rebates) Act 1979.

(6)Schedule 5 to this Act shall have effect with respect to any sample of hydrocarbon oil taken in pursuance of regulations made under this section.”

(2)In consequence of subsection (1) above, in paragraph 6 of Schedule 5 to the M2Hydrocarbon Oil Duties Act 1979 after “section” there shall be inserted “20AA or”.

Alcoholic liquor dutiesU.K.

F23 Original gravity of beer.U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4 Blending made-wines etc.U.K.

(1)Section 55 of the Alcoholic Liquor Duties Act 1979 (charge of excise duty on made-wine) shall be amended as follows.

(2)In subsection (5) (which, where certain conditions are satisfied, lifts the requirement to hold a licence for premises where made-wine is produced),after paragraph (d) there shall be added “and

(e)he does not blend or otherwise mix—

(i)two or more made-wines, or

(ii)one or more made-wines and one or more wines,

so as to produce made-wine the rate of duty applicable to which is higher than the rate applicable to at least one of the constituent liquors. ”

(3)After subsection (5) there shall be inserted—

“(5A)For the purposes of subsection (5) above—

(a)the rate of duty applicable to any made-wine is that which is or would be chargeable under subsection (1) above on its importation into the United Kingdom; and

(b)the rate of duty applicable to any wine is that which is or would be chargeable under subsection (1) of section 54 above on its importation into the United Kingdom.”

(4)This section shall have effect in relation to the blending or other mixing of made-wines, or of made-wines and wines, on or after the day on which this Act is passed.

5 Description as beer.U.K.

Section 73 of the M3Alcoholic Liquor Duties Act 1979(which prohibits anyone from describing as beer any substance on which beer duty has not been paid) shall cease to have effect.

Vehicles excise dutyU.K.

6 Rates.U.K.

F3(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F3(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3), (4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F4

F3(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F5(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F3(7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F67. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.

F78. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.

F89. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.

F910. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.

F1011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.

F1112. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.

F1213. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.

14 Dishonoured cheques.U.K.

F13(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F14(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F13(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F14(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F13(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F14(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F13(7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

GeneralU.K.

F1515. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.

16 Time limits for proceedings.U.K.

(1)After section 146 of the Customs and Excise Management Act 1979 there shall be inserted—

“146A Time limit for proceedings.

(1)Except as otherwise provided in the customs and excise Acts, and notwithstanding anything in any other enactment, the following provisions shall apply in relation to proceedings for an offence under those Acts.

(2)Proceedings for an indictable offence shall not be commenced after the end of the period of 20 years beginning with the day on which the offence was committed.

(3)Proceedings for a summary offence shall not be commenced after the end of the period of 3 years beginning with that day but, subject to that, may be commenced at any time within 6 months from the date on which sufficient evidence to warrant the proceedings came to the knowledge of the prosecuting authority.

(4)For the purposes of subsection (3) above, a certificate of the prosecuting authority as to the date on which such evidence as is there mentioned came to that authority’s knowledge shall be conclusive evidence of that fact.

(5)In the application of this section to Scotland—

(a)in subsection (3), “proceedings for an indictable offence” means proceedings on indictment;

(b)in subsection (3), “proceedings for a summary offence” means summary proceedings.

(6)In the application of this section to Northern Ireland—

(a)“indictable offence” means an offence which, if committed by an adult, is punishable on conviction on indictment (whether only on conviction on indictment, or either on conviction on indictment or on summary conviction);

(b)“summary offence” means an offence which, if committed by an adult, is punishable only on summary conviction.

(7)In this section, “prosecuting authority” means the Commissioners and includes, in Scotland, the procurator fiscal.”

(2)Section 147(1) of that Act shall cease to have effect.

F16(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4)This section shall have effect in relation to offences committed on or after the day on which this Act is passed.

17 Disbursements in Port of London.U.K.

In section 17 of the M4Customs and Excise Management Act1979 (general rule that customs and excise receipts, after deduction of disbursements, are to be paid into the Commissioners’ General Account at the Bank of England) paragraph (a) of subsection (5) (special rule that disbursements in Port of London are to be paid out of that Account) shall cease to have effect.

CHAPTER IIU.K. Value Added Tax

Zero-rating etc.U.K.

F1718. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.

F1819. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.

F1920. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.

F2021. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.

F2122. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.

F2223. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.

Other provisionsU.K.

F2324. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.

F2425. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.

F2526. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.

Chapter IIIU.K. Miscellaneous

27 Relief from car tax where vehicle leased to the handicapped.U.K.

(1)After section 5 of the M5Car Tax Act 1983 there shall be inserted the following section—

“5A Relief where vehicle leased to the handicapped.

(1)This section applies where on the date when, apart from subsection (2)(a)below, tax on a chargeable vehicle would become due from a person registered under this Act, there is held by him or on his behalf a certificate of a person to whom the vehicle is sold (“the lessor”) that the lessor intends to supply the vehicle to another in such circumstances that the supply will be a zero-rated supply by virtue of item 12 of Group 14 (letting on hire of motor vehicles to the handicapped) of Schedule 5 to the Value Added Tax Act 1983.

(2)Tax on the vehicle—

(a)shall not be payable by the registered person, but

(b)if, within the period of three years beginning with that date, the lessor supplies the vehicle in any circumstances other than those mentioned in subsection (1) above, shall be payable by the lessor and shall become due and payable at the time of the supply.

(3)In this section—

• “certificate” means a certificate in a form for the time being approved by the Commissioners, and

• “supply” has the same meaning as in the Value Added Tax Act1983.”

(2)In section 5 of the Car Tax Act 1983 (liability and payment), in subsection (1), at the end of paragraph (a), there shall be inserted the words “subject to section 5A below”.

(3)The powers conferred by Schedule 1 to that Act to require accounts and records to be preserved and produced shall be exercisable also in relation to any certificate which has been held by or on behalf of a registered person for the purposes of section 5A of that Act.

(4)In paragraph 13 of that Schedule (restriction on registration of chargeable vehicles), after sub-paragraph (c) there shall be inserted “or

(d)that, by virtue of section 5A of this Act, tax on it has not become due and payable.”

28 Reliefs from duties and taxes for persons enjoying certain immunities and privileges.U.K.

(1)After section 13 of the M6 Customs and Excise Duties(General Reliefs) Act 1979 there shall be inserted the following sections—

“13A Reliefs from duties and taxes for persons enjoying certain immunities and privileges.

(1)The Commissioners may by order make provision for conferring in respect of any persons to whom this section applies reliefs, by way of remission or repayment, from payment by them or others of duties of customs or excise, value added tax or car tax.

(2)An order under this section may make any relief for which it provides subject to such conditions binding the person in respect of whom the relief is conferred and, if different, the person liable apart from the relief for payment of the tax or duty (including conditions which are to be compiled with after the time when, apart from the relief, the duty or tax would become payable) as may be imposed by or under the order.

(3)An order under this section may include any of the provisions mentioned in subsection (4) below for cases where—

(a)relief from payment of any duty of customs or excise, value added tax or car tax chargeable on any goods, or on the supply of any goods or services or the importation of any goods has been conferred (whether by virtue of an order under this section or otherwise) in respect of any person to whom this section applies, and

(b)in the case of goods, provision for forfeiture of the goods.

(4)The provisions referred to in subsection (3) above are—

(a)provision for payment to the Commissioners of the tax or duty by—

(i)the person liable, apart from the relief, for its payment, or

(ii)any person bound by the condition, or

(iii)any person who is or has been in possession of the goods or has received the benefit of the services,

or for two or more of those persons to be jointly and severally liable for such payment, and

(5)An order under this section—

(a)may contain such incidental and supplementary provisions as the Commissioners think necessary or expedient, and

(b)may make different provision for different cases.

(6)In this section and section 13C of this Act—

“duty of customs” includes any agricultural levy within the meaning of section 6 of the European Communities Act 1972 chargeable on goods imported into the United Kingdom, and

“duty of excise” means any duty of excise chargeable on goods and includes any addition to excise duty by virtue of section 1 of the Excise Duties (Surcharges or Rebates) Act 1979.

(7)For the purposes of this section and section 13C of this Act, where in respect of any person to whom this section applies relief is conferred (whether by virtue of an order under this section or otherwise) in relation to the use of goods by any persons or for any purposes, the relief is to be treated as conferred subject to a condition binding on him that the goods will be used only by those persons or for those purposes.

(8)Nothing in any order under this section shall be construed as authorising a person to import any thing in contravention of any prohibition or restriction for the time being in force with respect to it under or by virtue of any enactment.

13B Persons to whom section 13A applies.

(1)The persons to whom section 13A of this act applies are—

(a)any person who, for the purposes of any provision of the Visiting Forces Act 1952 or the International Headquarters and Defence Organisations Act 1964 is—

(i)a member of a visiting force or of a civilian component of such a force or a dependant of such a member, or

(ii)a headquarters, a member of a headquarters or a dependant of such a member,

(b)any person enjoying any privileges or immunities under or by virtue of—

(i)the Diplomatic Privileges Act 1964,

(ii)the Commonwealth Secretariat Act 1966,

(iii)the Consular Relations Act 1968,

(iv)the International Organisations Act 1968, or

(v)the Overseas Development and Co-operation Act 1980,

(c)any person enjoying, under or by virtue of section 2 of the European Communities Act 1972, any privileges or immunities similiar to those enjoyedunder or by virtue of the enactments referred to in paragraph (b) above.

(2)The Secretary of State may by order amend subsection (1) above to include any persons enjoying any privileges or immunities similiar to those enjoyed under or by virtue of the enactments referred to in paragraph (b) of that subsection.

(3)No order shall be made under this section unless a draft of the order has been laid before and approved by resolution of each House of Parliament.

13C Offence where relieved goods used, etc., in breach of condition.

(1)Subsection (2) below applies where—

(a)any relief from payment of any duty of customs or excise, value added tax or car tax chargeable on, or on the supply or importation of, any goods has been conferred (whether by virtue of an order under section 13A of this Actor otherwise) in respect of any person to whom that section applies subject to any condition as to the persons by whom or the purposes for which the goods may be used, and

(b)if the tax or duty has subsequently become payable, it has not been paid.

(2)If any person—

(a)acquires the goods for his own use, where he is not permitted by the condition to use them, or for use for a purpose that is not permitted by the condition or uses them for such a purpose, or

(b)acquires the goods for use, or causes or permits them to be used, by a person not permitted by the condition to use them or by a person for a purpose that is not permitted by the condition or disposes of them to a person not permitted by the condition to use them,

with intent to evade payment of any tax or duty that has become payable or that, by reason of the disposal, acquisition or use, becomes or will become payable, he is guilty of an offence.

(3)For the purposes of this section—

(a)in the case of a condition as to the persons by whom goods may be used, a person is not permitted by the condition to use them unless he is a person referred to in the condition as permitted to use them, and

(b)in relation to a condition as to the purposes for which goods may be used, a purpose is not permitted by the condition unless it is a purpose referred to in the condition as a permitted purpose,

and in this section “dispose” includes “lend” and “let on hire”, and “acquire” shall be interpreted accordingly.

(4)A person guilty of an offence under this section may be detained and shall be liable—

(a)on summary conviction, to a penalty of the statutory maximum or of three times the value of the goods (whichever is the greater), or to imprisonment for a term not exceeding six months, or to both, or

(b)on conviction on indictment, to a penalty of any amount, or to imprisonment for a term not exceeding seven years, or to both.”

(2)Section 13C of the M7 Customs and Excise Duties (General Reliefs) Act 1979 inserted by subsection (1) above shall have effect where relief is conferred on or after the day on which this Act is passed.

(3)In section 17 of the Customs and Excise Duties (General Reliefs) Act 1979,in subsection (3), for “or 13” there shall be substituted “13 or13A” and, in subsection (4), for “or 13(1)” there shall be substituted “13(1) or 13A”.

[F2629 Recovery of overpaid excise duty and car tax.U.K.

(1)This section applies to proceedings for restitution of an amount paid to the Commissioners of Customs and Excise by way of excise duty or car tax.

(2)Proceedings to which this section applies shall not be dismissed by reason only of the fact that the amount was paid by reason of a mistake of law.

(3)In any proceedings to which this section applies it shall be a defence that repayment of an amount would unjustly enrich the claimant.

(4)This section shall have effect in relation to proceedings commenced on or after the day on which this Act is passed.]

Part IIU.K. Income Tax, Corporation Tax and Capital Gains Tax

CHAPTER IU.K. General

Income tax rates and allowancesU.K.

30 Charge and rates of income tax for 1989-90.U.K.

(1)Income tax shall be charged for the year 1989-90, and the basic rate of tax shall be 25 per cent.

(2)The higher rate at which income tax is charged for the year 1989-90 in respect of so much of an individual’s total income as exceeds the basic rate limit (20,700) shall be 40 per cent.

31 Age allowance.U.K.

(1)In section 257 of the Taxes Act 1988—

(a)in subsection (3) (increased allowance for those aged 80 and over) for “80”, wherever occurring, there shall be substituted “75”, and

(b)in subsection (5) (age allowance withdrawn by two-thirds of amount by which income exceeds a specified limit) for “two-thirds” there shall be substituted “one half”.

(2)This section shall have effect for the year 1989-90.

32 Operative date for PAYE.U.K.

For the year 1989-90, sections 1(5) and 257(10) of the Taxes Act 1988(which specify the date from which indexed changes in the basic rate limit and in allowances are to be brought into account for the purposes of PAYE) shall have effect as if for the reference to 5th May there were substituted a reference to 18th May.

33 Married couples. U.K.

(1)Sections 257 to 257F and 265 of the M8Taxes Act 1988,as inserted for the year 1990-91 and subsequent years by the Finance Act 1988,shall be amended as follows.

(2)In section 257(1) for “£2,605” there shall be substituted “£2,785”.

(3)In section 257(2) for “£3,180” there shall be substituted “£3,400”.

(4)In section 257(3)—

(a)for “80” there shall be substituted “75”, and

(b)for “£3,310” there shall be substituted “£3,540”.

(5)In section 257(5)—

(a)for “£10,600” there shall be substituted “£11,400”,and

(b)for “two-thirds” there shall be substituted “one half”.

(6)In section 257A(1) for “£1,490” there shall be substituted “£1,590”.

(7)In section 257A(2) for “£1,855” there shall be substituted “£1,985”.

(8)In section 257A(3)—

(a)for “80” there shall be substituted “75”, and

(b)for “£1,895” there shall be substituted “£2,025”.

(9)In section 257A(5)—

(a)for “£10,600” there shall be substituted “£11,400”,and

(b)for “two-thirds” there shall be substituted “one half”.

(10)In sections F27. . . 257D(8) and 265(3) after paragraph (b) there shall be inserted “or

(c)on account of any payments to which section 593(2) or 639(3) applies,”.

(11)In section 257E(1)(b) for “80” there shall be substituted “75”.

(12)In section 257E(2)(a) for “£3,180” there shall be substituted “£3,400”.

(13)In section 257E(2)(b) for “£3,310” there shall be substituted “£3,540”.

Corporation tax rates etc.U.K.

34 Charge and rate of corporation tax for financial year 1989. U.K.

Corporation tax shall be charged for the financial year 1989 at the rate of 35 per cent.

35 Corporation tax: small companies.U.K.

(1)For the financial year 1989—

(a)the small companies’ rate shall be 25 per cent., and

(b)the fraction mentioned in section 13(2) of the Taxes Act 1988 (marginal relief for small companies) shall be one fortieth.

(2)In section 13(3) of that Act (limits of marginal relief), in paragraphs (a) and (b)—

(a)for “£100,000” there shall be substituted “£150,000”, and

(b)for “£500,000” there shall be substituted “£750,000”.

(3)Subsection (2) above shall have effect for the financial year 1989 and subsequent financial years; and where by virtue of that subsection section 13of the Taxes Act 1988 has effect with different relevant maximum amounts in relation to different parts of a company’s accounting period, then for the purposes of that section those parts shall be treated as if they were separate accounting periods and the profits and basic profits of the company for that period shall be apportioned between those parts.

Receipts basis etc.U.K.

36 Schedule E: revised Cases.U.K.

(1)The Taxes Act 1988 shall be amended as follows.

(2)In paragraph 1 of section 19(1) the following Cases shall be substituted for Cases I, II and III—

“Case I: any emoluments for any year of assessment in which the person holding the office or employment is resident and ordinarily resident in the United Kingdom, subject however to section 192 if the emoluments are foreign emoluments (within the meaning of that section) and to section 193(1) if in the year of assessment concerned he performs the duties of the office or employment wholly or partly outside the United Kingdom;

Case II: any emoluments, in respect of duties performed in the United Kingdom, for any year of assessment in which the person holding the office or employment is not resident (or, if resident, not ordinarily resident) in the United Kingdom, subject however to section 192 if the emoluments are foreign emoluments (within the meaning of that section);

Case III: any emoluments for any year of assessment in which the person holding the office or employment is resident in the United Kingdom (whether or not ordinarily resident there) so far as the emoluments are received in the United Kingdom;”.

(3)The following paragraph shall be inserted after paragraph 4 of section19(1)—

“4A

Where (apart from this paragraph) emoluments from an office or employment would be for a year of assessment in which a person does not hold the office or employment, the following rules shall apply for the purposes of the Cases set out in paragraph 1 above—

(a)if in the year concerned the office or employment has never been held, the emoluments shall be treated as emoluments for the first year of assessment in which the office or employment is held;

(b)if in the year concerned the office or employment is no longer held, the emoluments shall be treated as emoluments for the last year of assessment in which the office or employment was held.”

(4)Subsection (2) above shall apply where the year of assessment mentioned in the substituted Case I, II or III is 1989-90 or a subsequent year of assessment.

(5)Subsection (3) above shall apply where each of the years mentioned in the new paragraph 4A(a) or (b) (as the case may be) is 1989-90 or a subsequent year of assessment.

37 Schedule E: assessment on receipts basis.U.K.

(1)The following sections shall be inserted immediately before section 203of the Taxes Act 1988—

“202A Assessment on receipts basis.

(1)As regards any particular year of assessment—

(a)income tax shall be charged under Cases I and II of Schedule E on the full amount of the emoluments received in the year in respect of the office or employment concerned;

(b)income tax shall be charged under Case III of Schedule E on the full amount of the emoluments received in the United Kingdom in the year in respect of the office or employment concerned.

(2)Subsection (1) above applies—

(a)whether the emoluments are for that year or for some other year of assessment;

(b)whether or not the office or employment concerned is held at the time the emoluments are received or (as the case may be) received in the United Kingdom.

(3)Where subsection (1) above applies in the case of emoluments received, or(as the case may be) received in the United Kingdom, after the death of the person who held the office or employment concerned, the charge shall be a charge on his executors or administrators; and accordingly income tax—

(a)shall be assessed and charged on the executors or administrators, and

(b)shall be a debt due from and payable out of the deceased’s estate.

(4)Section 202B shall have effect for the purposes of subsection (1)(a)above.

202B Receipts basis: meaning of receipt.

(1)For the purposes of section 202A(1)(a) emoluments shall be treated as received at the time found in accordance with the following rules (taking the earlier or earliest time in a case where more than one rule applies)—

(a)the time when payment is made of or on account of the emoluments;

(b)the time when a person becomes entitled to payment of or on account of the emoluments;

(c)in a case where the emoluments are from an office or employment with a company, the holder of the office or employment is a director of the company and sums on account of the emoluments are credited in the company’s accounts or records, the time when sums on account of the emoluments are so credited;

(d)in a case where the emoluments are from an office or employment with a company, the holder of the office or employment is a director of the company and the amount of the emoluments for a period is determined before the period ends, the time when the period ends;

(e)in a case where the emoluments are from an office or employment with a company, the holder of the office or employment is a director of the company and the amount of the emoluments for a period is not known until the amount is determined after the period has ended, the time when the amount isdetermined.

(2)Subsection (1)(c), (d) or (e) above applies whether or not the office or employment concerned is that of director.

(3)Paragraph (c), (d) or (e) of subsection (1) above applies if the holder of the office or employment is a director of the company at any time in the year of assessment in which the time mentioned in the paragraph concerned falls.

(4)For the purposes of the rule in subsection (1)(c) above, any fetter on the right to draw the sums is to be disregarded.

(5)In subsection (1) above “director” means—

(a)in relation to a company whose affairs are managed by a board of directors or similar body, a member of that board or similar body,

(b)in relation to a company whose affairs are managed by a single director or similar person, that director or person, and

(c)in relation to a company whose affairs are managed by the members themselves, a member of the company.

(6)In subsection (1) above “director”, in relation to a company, also includes any person in accordance with whose directions or instructions the company’s directors (as defined in subsection (5) above) are accustomed to act; and forthis purpose a person is not to be deemed to be a person in accordance with whose directions or instructions the company’s directors are accustomed to act by reason only that the directors act on advice given by him in a professional capacity.

(7)Subsections (1) to (6) above shall have effect subject to subsections (8)to (11) below.

(8)In a case where section 141(1)(a), 142(1)(a), 143(1)(a) or 148(4) treats a person as receiving or being paid an emolument or emoluments at a particular time, for the purposes of section 202A(1)(a) the emolument or emoluments shall be treated as received at that time; and in such a case subsections (1) to (6)above shall not apply.

(9)In a case where section 145(1) treats a person as receiving emoluments, for the purposes of section 202A(1)(a) the emoluments shall be treated as received in the period referred to in section 145(1); and in such a case subsections (1) to (6) above shall not apply.

(10)In a case where section 154(1), 157(1), 158(1), 160(1), 160(2), 162(6) or164(1) treats an amount as emoluments, for the purposes of section 202A(1)(a)the emoluments shall be treated as received in the year referred to in section154(1) or the other provision concerned; and in such a case subsections (1)to (6) above shall not apply.

(11)In a case where—

(a)emoluments take the form of a benefit not consisting of money, and

(b)subsection (8), (9) or (10) above does not apply,

for the purposes of section 202A(1)(a) the emoluments shall be treated as received at the time when the benefit is provided; and in such a case subsections (1) to (6) above shall not apply.”

(2)This section shall apply where the year of assessment mentioned in the new section 202A(1) is 1989-90 or a subsequent year of assessment even if the emoluments concerned are for a year of assessment before 1989-90.

(3)This section shall not apply in the case of emoluments of an office or employment held by a person who died before 6th April 1989.

38 Schedule E: unpaid emoluments.U.K.

(1)This section applies to emoluments of an office or employment if—

(a)they are emoluments for a year of assessment (a relevant year) before1989-90,

(b)they fall within Case I or II of Schedule E as the Case applies for years before 1989-90,

(c)they have not been paid before 6th April 1989, and

(d)they have been received on or after 6th April 1989 and before 6th April1991;

and section 202B of the Taxes Act 1988 shall apply for the purposes of paragraph (d) above as it applies for the purposes of section 202A(1)(a) of that Act.

(2)The emoluments shall be charged to income tax only by reference to the year of assessment in which they are received.

(3)Any adjustments consequential on this section (such as the amendment of assessments or the repayment or setting-off of tax paid) shall be made.

(4)This section shall not apply to emoluments of an office or employment held by a person who died before 6th April 1989.

(5)This section shall not apply if the only emoluments of the office or employment not paid before 6th April 1989 are emoluments for a period consisting of or falling within the period beginning with 5th March 1989 and ending with 5th April 1989.

(6)This section shall not apply unless—

(a)written notice that it is to apply is given to the inspector before 6thApril 1991,

(b)the notice is given by or on behalf of the person who holds or held the office or employment concerned, and

(c)the notice states the amount of the emoluments falling within subsection(1) above.

(7)Subsection (8) below applies where emoluments of an office or employment have been or fall to be computed by reference to the accounts basis as regards the year 1987-88 or years of assessment including that year.

(8)In deciding for the purposes of subsection (1)(a) above whether emoluments are emoluments for a particular year, the emoluments of the office or employment for the year or (as the case may be) years mentioned in subsection(7) above, and for the year 1988-89, shall be computed by reference to that basis.

(9)In deciding whether subsection (8) above applies in a particular case, any request to revoke the application of the accounts basis shall be ignored if—

(a)it is made after 5th April 1989, or

(b)it is made before 6th April 1989 otherwise than in writing.

(10)In the application of this section to emoluments of an office or employment under or with a person carrying on business as an authorised Lloyd’s underwriting agent, the references in subsections (1)(d) and (6)(a)above to 6th April 1991 shall be construed as references to 6th April 1994.

(11)Subsection (10) above shall not apply unless the duties of the office or employment relate wholly or mainly to the underwriting agency business.

(12)The reference in subsection (10) above to an authorised Lloyd’s underwriting agent is to a person permitted by the Council of Lloyd’s to act as an underwriting agent at Lloyd’s.

(13)If in a particular case it appears to the Board reasonable to do so they may direct that subsections (1)(d) and (6)(a) above shall have effect in relation to that case as if for the references to 6th April 1991 or (as the case may be) 6th April 1994 there were substituted references to such later date as they may specify in the direction.

(14)In this section “the accounts basis” means the basis commonly so called (under which emoluments for a year of assessment are computed by reference to the emoluments for a period other than the year of assessment).

39 Schedule E: unremitted emoluments.U.K.

(1)This section applies to emoluments of an office or employment if—

(a)they are emoluments for a year of assessment (a relevant year) before1989-90,

(b)they are received in the United Kingdom after 5th April 1989, and

(c)had this Act not been passed they would have fallen within Case III of Schedule E.

(2)The emoluments shall be treated as if they were not emoluments for the relevant year.

(3)But they shall be treated as if they were emoluments for the year of assessment in which they are received in the United Kingdom and as if they fell within Case III as substituted by section 36 above; and accordingly income tax shall be charged, in accordance with section 202A of the Taxes Act1988, by reference to the year of assessment in which the emoluments are received in the United Kingdom.

40 Schedule E: emoluments already paid.U.K.

(1)Subsection (2) below applies to emoluments of an office or employment if—

(a)they are emoluments for a year of assessment after 1988-89,

(b)they have been paid before 6th April 1989, and

(c)they fall within Case I or II of Schedule E as substituted by section 36above.

(2)The emoluments shall be treated as if they were received, within the meaning of section 202B of the Taxes Act 1988, on 6th April 1989; and accordingly income tax shall be charged, in accordance with section 202A ofthat Act, by reference to the year 1989-90.

(3)Subsection (4) below applies to emoluments of an office or employment if—

(a)they are emoluments for a year of assessment after 1988-89,

(b)they have been received in the United Kingdom before 6th April 1989, and

(c)they fall within Case III of Schedule E as substituted by section 36above.

(4)The emoluments shall be treated as if they were received in the United Kingdom on 6th April 1989; and accordingly income tax shall be charged, in accordance with section 202A of the Taxes Act 1988, by reference to the year1989-90.

41 Schedule E: pensions etc.U.K.

(1)This section applies in relation to the following pensions and other benefits—

(a)a pension, stipend or annuity chargeable to income tax under Schedule E by virtue of paragraph 2, 3 or 4 of section 19(1) of the Taxes Act 1988;

(b)a pension or annual payment chargeable to income tax under Schedule E by virtue of section 133 of that Act (voluntary pensions);

(c)income support chargeable to income tax under Schedule E by virtue of section 151 of that Act;

(d)a pension chargeable to income tax under Schedule E by virtue of section597 of that Act (retirement benefit schemes);

(e)a benefit chargeable to income tax under Schedule E by virtue of section617(1) of that Act (social security benefits).

(2)As regards any particular year of assessment income tax shall be charged on the amount of the pension or other benefit accruing in respect of the year; and this shall apply irrespective of when any amount is actually paid in respect of the pension or other benefit.

(3)This section shall apply where the year of assessment mentioned in subsection (2) above is 1989-90 or a subsequent year of assessment.

42 Schedule E: supplementary.U.K.

(1)The Taxes Act 1988 shall be amended as follows.

(2)In section 131(2) (interaction of Cases) the words “for the same or another chargeable period” shall be omitted.

(3)In section 149(1) (sick pay chargeable as emoluments of employment for a certain period) the words “for that period” and the words “for that orany other period” shall be omitted.

[F28(4)Section 170 (profit-related pay charged for year of assessment in which it is paid) shall cease to have effect.]

(5)In paragraph 2(2) of Schedule 12 (foreign earnings) for the words from “emoluments from” to “year of assessment” there shall be substituted the words “emoluments for the year of assessment from the relevant employment in respect of which such a deduction is allowed”.

(6)This section shall apply for the year 1989-90 and subsequent years of assessment.

43 Schedule D: computation.U.K.

(1)Subsection (2) below applies where—

(a)a calculation is made of profits or gains which are to be charged under Schedule D and are for a period of account ending after 5th April 1989,

(b)relevant emoluments would (apart from that subsection) be deducted in making the calculation, and

(c)the emoluments are not paid before the end of the period of nine months beginning with the end of that period of account.

(2)The emoluments—

(a)shall not be deducted in making the calculation mentioned in subsection(1)(a) above, but

(b)shall be deducted in calculating profits or gains which are to be charged under Schedule D and are for the period of account in which the emoluments are paid.

(3)Subsections (4) and (5) below apply where—

(a)a calculation such as is mentioned in subsection (1)(a) above is made,

(b)the calculation is made before the end of the period of nine months beginning with the end of the period of account concerned,

(c)relevant emoluments would (apart from subsection (2) above) be deducted in making the calculation, and

(d)the emoluments have not been paid when the calculation is made.

(4)It shall be assumed for the purpose of making the calculation that the emoluments will not be paid before the end of that period of nine months.

(5)But the calculation shall be adjusted if—

(a)the emoluments are paid after the calculation is made but before the end of that period of nine months,

(b)a claim to adjust the calculation is made to the inspector, and

(c)the claim is made before the end of the period of two years beginning with the end of the period of account concerned.

F29(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F29(7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8)In a case where the period of account mentioned in subsection (1)(a) above begins before 6th April 1989 and ends before 6th April 1990, the references in subsections (1)(c), (3)(b), (4) and (5)(a) above to nine months shall be construed as references to eighteen months.

(9)In this section “period of account” means a period forwhich an account is made up.

(10)For the purposes of this section “relevant emoluments” are emoluments for a period after 5th April 1989 allocated either—

(a)in respect of particular offices or employments (or both), or

(b)generally in respect of offices or employments (or both).

(11)This section applies in relation to potential emoluments as it applies in relation to relevant emoluments, and for this purpose—

(a)potential emoluments are amounts or benefits reserved in the accounts of an employer, or held by an intermediary, with a view to their becoming relevant emoluments;

(b)potential emoluments are paid when they become relevant emoluments which are paid.

(12)In deciding for the purposes of this section whether emoluments are paidat any time after 5th April 1989, section 202B of the Taxes Act 1988 (time when emoluments are treated as received) shall apply as it applies for the purposes of section 202A(1)(a) of that Act, but reading “paid” for “received” throughout.

(13)In section 436(1)(b) of the Taxes Act 1988 (profits to be computed in accordance with provisions of that Act applicable to Case I of Schedule D) the reference to that Act shall be deemed to include a reference to this section.

44 Investment and insurance companies: computation.U.K.

(1)Subsection (2) below applies where—

(a)a calculation is made for the purposes of corporation tax of the profits of an investment company for an accounting period ending after 5th April 1989,

(b)relevant emoluments would (apart from that subsection) be deducted in making the calculation, and

(c)the emoluments are not paid before the end of the period of nine months beginning with the end of the relevant period of account.

(2)The emoluments—

(a)shall not be deducted in making the calculation mentioned in subsection(1)(a) above, but

(b)shall be deducted in calculating for the purposes of corporation tax the profits of the company concerned for the accounting period in which the emoluments are paid.

(3)Subsections (4) and (5) below apply where—

(a)a calculation such as is mentioned in subsection (1)(a) above is made,

(b)the calculation is made before the end of the period of nine months beginning with the end of the relevant period of account,

(c)relevant emoluments would (apart from subsection (2) above) be deducted in making the calculation, and

(d)the emoluments have not been paid when the calculation is made.

(4)It shall be assumed for the purpose of making the calculation that the emoluments will not be paid before the end of that period of nine months.

(5)But the calculation shall be adjusted if—

(a)the emoluments are paid after the calculation is made but before the end of that period of nine months,

(b)a claim to adjust the calculation is made to the inspector by or on behalf of the company concerned, and

(c)the claim is made before the end of the period of two years beginning with the end of the period of account concerned.

(6)In a case where the accounting period mentioned in subsection (1)(a) above begins before 6th April 1989 and ends before 6th April 1990, the references in subsections (1)(c), (3)(b), (4) and (5)(a) above to nine months shall be construed as references to eighteen months.

(7)In this section “investment company” has the same meaning as in Part IV of the Taxes Act 1988.

(8)For the purposes of this section “relevant emoluments” are emoluments for a period after 5th April 1989 allocated either—

(a)in respect of particular offices or employments (or both), or

(b)generally in respect of offices or employments (or both).

(9)This section applies in relation to potential emoluments as it applies in relation to relevant emoluments, and for this purpose—

(a)potential emoluments are amounts or benefits reserved in the accounts of an employer, or held by an intermediary, with a view to their becoming relevant emoluments;

(b)potential emoluments are paid when they become relevant emoluments which are paid.

(10)For the purpose of this section the relevant period of account is the period of account which—

(a)includes the accounting period concerned, or

(b)begins when the accounting period concerned begins and ends when the accounting period concerned ends.

(11)In deciding for the purposes of this section whether emoluments are paid at any time after 5th April 1989, section 202B of the Taxes Act 1988 (time when emoluments are treated as received) shall apply as it applies for the purposes of section 202A(1)(a) of that Act, but reading “paid” for “received” throughout.

(12)Where the profits of a company carrying on life assurance business are not charged under Case I of Schedule D, this section shall apply in calculating the profits as it applies in calculating the profits of an investment company; but the effect of section 86 below shall be ignored in construing subsection(1)(b) above.

(13)In a case where, apart from this subsection and by virtue of subsection(2)(b) above as it applies by virtue of subsection (12) above, emoluments fall to be deducted in calculating profits for a particular accounting period—

(a)subsection (2)(b) above shall have effect subject to section 86 below;

(b)in construing section 86 the emoluments shall be treated as expenses for that accounting period.

45 PAYE: meaning of payment.U.K.

(1)The Taxes Act 1988 shall be amended as follows.

(2)The following section shall be inserted after section 203—

“203A PAYE: meaning of payment.

(1)For the purposes of section 203 and regulations under it a payment of, or on account of, any income assessable to income tax under Schedule E shall be treated as made at the time found in accordance with the following rules(taking the earlier or earliest time in a case where more than one rule applies)—

(a)the time when the payment is actually made;

(b)the time when a person becomes entitled to the payment;

(c)in a case where the income is income from an office or employment with a company, the holder of the office or employment is a director of the company and sums on account of the income are credited in the company’s accounts or records, the time when sums on account of the income are so credited;

(d)in a case where the income is income from an office or employment with a company, the holder of the office or employment is a director of the company and the amount of the income for a period is determined before the period ends, the time when the period ends;

(e)in a case where the income is income from an office or employment with a company, the holder of the office or employment is a director of the company and the amount of the income for a period is not known until the amount is determined after the period has ended, the time when the amount is determined.

(2)Subsection (1)(c), (d) or (e) above applies whether or not the office or employment concerned is that of director.

(3)Paragraph (c), (d) or (e) of subsection (1) above applies if the holder of the office or employment is a director of the company at any time in the year of assessment in which the time mentioned in the paragraph concerned falls.

(4)For the purposes of the rule in subsection (1)(c) above, any fetter on the right to draw the sums is to be disregarded.

(5)Subsections (5) and (6) of section 202B shall apply for the purposes of subsection (1) above as they apply for the purposes of section 202B(1).”

(3)Section 203(4) (regulations may define payment) shall cease to have effect.

(4)Subsection (2) above shall have effect to determine whether anything occurring on or after the day on which this Act is passed constitutes a payment for the purposes mentioned in the new section 203A.

(5)But if an event occurring before the day on which this Act is passed constituted a payment of or on account of income for the purposes mentioned in the new section 203A, nothing occurring on or after that day shall constitute a payment of or on account of the same income for those purposes.

InterestU.K.

46 Relief for interest.U.K.

For the year 1989-90 the qualifying maximum defined in section 367(5) of the Taxes Act 1988 (limit on relief for interest on certain loans) shall be£30,000.

47 Close company loans: business expansion scheme.U.K.

In section 360 of the Taxes Act 1988 (loans to buy interest in close company), after subsection (3) there shall be inserted—

“(3A)Interest shall not be eligible for relief under section 353 by virtue of paragraph (a) of subsection (1) above in respect of shares acquired on or after 14th March 1989 if at any time the person by whom they are acquired, or that person’s husband or wife, makes a claim for relief in respect of the munder Chapter III of Part VII.”

48 Close company loans: material interest.U.K.

(1)In section 360 of the Taxes Act 1988 for subsection (4) there shall be substituted—

“(4)Subject to section 360A, in this section expressions to which a meaning is assigned by Part XI have that meaning.”

(2)The following section shall be inserted after that section—

“360A Meaning of “material interest” in section 360.

(1)For the purposes of section 360(2)(a) an individual shall be treated as having a material interest in a company—

(a)if he, either on his own or with one or more of his associates, or if any associate of his with or without other such associates, is the beneficial owner of, or able (directly or through the medium of other companies or by any other indirect means) to control, more than 5 per cent. of the ordinary share capital of the company, or

(b)if, on an amount equal to the whole distributable income of the company falling to be apportioned under Part XI for the purpose of computing total income, more than 5 per cent. of that amount could be apportioned to him together with his associates (if any), or to any associate of his, or any such associates taken together.

(2)Subject to the following provisions of this section, in subsection (1)above “associate”, in relation to an individual, means—

(a)any relative or partner of the individual;

(b)the trustee or trustees of a settlement in relation to which the individual is, or any relative of his (living or dead) is or was, a settlor(“settlement” and “settlor” having the same meaning as in section 681(4)); and

(c)where the individual is interested in any shares or obligations of the company which are subject to any trust, or are part of the estate of a deceased person, the trustee or trustees of the settlement concerned or, as the case may be, the personal representative of the deceased.

(3)In relation to any loan made after 5th April 1987, there shall be disregarded for the purposes of subsection (2)(c) above—

(a)the interest of the trustees of an approved profit sharing scheme (within the meaning of section 187) in any shares which are held by them in accordance with the scheme and have not yet been appropriated to an individual; and

(b)any rights exercisable by those trustees by virtue of that interest.

(4)In relation to any loan made on or after the day on which the Finance Act1989 was passed, where the individual has an interest in shares or obligations of the company as a beneficiary of an employee benefit trust, the trustees shall not be regarded as associates of his by reason only of that interest unless subsection (6) below applies in relation to him.

(5)In subsection (4) above “employee benefit trust” has the same meaning as in paragraph 7 of Schedule 8, except that in its application for this purpose paragraph 7(5)(b) shall have effect as if it referred to the day on which the Finance Act 1989 was passed instead of to 14th March 1989.

(6)This subsection applies in relation to an individual if at any time on or after the day on which the Finance Act 1989 was passed—

(a)the individual, either on his own or with any one or more of his associates, or

(b)any associate of his, with or without other such associates,

has been the beneficial owner of, or able (directly or through the medium of other companies or by any other indirect means) to control, more than 5 percent. of the ordinary share capital of the company.

(7)Sub-paragraphs (9) to (12) of paragraph 7 of Schedule 8 shall apply for the purposes of subsection (6) above in relation to an individual as they apply for the purposes of that paragraph in relation to an employee.

(8)In relation to any loan made before 14th November 1986, where the individual is interested in any shares or obligations of the company which are subject to any trust, or are part of the estate of a deceased person, subsection (2)(c) above shall have effect as if for the reference to the trustee or trustees of the settlement concerned or, as the case may be, the personal representative of the deceased there were substituted a reference to any person (other than the individual) interested in the settlement or estate, but subject to subsection (9) below.

(9)Subsection (8) above shall not apply so as to make an individual an associate as being entitled or eligible to benefit under a trust—

(a)if the trust relates exclusively to an exempt approved scheme as defined in section 592; or

(b)if the trust is exclusively for the benefit of the employees, or the employees and directors, of the company or their dependants (and not wholly or mainly for the benefit of directors or their relatives), and the individual in question is not (and could not as a result of the operation of the trust become), either on his own or with his relatives, the beneficial owner of more than 5 per cent. of the ordinary share capital of the company;

and in applying paragraph (b) above any charitable trusts which may arise on the failure or determination of other trusts shall be disregarded.

(10)In this section “relative” means husband or wife, parent or remoter forebear, child or remoter issue or brother or sister.”

Benefits in kindU.K.

49 Car benefits.U.K.

(1)In Schedule 6 to the Taxes Act 1988 (taxation of directors and others in respect of cars) for Part I (tables of flat rate cash equivalents) there shall be substituted—

“Part IU.K. Tables of Flat Rate Cash Equivalents

(2)This section shall have effect for the year 1989-90 and subsequent years of assessment.

50 Security assets and services.U.K.

(1)For the purposes of this section a security asset is an asset which improves personal security, and a security service is a service which improves personal security.

(2)In a case where—

(a)a security asset or security service is provided for an employee by reason of his employment, or is used by an employee, and

(b)the cost is wholly or partly borne by or on behalf of a person (the provider) other than the employee,

in charging tax under Schedule E on the emoluments from the employment a deduction shall be allowed of an amount equal to so much of the cost so borne as falls to be included in the emoluments of the employment.

(3)In a case where—

(a)a security asset or security service is provided for or used by an employee,

(b)expenses in connection with the provision or use are incurred out of the emoluments of the employment, and

(c)the expenses are reimbursed by or on behalf of a person (the provider)other than the employee,

in charging tax under Schedule E on the emoluments from the employment a deduction shall be allowed of an amount equal to the amount of the expenses.

(4)Subsection (2) or (3) above shall not apply unless the asset or service is provided for or used by the employee to meet a threat which—

(a)is a special threat to his personal physical security, and

(b)arises wholly or mainly by virtue of the particular employment concerned.

(5)Subsection (2) or (3) above shall not apply unless the provider has the meeting of that threat as his sole object in wholly or partly bearing the cost or reimbursing the expenses (as the case may be).

(6)Subsection (2) or (3) above shall not apply in the case of a service unless the benefit resulting to the employee consists wholly or mainly of an improvement of his personal physical security.

(7)Subsection (2) or (3) above shall not apply in the case of an asset unless the provider intends the asset to be used solely to improve personal physical security.

51 Assets used partly for security.U.K.

(1)In a case where—

(a)apart from section 50(7) above, section 50(2) above would apply in the case of an asset, and

(b)the provider intends the asset to be used partly to improve personal physical security,

section 50(2) shall nevertheless apply, but only so as to allow a deduction of the appropriate proportion of the amount there mentioned.

(2)For the purposes of subsection (1) above the appropriate proportion of the amount mentioned in section 50(2) above is such proportion of that amount as is attributable to the provider’s intention that the asset be used to improve personal physical security.

(3)In a case where—

(a)apart from section 50(7) above, section 50(3) above would apply in the case of an asset, and

(b)the provider intends the asset to be used partly to improve personal physical security,

section 50(3) shall nevertheless apply, but only so as to allow a deduction of the appropriate proportion of the amount there mentioned.

(4)For the purposes of subsection (3) above the appropriate proportion of the amount mentioned in section 50(3) above is such proportion of that amount as is attributable to the provider’s intention that the asset be used to improve personal physical security.

52 Security: supplementary.U.K.

(1)If the provider intends the asset to be used solely to improve personal physical security, but there is another use for the asset which is incidental to improving personal physical security, that other use shall be ignored in construing section 50(7) above.

(2)The fact that an asset or service improves the personal physical security of any member of the employee’s family or household, as well as that of the employee, shall not prevent section 50(2) or (3) above from applying.

(3)In sections 50 and 51 above and this section—

(a)references to an asset do not include references to a car, a ship or an aircraft,

(b)references to an asset or service do not include references to a dwelling, grounds appurtenant to a dwelling, or living accommodation,

(c)references to an asset include references to equipment and a structure(such as a wall),

(d)references to an employee are to a person who holds an employment, and

(e)references to an employment include references to an office.

(4)For the purposes of sections 50 and 51 above and this section in their application to an asset, it is immaterial whether or not the asset becomes affixed to land (whether constituting a dwelling or otherwise).

(5)For the purposes of sections 50 and 51 above and this section in their application to an asset, it is immaterial whether or not the employee is or becomes entitled to the property in the asset or (in the case of a fixture)an estate or interest in the land concerned.

(6)Sections 50 and 51 above and this section apply where expenditure is incurred on or after 6th April 1989 in or towards bearing a cost or in reimbursing expenses (as the case may be).

53 Employees earning £8,500 or more and directors.U.K.

(1)For section 167 of the Taxes Act 1988 (which defines “director’s or higher-paid employment” for the purposes of Chapter II of Part V)there shall be substituted—

“167 Employment to which this Chapter applies.

(1)This Chapter applies—

(a)to employment as a director of a company (but subject to subsection (5)below), and

(b)to employment with emoluments at the rate of £8,500 a year or more.

(2)For this purpose emoluments are to be calculated—

(a)on the basis that they include all such amounts as come, or would but for section 157(3) come, into charge under this Chapter or section 141, 142, 143or 145, and

(b)without any deduction under section 198, 201 or 332(3).

(3)Where a person is employed in two or more employments by the same employer and either—

(a)the total of the emoluments of those employments (applying this section)is at the rate of £8,500 a year or more, or

(b)this Chapter applies (apart from this subsection) to one or more of those employments,

this Chapter shall apply to all the employments.

(4)All employees of a partnership or body over which an individual or another partnership or body has control are to be treated for the purposes of this section (but not for any other purpose) as if the employment were an employment by the individual or by that other partnership or body as the case may be.

(5)This Chapter shall not apply to a person’s employment by reason only of its being employment as a director of a company (without prejudice to its application by virtue of subsection (1)(b) or (3) above) if he has no material interest in the company and either—

(a)his employment is as a full-time working director; or

(b)the company is non-profit making (meaning that neither does it carry on a trade nor do its functions consist wholly or mainly in the holding of investments or other property) or is established for charitable purposes only.”

(2)In consequence of subsection (1) above—

(a)for the heading to Chapter II of Part V of the Taxes Act 1988 there shall be substituted “EMPLOYEES EARNING £8,500 OR MORE AND DIRECTORS”;

(b)the words “ employment to which this Chapter applies ” shall be substituted for the words “director’s or higher-paid employment” in sections 153(1), 154(1), 157(1), 158(1), 160(1) and (2), 162(1), 163(1) and165(6)(b) of that Act;

(c)for section 160(3) of that Act there shall be substituted—

“(3)Where—

(a)there was outstanding, at any time when a person was in employment to which this Chapter applies, the whole or part of a loan to him (or a relative of his) the benefit of which was obtained by reason of his employment, and

(b)that employment has terminated or ceased to be employment to which this Chapter applies,

subsection (2) above applies as if the employment had not terminated or, as the case may be, had not ceased to be employment to which this Chapter applies.”;

(d)in section 162(5) of that Act, after the words “section 160(2)” there shall be inserted the words “(and where appropriate section 160(3))”;

(e)for section 162(7) of that Act there shall be substituted—

“(7)If at the time of the event giving rise to a charge by virtue of subsection (6) above the employment in question has terminated, that subsection shall apply as if it had not.”

(f)the words “ employment to which Chapter II of Part V applies ”shall be substituted for the words from “director’s” to “section167)” in sections 332(2)(c) and 418(3)(a) of that Act;

(g)the words “ employment to which Chapter II of Part V of the principal Act applies ” shall be substituted for the words “director’s or higher paid employment” in section 15(3)(a) of the M9TaxesManagement Act 1970.

Medical insuranceU.K.

[F3054 Relief.U.K.

(1)This section applies where—

(a)on or after 6th April 1990 an individual makes a payment in respect of a premium under a contract of private medical insurance (whenever issued),

(b)the contract meets the requirement in subsection (2) below as to the person or persons insured,

(c)at the time the payment is made the contract is an eligible contract,

(d)the individual making the payment does not make it out of resources provided by another person for the purpose of enabling it to be made, and

(e)the individual making the payment is not entitled to claim any relief or deduction in respect of it under any other provision of the Tax Acts.

(2)The requirement mentioned in subsection (1)(b) above is that the contract insures—

(a)an individual who at the time the payment is made is aged 60 or over and resident in the United Kingdom,

(b)individuals each of whom at that time is aged 60 or over and resident in the United Kingdom, or

(c)two individuals who are married to each other at that time, at least one of whom is aged 60 or over at that time, and each of whom is resident in the United Kingdom at that time.

[F31(2A)In a case where—

(a)a payment is made in respect of a premium under a contract at a time when the contract meets the requirement in subsection (2) above by virtue of paragraph (c) of that subsection, and

(b)a payment is made under the same contract at a time after one of the individuals has died and when the contract does not (apart from this subsection) meet the requirement in subsection (2) above by virtue only of the fact that the surviving spouse is not aged 60 or over at the time,

for the purposes of subsection (2) above in its application to the contract the surviving spouse shall be deemed to be aged 60 or over at the time mentioned in paragraph (b) above.]

(3)If the payment is made by an individual who at the time it is made is resident in the United Kingdom (whether or not he is the individual or one of the individuals insured by the contract) [F32the individual shall be entitled to relief under this subsection in respect of the payment; and (except where subsections (4) to (6) below apply) relief under this subsection shall be given—

(a)in accordance with subsections (3A) to (3C) below, and

(b)only on a claim made for the purpose.]

[F33(3A)Where an individual is entitled to relief under subsection (3) above in respect of one or more payments made in a given year of assessment, the amount of his liability for that year of assessment to income tax on his total income shall be the amount to which he would be liable apart from this section less whichever is the smaller of—

(a)the amount found under subsection (3B) below, and

(b)the amount which reduces his liability to nil.

(3B)The amount referred to in subsection (3A)(a) above is an amount found by—

(a)taking the amount of the payment referred to in subsection (3A) above or (as the case may be) the aggregate amount of the payments there referred to, and

(b)finding an amount equal to tax on the amount taken under paragraph (a) above at the basic rate for the year of assessment concerned.

(3C)In determining for the purposes of subsection (3A) above the amount of incomers on would be liable apart from this section, no account shall be taken of—

(a)any income tax reduction under Chapter I of Part VII of the Taxes Act 1988 or under section 347B of that Act;

(b)any income tax reduction under section 353(1A) of the Taxes Act 1988;

(c)any relief by way of a reduction of liability to tax which is given in accordance with any arrangements having effect by virtue of section 788 of the Taxes Act 1988 or by way of a credit under section 790(1) of that Act;

(d)any tax at the basic rate on so much of that person’s income as is income the income tax on which he is entitled to charge against any other person or to deduct, retain or satisfy out of any payment.]

(4)In such cases and subject to such conditions as the Board may specify in regulations, relief under subsection (3) above shall be given in accordance with subsections (5) and (6) below.

(5)An individual who is entitled to such relief in respect of a payment may deduct and retain out of it an amount equal to income tax on it at the basic rate for the year of assessment in which it is made.

(6)The person to whom the payment is made—

(a)shall accept the amount paid after deduction in discharge of the individual’s liability to the same extent as if the deduction had not been made, and

(b)may, on making a claim [F34in accordance with regulations], recover from the Board an amount equal to the amount deducted.

(7)The Treasury may make regulations providing that in circumstances prescribed in the regulations—

(a)an individual who has made a payment in respect of a premium under a contract of private medical insurance shall cease to be and be treated as not having been entitled to relief under subsection (3) above; and

(b)he or the person to whom the payment was made (depending on the terms of the regulations) shall account to the Board for tax from which relief has been given on the basis that the individual was so entitled.

(8)Regulations under subsection (7) above may include provision adapting or modifying the effect of any enactment relating to income tax in order to secure the performance of any obligation imposed under paragraph (b) of that subsection.

(9)In this section—

(a)references to a premium, in relation to a contract of insurance, are to any amount payable under the contract to the insurer, and

(b)references to an individual who is resident in the United Kingdom at anytime include references to an individual who is at that time performing duties which are treated by virtue of section 132(4)(a) of the Taxes Act 1988 as performed in the United Kingdom.]

[F3555 Eligible contracts.U.K.

(1)This section has effect to determine whether a contract is at a particular time (the relevant time) an eligible contract for the purposes of section 54 above.

(2)A contract is an eligible contract at the relevant time if—

(a)it was entered into by an insurer who at the time it was entered into was a qualifying insurer and was approved by the Board for the purposes of this section,

(b)the period of insurance under the contract does not exceed one year(commencing with the date it was entered into),

[F36(ba)at the relevant time the contract satisfies the conditions set out in subsection (2A) below,

(bb)the contract is not one in the case of which subsection (2D) below applies,]

(c)the contract is not connected with any other contract at the relevant time and has not been connected with any other contract at any time since it was entered into, [F37and]

(d)no benefit has been provided by virtue of the contract other than an approved benefit, [F38and

(e)the contract meets one or more of the three conditions set out below.]

[F39(2A)The conditions referred to in subsection (2)(ba) above are that—

(a)the contract either provides indemnity in respect of all or any of the costs of all or any of the treatments, medical services and other matters for the time being specified in regulations made by the Treasury, or in addition to providing indemnity of that description provides cash benefits falling within rules for the time being so specified,

(b)the contract does not confer any right other than such a right as is mentioned in paragraph (a) above or is for the time being specified in regulations made by the Treasury,

(c)the premium under the contract is reasonable, and

(d)the contract satisfies such other requirements as are for the time being specified in regulations made by the Treasury.

(2B)In a case where—

(a)at the relevant time the contract confers a material right, or more than one such right, but

(b)the total cost to the insurer of providing benefits in pursuance of the material right or (as the case may be) in pursuance of all the material rights would not exceed the prescribed sum,

the contract shall not thereby be regarded as failing to satisfy at the relevant time the condition set out in subsection (2A)(b) above.

(2C)For the purposes of subsection (2B) above a material right is a right which—

(a)is not a right such as is mentioned in subsection (2A)(a) above or such as is for the time being specified in regulations made under subsection (2A)(b) above, and

(b)is not a right to a cash benefit.

(2D)This subsection applies in the case of a contract (the main contract) if—

(a)at least one other contract is entered into which is a contract (a collateral contract) under which a benefit is provided in consideration of the insured’s entering into the main contract, and

(b)the cost to the insurer of fulfilling his obligations under the collateral contract (or, if there is more than one collateral contract, of fulfilling his obligations under all of them) exceeds the prescribed sum.]

[F40(3)The first condition is that the contract is certified by the Board under section 56 below at the relevant time.

F40(4)The second condition is that, at the time the contract was entered into, it conformed with a standard form certified by the Board as a standard form of eligible contract.

F40(5)The third condition is that, at the time the contract was entered into, it conformed with a form varying from a standard form so certified in no other respect than by making additions—

(a)which were (at the time the contract was entered into) certified by the Board as compatible with an eligible contract when made to that standard form, and

(b)which (at that time) satisfied any conditions subject to which the additions were so certified.

F40(6)Where a contract is varied, and the relevant time falls after the time the variation takes effect, subsections (1) to (5) above shall have effect as if “entered into” read “varied” in each place where it occurs in subsections (4) and (5) above.]

(7)For the purposes of this section a contract is connected with another contract at any time if—

(a)they are simultaneously in force at that time,

(b)either of them was entered into with reference to the other, or with a view to enabling the other to be entered into on particular terms, or with a view to facilitating the other being entered into on particular terms, and

(c)the terms on which either of them was entered into would have been significantly less favourable to the insured if the other had not been entered into.

(8)For the purposes of this section each of the following is a qualifying insurer—

(a)an insurer lawfully carrying on in the United Kingdom business of any of the classes specified in Part I of Schedule 2 to the M10Insurance Companies Act 1982;

(b)an insurer not carrying on business in the United Kingdom but carrying on business in another member State and being either a national of a member State or a company or partnership formed under the law of any part of the United Kingdom or another member State and having its registered office, central administration or principal place of business in a member State.

(9)For the purposes of this section a benefit is an approved benefit if it is provided in pursuance of a right of a description

[F41(a)mentioned in subsection (2A)(a) above, or

(b)for the time being specified in regulations made under subsection (2A)(b) above.]

[F42(10)For the purposes of this section a benefit is also an approved benefit if it is not a cash benefit and—

(a)it is a single benefit provided otherwise than as mentioned in subsection (9) above and the cost to the insurer of providing it does not exceed the prescribed sum, or

(b)it is one of a number of benefits provided otherwise than as mentioned in subsection (9) above and the total cost to the insurer of providing the benefits does not exceed the prescribed sum.

(11)In this section the reference to a premium, in relation to a contract of insurance, is to any amount payable under the contract to the insurer.

(12)For the purposes of this section the prescribed sum is £30.

(13)The Treasury may by order substitute for the sum for the time being specified in subsection (12) above such sum as may be specified in the order; and any such substitution shall have effect in relation to cases where the relevant time falls on or after such date as is specified in the order.]]

[F4356 Certification of contracts.U.K.

(1)The Board shall certify a contract under this section if it satisfies the conditions set out in subsection (3) below; and the certification shall be expressed to take effect from the time the conditions are satisfied, and shall take effect accordingly.

(2)The Board shall revoke a certification of a contract under this section if it comes to their notice that the contract has ceased to satisfy the conditions set out in subsection (3) below; and the revocation shall be expressed to take effect from the time the conditions ceased to be satisfied, and shall take effect accordingly.

(3)The conditions referred to above are that—

(a)the contract either provides indemnity in respect of all or any of the costs of all or any of the treatments, medical services and other matters for the time being specified in regulations made by the Treasury, or in addition to providing indemnity of that description provides cash benefits falling within rules for the time being so specified,

(b)the contract does not confer any right other than such a right as is mentioned in paragraph (a) above or is for the time being specified in regulations made by the Treasury,

(c)the premium under the contract is in the Board’s opinion reasonable, and

(d)the contract satisfies such other requirements as are for the time being specified in regulations made by the Treasury.

(4)The certification of a contract by the Board under this section shall cease to have effect if the contract is varied; but this is without prejudice to the application of the preceding provisions of this section to the contract as varied.

(5)Where the Board refuse to certify a contract under this section, or they revoke a certification, an appeal may be made to the Special Commissioners by—

(a)the insurer, or

(b)any person who (if the policy were certified) would be entitled to relief under section 54 above.

(6)Where a contract is certified under this section, or a certification is revoked or otherwise ceases to have effect, any adjustments resulting from the certification or from its revocation or ceasing to have effect shall be made.

(7)Subsection (6) above applies where a certification or revocation takes place on appeal as it applies in the case of any other certification or revocation.

(8)In this section the reference to a premium, in relation to a contract of insurance, is to any amount payable under the contract to the insurer.]

[F4457 Medical insurance: supplementary.U.K.

(1)The Board may by regulations—

(a)provide that a claim under section 54(3) or (6)(b) above shall be made in such form and manner, shall be made at such time, and shall be accompanied by such documents, as may be prescribed;

[F45(aa)make provision for and with respect to appeals against a decision of an officer of the Board or the Board with respect to a claim under section 54(6)(b) above;]

(b)make provision, in relation to payments in respect of which a person is entitled to relief under section 54 above, for the giving by insurers in such circumstances as may be prescribed of certificates of payment in such form as may be prescribed to such persons as may be prescribed;

(c)provide that a person who provides (or has at any time provided) insurance under contracts of private medical insurance shall comply with any notice which is served on him by the Board and which requires him within a prescribed period to make available for the Board’s inspection documents (of a prescribed kind) relating to such contracts;

(d)provide that persons of such a description as may be prescribed shall, within a prescribed period of being required to do so by the Board, furnish to the Board information (of a prescribed kind) about contracts of private medical insurance;

(e)make provision with respect to the approval of insurers for the purposes of section 55 above and the withdrawal of approval for the purposes of that section;

(f)make provision for and with respect to appeals against decisions of the Board with respect to the giving or withdrawal of approval of insurers for the purposes of section 55 above;

(g)make provision with respect to the certification by the Board of standard forms of eligible contract and variations from standard forms of eligible contract certified by them;

(h)make provision for and with respect to appeals against decisions of the Board with respect to the certification of standard forms of eligible contractor variations from standard forms of eligible contract certified by them;

(i)provide that certification, or the revocation of a certification, under section 56 above shall be carried out in such form and manner as may be prescribed;

(j)make provision with respect to appeals against decisions of the Board with respect to certification or the revocation of certification under section 56 above;

(k)make provision generally as to administration in connection with sections 54 to 56 above.

(2)The words “ Regulations under section 57 of the Finance Act 1989 ” shall be added at the end of each column in the Table in section 98 of the M11Taxes Management Act 1970 (penalties for failure to furnish information etc.)

(3)The following provisions of the Taxes Management Act 1970, namely—

[F46(a)section 29(1)(c) (excessive relief) as it has effect apart from section 29(2) to (10) of that Act;]

(b)section 30 (tax repaid in error etc.) [F47apart from subsection (1B)],

(c)[F48section 86] (interest), and

(d)section 95 (incorrect return or accounts),

[F49shall apply in relation to an amount which is paid to any person by the Board as an amount recoverable by virtue of section 54(6)(b) above but to which that person is not entitled as if it were income tax which ought not to have been repaid and, where that amount was claimed by that person, as if it had been repaid as respects a chargeable period as a relief which was not due.]

[F50(3A)In the application of section 86 of the Taxes Management Act 1970 by virtue of subsection (3) above in relation to sums due and payable by virtue of an assessment made under section 29(1)(c) or 30 of that Act, as applied by that subsection, the relevant date—

(a)in a case where the person falling within section 54(6) above has made any interim claim, within the meaning of regulations made under subsection (1) and section 54(4) above, as respects some part of the year of assessment for which the assessment is made, is 1st January in that year of assessment; and

(b)in any other case, is the later of the following dates, that is to say—

(i)1st January in the year of assessment for which the assessment is made; or

(ii)the date of the making of the payment by the Board which gives rise to the assessment.]

(4)In sections F51. . . 257D(8) and 265(3) of the Taxes Act 1988 after paragraph (c) there shall be inserted “or

(d)on account of any payments to which section 54(5) of the Finance Act 1989 applies”.

(5)In subsection (1) above—

• “eligible contract” has the meaning given by section 55 above, and

• “prescribed” means prescribed by or, in relation to form, under the regulations.]

CharitiesU.K.

58 Payroll deduction scheme.U.K.

(1)In section 202(7) of the Taxes Act 1988 (which limits to £240 the deductions attracting relief) for “£240” there shall be substituted “£480”.

(2)This section shall have effect for the year 1989-90 and subsequent years of assessment.

59 Covenanted subscriptions.U.K.

(1)In determining whether a payment made to a charity within subsection (2)below is —

(a)an annual payment for the purposes of the Tax Acts, or

(b)a payment to which section 125(1) of the Taxes Act 1988 applies, or

(c)a covenanted payment to charity within the meaning given by [F52section 347A(7)]of that Act,

there shall be disregarded any consideration for the payment which is ofa kind described in subsection (3) below.

(2)A charity is within this subsection if its sole or main purpose is—

(a)the preservation of property for the public benefit, or

(b)the conservation of wildlife for the public benefit.

(3)The consideration referred to in subsection (1) above is the right ofadmission—

(a)to view property the preservation of which is the sole or main purpose ofthe charity, or

(b)to observe wildlife the conservation of which is the sole or main purposeof the charity.

(4)In subsection (3) above “right of admission” refers to admission ofthe person making the payment (or of any member of his family who may beadmitted because of the payment) either free of the charges normally payablefor admission by members of the public, or on payment of a reduced charge.

(5)Subsection (1) above shall not apply unless the opportunity to makepayments of the kind in question is available to members of the public.

(6)For the purposes of this section—

(a)“charity” means a body of persons or trust established forcharitable purposes only, and

(b)the bodies mentioned in section 507 shall each be treated as having beenso established.

(7)This section shall apply to payments due on or after 14th March 1989.

60 British Museum and Natural History Museum.U.K.

(1)In subsection (1) of section 507 of the Taxes Act 1988 (which gives tax exemption to the National Heritage Memorial Fund and the Historic Buildings and Monuments Commission) after paragraph (b) there shall be inserted—

“(c)the Trustees of the British Museum;

(d)the Trustees of the British Museum (Natural History);”and subsection (2) of that section (which gives partial tax exemption to those Trustees) shall cease to have effect.

(2)In section 339(9) of that Act, for the words from “the Trustees”(where those words first occur) to “History) and” there shall be substituted the words “each of the bodies mentioned in section 507, and in subsections (1) to (5) above includes”.

F53(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4)Subsection (1) above shall apply in relation to accounting periods ending on or after 14th March 1989, and [F54subsection (2)] above shall apply to payments due on or after that day.

Profit-related pay, share schemes etc.U.K.

[F5561 Profit-related pay.U.K.

Schedule 4 to this Act (which amends the provisions of the Taxes Act 1988 relating to profit-related pay) shall have effect.]

62 Savings-related share option schemes.U.K.

(1)Part III of Schedule 9 to the Taxes Act 1988 (requirements applicable to savings-related share option schemes) shall be amended as follows.

F56(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3)In paragraph 25(b) (requirement that price at which share may be acquired under scheme be not less than 90 per cent. of market value), for the words “90 per cent.” there shall be substituted the words “80 per cent.”.

(4)Subsection (2) above shall come into force on such day as the Treasury may by order made by statutory instrument appoint.

F5763 Profit sharing schemes.U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

64 Share option and profit sharing schemes: shares of consortium member.U.K.

In paragraph 10 of Schedule 9 to the Taxes Act 1988, paragraph (c)(ii)(which requires a consortium member to hold not less than three-twentieths of share capital of grantor company etc. if member’s shares are to qualify as scheme shares) shall cease to have effect.

65 Employee share schemes: material interest.U.K.

In Schedule 9 to the Taxes Act 1988 the following paragraph shall be inserted after paragraph 39—

40(1)Where an individual has an interest in shares or obligations of the company as a beneficiary of an employee benefit trust, the trustees shall not be regarded as associates of his by reason only of that interest unless sub-paragraph (3) below applies in relation to him.

(2)In this paragraph “employee benefit trust” has the same meaning as in paragraph 7 of Schedule 8.

(3)This sub-paragraph applies in relation to an individual if at any time on or after 14th March 1989—

(a)the individual, either on his own or with any one or more of his associates, or

(b)any associate of his, with or without other such associates,

has been the beneficial owner of, or able (directly or through the medium of other companies or by any other indirect means) to control, more than 25per cent., or in the case of a share option scheme which is not a savings-related share option scheme more than 10 per cent., of the ordinary share capital of the company.

(4)Sub-paragraphs (9) to (12) of paragraph 7 of Schedule 8 shall apply for the purposes of this paragraph in relation to an individual as they apply for the purposes of that paragraph in relation to an employee.”

66 Priority share allocations for employees etc.U.K.

(1)In relation to offers made on or after 11th October 1988, section 68 of the M12Finance Act 1988 (which provides for the benefits derived from priority rights in share offers to be disregarded in certain circumstances) shall have effect with the following amendments.

(2)In subsection (1), the words from “at the fixed price” to “tendered” shall be omitted.

(3)After that subsection there shall be inserted—

“(1A)Where the price payable by the director or employee is less than the fixed price or the lowest price successfully tendered, subsection (1) above shall not apply to the benefit represented by the difference in price.”

(4)In subsection (2), for paragraph (a) (priority shares not to exceed 10 percent. of shares subject to the offer) there shall be substituted—

“(a)that the aggregate number of shares subject to the offer that may be allocated as mentioned in subsection (1)(b) above does not exceed the limit specified in subsection (2A) below or, as the case may be, either of the limits specified in subsection (2B) below”.

(5)After subsection (2) there shall be inserted—

“(2A)Except where subsection (2B) below applies, the limit relevant for the purposes of subsection (2)(a) above is 10 per cent. of the shares subject to the offer (including the shares that may be allocated as mentioned in subsection (1)(b) above).

(2B)Where the offer is part of arrangements which include one or more other offers to the public of shares of the same class, the limits relevant for the purposes of subsection (2)(a) above are—

(a)40 per cent. of the shares subject to the offer (including the shares that may be allocated as mentioned in subsection (1)(b) above), and

(b)10 per cent. of all the shares of the class in question (including the shares that may be so allocated) that are subject to any of the offers forming part of the arrangements.”

Employee share ownership trustsU.K.

67 Tax relief. U.K.

(1)This section applies where—

(a)a company expends a sum in making a payment by way of contribution to the trustees of a trust which is a qualifying employee share ownership trust at the time the sum is expended,

(b)at that time, the company or a company which it then controls has employees who are eligible to benefit under the terms of the trust deed,

(c)at that time the company is resident in the United Kingdom,

(d)before the expiry of the expenditure period the sum is expended by th etrustees for one or more of the qualifying purposes, and

(e)before the end of the claim period a claim for relief under this section is made.

(2)In such a case the sum—

(a)shall be deducted in computing for the purposes of Schedule D the profits or gains of a trade carried on by the company, or

(b)if the company is an investment company or a company in the case of which section 75 of the Taxes Act 1988 applies by virtue of section 76 of that Act, shall be treated as expenses of management.

(3)For the purposes of subsection (1)(b) above, the question whether one company is controlled by another shall be construed in accordance with section840 of the Taxes Act 1988.

(4)For the purposes of subsection (1)(d) above each of the following is a qualifying purpose—

(a)the acquisition of shares in the company which established the trust;

(b)the repayment of sums borrowed;

(c)the payment of interest on sums borrowed;

(d)the payment of any sum to a person who is a beneficiary under the terms of the trust deed;

(e)the meeting of expenses.

(5)For the purposes of subsection (1)(d) above the expenditure period is the period of nine months beginning with the day following the end of the period of account in which the sum is charged as an expense of the company, or such longer period as the Board may allow by notice given to the company.

(6)For the purposes of subsection (1)(e) above the claim period is the period of two years beginning with the day following the end of the period of account in which the sum is charged as an expense of the company.

(7)For the purposes of this section the trustees of an employee share ownership trust shall be taken to expend sums paid to them in the order in which the sums are received by them (irrespective of the number of companies making payments).

68 Principal charges to tax. U.K.

(1)This section applies where a chargeable event (within the meaning of section 69 below) occurs in relation to the trustees of an employee share ownership trust.

(2)In such a case—

(a)the trustees shall be treated as receiving, when the event occurs, annual profits or gains whose amount is equal to the chargeable amount (within the meaning of section 70 below),

(b)the profits or gains shall be chargeable to tax under Case VI of Schedule D for the year of assessment in which the event occurs, and

(c)the rate at which the tax is chargeable shall be [F58the rate applicable to trusts] for the year of assessment in which the event occurs.

(3)If the whole or any part of the tax assessed on the trustees is not paid before the expiry of the period of six months beginning with the day on which the assessment becomes final and conclusive, a notice of liability to tax under this subsection may be served on a qualifying company and the tax or the part unpaid (as the case may be) shall be payable by the company on service of the notice.

(4)Where a notice of liability is served under subsection (3) above—

(a)any interest which is due on the tax or the part (as the case may be) and has not been paid by the trustees, and

(b)any interest accruing due on the tax or the part (as the case may be)after the date of service,

shall be payable by the company.

(5)Where a notice of liability is served under subsection (3) above and any amount payable by the company (whether on account of tax or interest) is not paid by the company before the expiry of the period of three months beginning with the date of service, the amount unpaid may be recovered from the trustees(without prejudice to the right to recover it instead from the company).

(6)For the purposes of this section each of the following is a qualifying company—

(a)the company which established the employee share ownership trust;

(b)any company falling within subsection (7) below.

(7)A company falls within this subsection if, before it is sought to serve a notice of liability on it under subsection (3) above—

(a)it has paid a sum to the trustees, and

(b)the sum has been deducted as mentioned in section 67(2)(a) above or treated as mentioned in section 67(2)(b) above.

69 Chargeable events. U.K.

(1)For the purposes of section 68 above each of the following is a chargeable event in relation to the trustees of an employee share ownership trust—

(a)the transfer of securities by the trustees, if the transfer is not a qualifying transfer;

(b)the transfer of securities by the trustees to persons who are at the time of the transfer beneficiaries under the terms of the trust deed, if the terms on which the transfer is made are not qualifying terms;

(c)the retention of securities by the trustees at the expiry of the [F59qualifying period] beginning with the date on which they acquired them;

(d)the expenditure of a sum by the trustees for a purpose other than a qualifying purpose.

(2)For the purposes of subsection (1)(a) above a transfer is a qualifying transfer if it is made to a person who at the time of the transfer is a beneficiary under the terms of the trust deed.

(3)For the purposes of subsection (1)(a) above a transfer is also a qualifying transfer if—

(a)it is made to the trustees of a scheme which at the time of the transfer is a profit sharing scheme approved under Schedule 9 to the Taxes Act 1988, and

(b)it is made for a consideration which is not less than the price the securities might reasonably be expected to fetch on a sale in the open market.

[F60(3A)For the purposes of subsection (1)(a) above a transfer is also a qualifying transfer if it is made by way of exchange in circumstances mentioned in section 85(1) of the Capital Gains Tax Act 1979 or section 135(1) of the Taxation of Chargeable Gains Act 1992.]

(4)For the purposes of subsection (1)(b) above a transfer of securities is made on qualifying terms if—

(a)all the securities transferred at the same time [F61other than those transferred on a transfer such as is mentioned in subsection (4ZA) below] are transferred on similar terms,

(b)securities have been offered to all the persons who are beneficiaries under the terms of the trust deed [F62by virtue of a rule which conforms with paragraph 4(2), (3) or (4) of Schedule 5 to this Act] when the transfer is made, and

(c)securities are transferred to all such [F63persons] who have accepted.

[F64(4ZA)For the purposes of subsection (1)(b) above a transfer of securities is also made on qualifying terms if—

(a)it is made to a person exercising a right to acquire shares, and

(b)that right was obtained in accordance with the provisions of a savings-related share option scheme within the meaning of Schedule 9 to the Taxes Act 1988—

(i)which was established by, or by a company controlled by, the company which established the trust, and

(ii)which is approved under that Schedule, and

(c)that right is being exercised in accordance with the provisions of that scheme, and

(d)the consideration for the transfer is payable to the trustees.]

[F65(4A)For the purposes of subsection (1)(c) above the qualifying period is—

(a)seven years, in the case of trusts established on or before the day on which the Finance Act 1994 was passed;

(b)twenty years, in the case of other trusts;

and for this purpose a trust is established when the deed under which it is established is executed.]

(5)For the purposes of subsection (1)(d) above each of the following is a qualifying purpose—

(a)the acquisition of shares in the company which established the trust;

(b)the repayment of sums borrowed;

(c)the payment of interest on sums borrowed;

(d)the payment of any sum to a person who is a beneficiary under the terms of the trust deed;

(e)the meeting of expenses.

(6)For the purposes of subsection (4) above, the fact that terms vary according to the levels of remuneration of beneficiaries, the length of their service, or similar factors, shall not be regarded as meaning that the terms are not similar.

(7)In ascertaining for the purposes of this section whether particular securities are retained, securities acquired earlier by the trustees shall be treated as transferred by them before securities acquired by them later.

(8)For the purposes of this section trustees—

(a)acquire securities when they become entitled to them (subject to the exceptions in subsection (9) below);

(b)transfer securities to another person when that other becomes entitled to them;

(c)retain securities if they remain entitled to them.

(9)The exceptions are these—

(a)if securities are issued to trustees in exchange in circumstances mentioned in section [F66135(1) of the Taxation of Chargeable Gains Act 1992], they shall be treated as having acquired them when they became entitled to the securities for which they are exchanged;

(b)if trustees become entitled to securities as a result of a reorganisation, they shall be treated as having acquired them when they became entitled to the original shares which those securities represent (construing “reorganisation” and “original shares” in accordance with section [F66126] of that Act).

(10)If trustees agree to take a transfer of securities, for the purposes of this section they shall be treated as becoming entitled to them when the agreement is made and not on a later transfer made pursuant to the agreement.

(11)If trustees agree to transfer securities to another person, for the purposes of this section the other person shall be treated as becoming entitled to them when the agreement is made and not on a later transfer made pursuant to the agreement.

(12)For the purposes of this section the following are securities—

(a)shares;

(b)debentures.

70 Chargeable amounts. U.K.

(1)This section has effect to determine the chargeable amount for the purposes of section 68 above.

(2)If the chargeable event falls within section 69(1)(a), (b) or (c) above the following rules shall apply—

(a)if the event constitutes a disposal of the securities by the trustees for the purposes of the [F67Taxation of Chargeable Gains Act 1992], the chargeable amount is an amount equal to the sums allowable under section [F6738(1)(a)] and (b) of that Act;

(b)if the event does not constitute such a disposal, the chargeable amount is an amount equal to the sums which would be so allowable had the trustees made a disposal of the securities for the purposes of that Act at the time the chargeable event occurs.

(3)If the chargeable event falls within section 69(1)(d) above the chargeable amount is an amount equal to the sum concerned.

71 Further charges to tax: borrowing. U.K.

(1)This section applies where—

(a)a chargeable event (within the meaning of section 69 above) occurs in relation to the trustees of an employee share ownership trust,

(b)at the time the event occurs anything is outstanding in respect of the principal of an amount or amounts borrowed at any time by the trustees, and

(c)the chargeable event is one as regards which section 72(2)(b) below applies.

(2)In the following provisions of this section—

(a)“the initial chargeable event” means the event referred to in subsection (1)(a) above, and

(b)“the total outstanding amount” means the total amount outstanding, at the time the initial chargeable event occurs, in respect of the principal of an amount or amounts borrowed at any time by the trustees.

(3)If any of the total outstanding amount is repaid after the initial chargeable event occurs, a further chargeable event shall occur in relatio nto the trustees at the end of the year of assessment in which the repayment is made.

(4)In such a case—

(a)the trustees shall be treated as receiving, when the further event occurs, annual profits or gains whose amount is equal to the chargeable amount,

(b)the profits or gains shall be chargeable to tax under Case VI of Schedule D for the year of assessment at the end of which the further event occurs, and

(c)the rate at which the tax is chargeable shall be [F68the rate applicable to trusts] for the year of assessment at the end of which the further event occurs.

(5)Subject to subsection (6) below, for the purposes of subsection (4) above the chargeable amount is an amount equal to the aggregate of the total outstanding amount repaid in the year of assessment.

(6)In a case where section 72(2)(b) below had effect in the case of the initial chargeable event, for the purposes of subsection (4) above the chargeable amount is an amount equal to the smaller of—

(a)the aggregate of the total outstanding amount repaid in the year of assessment, and

(b)an amount found by applying the formula A-B-C.

(7)For the purposes of subsection (6) above—

(a)A is the amount which would be the chargeable amount for the initial chargeable event apart from section 72(2) below,

(b)B is the chargeable amount for the initial chargeable event, and

(c)C is the amount (if any) found under subsection (8) below.

(8)If, before the further chargeable event occurs, one or more prior chargeable events have occurred in relation to the trustees by virtue of the prior repayment of any of the total outstanding amount found for the time the initial chargeable event occurs, the amount found under this subsection is an amount equal to the chargeable amount for the prior chargeable event or to the aggregate of the chargeable amounts for the prior chargeable events (as the case may be).

(9)In a case where—

(a)a chargeable event (within the meaning of section 69 above) occurs in relation to the trustees in circumstances mentioned in subsection (1) above,

(b)a sum falls to be included in the total outstanding amount found for the time the event occurs,

(c)another chargeable event (within the meaning of that section) occurs in relation to the trustees in circumstances mentioned in subsection (1) above, and

(d)the same sum or a part of it would (apart from this subsection) fall to be included in the total outstanding amount found for the time the event occurs,

the sum or part (as the case may be) shall not be included in the total outstanding amount found for the time the other chargeable event occurs.

(10)In ascertaining for the purposes of this section whether a repayment is in respect of a particular amount, amounts borrowed earlier shall be taken to be repaid before amounts borrowed later.

(11)Subsections (3) to (7) of section 68 above shall apply where tax is assessed by virtue of this section as they apply where tax is assessed by virtue of that section.

72 Limit on chargeable amount. U.K.

(1)For the purposes of this section each of the following is a chargeable event in relation to the trustees of an employee share ownership trust—

(a)an event which is a chargeable event by virtue of section 69 above;

(b)an event which is a chargeable event by virtue of section 71 above.

(2)If a chargeable event (the event in question) occurs in relation to the trustees of an employee share ownership trust, the following rules shall apply—

(a)the amount which would (apart from this subsection) be the chargeable amount for the event in question shall be aggregated, for the purposes of paragraph (b) below, with the chargeable amounts for other chargeable events(if any) occurring in relation to the trustees before the event in question,

(b)if the amount which would (apart from this subsection) be the chargeable amount for the event in question (or the aggregate found under paragraph (a)above, if there is one) exceeds the deductible amount, the chargeable amount for the event in question shall be the amount it would be apart from this subsection less an amount equal to the excess, and

(c)section 70(2) and (3) and section 71(5) above shall have effect subject to paragraph (b) above.

(3)For the purposes of subsection (2) above the deductible amount (as regards the event in question) is an amount equal to the total of the sums falling within subsection (4) below.

(4)A sum falls within this subsection if it has been received by the trustees before the occurrence of the event in question and—

(a)it has been deducted as mentioned in section 67(2)(a) above, or treated as mentioned in section 67(2)(b) above, before the occurrence of that event, or

(b)it would fall to be so deducted or treated if a claim for relief under section 67 above had been made immediately before the occurrence of that event.

73 Information. U.K.

(1)An inspector may by notice in writing require a return to be made by the trustees of an employee share ownership trust if they have at any time received a sum which has been deducted as mentioned in section 67(2)(a) above or treated as mentioned in section 67(2)(b) above.

(2)Where he requires such a return to be made the inspector shall specify the information to be contained in it.

(3)The information which may be specified is information the inspector needs for the purposes of sections 68 to 72 above, and may include information about—

(a)sums received (including sums borrowed) by the trustees;

(b)expenditure incurred by them;

(c)assets acquired by them;

(d)transfers of assets made by them.

(4)The information which may be required under subsection (3)(a) above may include the persons from whom the sums were received.

(5)The information which may be required under subsection (3)(b) above may include the purpose of the expenditure and the persons receiving any sums.

(6)The information which may be specified under subsection (3)(c) above may include the persons from whom the assets were acquired and the consideration furnished by the trustees.

(7)The information which may be included under subsection (3)(d) above may include the persons to whom assets were transferred and the consideration furnished by them.

(8)In a case where a sum has been deducted as mentioned in section 67(2)(a)above, or treated as mentioned in section 67(2)(b) above, the inspector shall send to the trustees to whom the payment was made a certificate stating—

(a)that a sum has been so deducted or so treated, and

(b)what sum has been so deducted or so treated.

(9)In the Table in section 98 of the M13Taxes Management Act1970 (penalties for failure to comply with notices etc.) at the end of the first column there shall be inserted— “ Section 73 of the Finance Act 1989 ”.

74 Interpretation. U.K.

Schedule 5 to this Act shall have effect to determine whether, for the purposes of sections 67 to 73 above, a trust is at a particular time—

(a)an employee share ownership trust;

(b)a qualifying employee share ownership trust.

Pensions etc.U.K.

75 Retirement benefits schemes.U.K.

Schedule 6 to this Act (which relates to retirement benefits schemes)shall have effect.

76 Non-approved retirement benefits schemes.U.K.

(1)In computing the amount of the profits or gains to be charged under Case I or Case II of Schedule D, no sum shall be deducted in respect of any expenses falling within subsection (2) or (3) below; and no expenses falling within either of those subsections shall be treated for the purposes of section 75 of the Taxes Act 1988 (investment companies) as expenses of management.

(2)[F69Subject to subsection (6A) below, expenses] fall within this subsection if—

(a)they are expenses of providing benefits pursuant to a relevant retirement benefits scheme, and

(b)the benefits are not ones in respect of which a person is on receipt chargeable to income tax.

(3)[F69Subject to subsection (6A) below, expenses] fall within this subsection if—

(a)they are expenses of paying any sum pursuant to a relevant retirement benefits scheme with a view to the provision of any benefits, and

(b)the sum is not one which when paid is treated as the income of a person by virtue of section 595(1) of the Taxes Act 1988 (sum paid with a view to the provision of any relevant benefits for an employee).

(4)No sum shall be deducted in respect of any expenses falling within subsection (5) or (6) below—

(a)in computing the amount of the profits or gains to be charged under Case I or Case II of Schedule D, or

(b)by virtue of section 75 of the Taxes Act 1988,

unless the sum has actually been expended.

(5)[F69Subject to subsection (6A) below, expenses] fall within this subsection if—

(a)they are expenses of providing benefits pursuant to a relevant retirement benefits scheme, and

(b)the benefits are ones in respect of which a person is on receipt chargeable to income tax.

(6)[F69Subject to subsection (6A) below, expenses] fall within this subsection if—

(a)they are expenses of paying any sum pursuant to a relevant retirement benefits scheme with a view to the provision of any benefits, and

(b)the sum is one which when paid is treated as the income of a person by virtue of section 595(1) of the Taxes Act 1988.

[F70(6A)Expenses to which subsection (6B) or (6C) below applies shall be treated as not falling within any of subsections (2), (3), (5) or (6) above.

F70(6B)This subsection applies to expenses of paying any sum, or of providing benefits, pursuant to a superannuation fund which satisfies the requirements of section 615(6) of the Taxes Act 1988.

F70(6C)This subsection applies to expenses of paying any sum, or of providing benefits, pursuant to a retirement benefits scheme which is established outside the United Kingdom and which the Board are satisfied corresponds to such a scheme as is mentioned in paragraphs (a), (b) or (c) of section 596(1) of the Taxes Act 1988, where the expenses are incurred for the benefit of:

(a)employees whose emoluments are foreign emoluments within the meaning of section 192 of the Taxes Act 1988; or

(b)employees who are not resident in the United Kingdom and whose duties are performed wholly outside the United Kingdom (and for this purpose duties performed in the United Kingdom the performance of which is merely incidental to the performance of other duties outside the United Kingdom shall be treated as performed outside the United Kingdom).]

(7)In this section—

• “retirement benefits scheme” has the same meaning as in Chapter I of Part XIV of the Taxes Act 1988, and

• references to a relevant retirement benefits scheme are references to a retirement benefits scheme which is not of a description mentioned in section596(1)(a), (b) or (c) of the Taxes Act 1988.

(8)This section has effect in relation to expenses incurred on or after the day on which this Act is passed.

77 Personal pension schemes.U.K.

Schedule 7 to this Act (which relates to personal pension schemes) shall have effect.

Unit trusts etc.U.K.

78, 79.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F71U.K.

80 Gilt unit trusts.U.K.

(1)Where, in the case of a certified unit trust and apart from thissubsection, section 468(5) of the Taxes Act 1988 would apply as regards adistribution period beginning after 31st December 1989, section 468(5) shallnot apply in the case of the trust as regards that period.

(2)Where by virtue of subsection (1) above the last distribution period asregards which section 468(5) applies in the case of a certified unit trust isone beginning on or before, and ending after, 31st December 1989, thetrustees’ liability to income tax in respect of any source of incomechargeable under Case III of Schedule D shall be assessed as if they hadceased to possess the source of income on the last day of that distributionperiod.

(3)But where section 67 of the Taxes Act 1988 applies by virtue of subsection(2) above, it shall apply with the omission from subsection (1)(b) of thewords from “and shall” to “this provision”.

(4)For the purposes of this section “certified unit trust”means, as respects a distribution period, a unit trust scheme in the case ofwhich—

(a)an order under section 78 of the M14 Financial ServicesAct 1986 is in force during the whole or part of the accounting period inwhich the distribution period falls, and

(b)a certificate under section 78(8) of that Act, certifying that the scheme complies with the conditions necessary for it to enjoy the rights conferredby the UCITS directive, has been issued before or at any time during thataccounting period.

(5)In this section—

“distribution period” has the same meaning as in section 468 of the Taxes Act 1988,

“the UCITS directive” means the directive of the Council of the European Communities, dated 20th December 1985, on theco-ordination of laws, regulations and administrative provisions relating toundertakings for collective investment in transferable securities (No.85/611/EEC), and

“unit trust scheme” has the same meaning as in section 469 of theTaxes Act 1988.

81 Offshore funds operating equalisation arrangements.U.K.

(1)In section 758 of the Taxes Act 1988 (offshore funds operating equalisation arrangements) in subsection (6) (reference to section 78 of the M15 Capital Gains Tax Act 1979 not to include reference to it as applied by section 82) for the words “but not” there shall be substituted the words “and a reference to section 78”.

(2)This section shall apply where a conversion of securities occurs on or after 14th March 1989; and “conversion of securities” here has the same meaning as in section 82 of the Capital Gains Tax Act 1979.

Life assuranceU.K.

82 Calculation of profits.U.K.

(1)Where the profits of an insurance company in respect of its life assurance business are, for the purposes of the Taxes Act 1988, computed in accordance with the provisions of that Act applicable to Case I of Schedule D, then, in calculating the profits for any period of account,—

(a)there shall be taken into account as an expense (so far as not so taken into account apart from this section) any amounts which [F72are allocated to, and any amounts of [F73tax or] foreign tax which are expended on behalf of, policy holders or annuitants in respect of the period]; and

(b)if, at the end of the period, the company has an unappropriated surplus on valuation, as shown in its return for the purposes of the M16 Insurance Companies Act 1982, then, subject to subsection (3) below, the closing liabilities of the period may include such amount, forming part of that surplus, as is required to meet the reasonable expectations of policyholders or annuitants with regard to bonuses or other additions to benefit of a discretionary nature.

(2)For the purposes of this section an amount is allocated to policy holders or annuitants if, and only if,—

(a)bonus payments are made to them; or

(b)reversionary bonuses are declared in their favour or a reduction is made in the premiums payable by them;

and the amount of the allocation is, in a case within paragraph (a)above, the amount of the payments and, in a case within paragraph (b) above, the amount of the liabilities assumed by the company in consequence of the declaration or reduction.

(3)The amount which, apart from this subsection, would be included in the closing liabilities of a period of account by virtue of subsection (1)(b)above shall be reduced or, as the case may be, extinguished by deducting there from the total of the amounts which—

(a)for periods of account ending before 14th March 1989 have been excluded, by virtue of section 433 of the Taxes Act 1988, as being reserved for policyholders or annuitants, and

(b)have not before that date either been allocated to or expended on behalf of policy holders or annuitants or been treated as profits of an accounting period on ceasing to be so reserved.

(4)Where the closing liabilities of a period of account include an amount by virtue of subsection (1)(b) above, the like amount shall be included in the opening liabilities of the next following period of account.

(5)This section has effect with respect to periods of account ending on or after 14th March 1989; and the following provisions of this section shall apply for the purposes of the application of this section to any such period which begins before that date (in this section referred to as a “straddling period”).

(6)For the purposes referred to in subsection (5) above, it shall be assumed that the straddling period consists of two separate periods of account,—

(a)the first beginning at the beginning of the straddling period and ending on 13th March 1989 (in this section referred to as “the first notional period”); and

(b)the second beginning on 14th March 1989 and ending at the end of the straddling period (in this section referred to as “the second notional period”);

and any reference in subsection (7) or subsection (8) below to a time apportionment is a reference to an apportionment made by reference to the respective lengths of the two notional periods.

(7)To determine the profits of the first notional period and the amount excluded from the profits of that period by virtue of section 433 of the Taxes Act 1988 as being reserved for policy holders or annuitants,—

(a)in the first instance the profits of the straddling period and the amount so excluded from those profits shall be computed as if subsections (1) to (4)above did not apply with respect to any part of the straddling period; and

(b)there shall then be determined that part of the profits and the amount computed under paragraph (a) above which, on a time apportionment, is properly attributable to the first notional period.

(8)To determine the profits of the second notional period,—

(a)in the first instance the profits of the straddling period shall be computed as if subsections (1) to (4) above applied to the whole of the straddling period; and

(b)there shall then be determined that part of the profits computed under paragraph (a) above which, on a time apportionment, is properly attributable to the second notional period.

[F7483 Receipts to be brought into account.U.K.

(1)The following provisions of this section have effect where the profits of an insurance company in respect of its life assurance business are, for the purposes of the Taxes Act 1988, computed in accordance with the provisions of that Act applicable to Case I of Schedule D.

(2)So far as referable to that business, the following items, as brought into account for a period of account (and not otherwise), shall be taken into account as receipts of the period—

(a)the company’s investment income from the assets of its long term business fund, and

(b)any increase in value (whether realised or not) of those assets.

[F75(3)In ascertaining whether or to what extent a company has incurred a loss in respect of that business in a case where an amount is added to the company’s long term business fund as part of or in connection with—

(a)a transfer of business to the company, or

(b)a demutualisation of the company not involving a transfer of business,

that amount shall (subject to subsection (4) below) be taken into account, for the period for which it is brought into account, as an increase in value of the assets of that fund within subsection (2)(b) above.

F75(4)Subsection (3) above does not apply where, or to the extent that, the amount concerned—

(a)would fall to be taken into account as a receipt apart from this section,

(b)is taken into account under subsection (2) above otherwise than by virtue of subsection (3) above, or

(c)is specifically exempted from tax.

F75(5)Any amount which is to be taken into account pursuant to subsection (3) above for a period of account shall be so taken into account—

(a)after the making of any reduction under subsection (6) of section 83AA below in relation to that period, but

(b)before the making of any reduction under subsection (3) of that section in relation to an accounting period of the company ending in or with that period.

F75(6)In subsection (3) above “transfer of business” means—

(a)a transfer of the whole or part of the long term business of an insurance company in accordance with a scheme sanctioned by a court under Part I of Schedule 2C to the M17Insurance Companies Act 1982;

(b)a qualifying overseas transfer, within the meaning of paragraph 4A of Schedule 19AC to the Taxes Act 1988; or

(c)the making of a contract of reinsurance which, in whole or in part, constitutes or forms part of a total reinsurance by the reinsured, unless the reinsurer under the contract falls within section 439A of the Taxes Act 1988 (pure reinsurance).

F75(7)For the purposes of subsection (3)(a) above, a transfer of business falling within subsection (6)(c) above shall be treated as a transfer of business to the company which is the reinsurer under the contract of reinsurance.

F75(8)In this section—

• “add”, in relation to an amount and a company’s long term business fund, includes transfer (whether from other assets of the company or otherwise);

  “demutualisation” means the conversion, under the law of any territory, of a company which has been carrying on insurance business without having a share capital into a company with a share capital, without any change of legal personality;

  “total reinsurance” means the reinsurance (whether effected by a single contract of reinsurance or by two or more such contracts, taken together, whether or not made with the same reinsurer) of the whole, or substantially the whole, of the reinsured’s risk—

(a)under policies of a particular description issued in respect of insurances made in the course of carrying on life assurance business before the making of the contract of reinsurance (or, in a case where there are two or more contracts of reinsurance, the last of them); or

(b)under contracts of a particular description so made.]

[F7683A Meaning of “brought into account”.U.K.

(1)[F77In sections 83 to 83AB]“brought into account” means brought into account in an account which is recognised for the purposes of [F78those sections].

(2)Subject to the following provisions of this section and to any regulations made by the Treasury, the accounts recognised for the purposes of [F79those sections] are—

(a)a revenue account prepared for the purposes of the Insurance Companies Act 1982 in respect of the whole of the company’s long term business;

(b)any separate revenue account required to be prepared under that Act in respect of a part of that business.

(3)Where there are prepared any such separate accounts as are mentioned in subsection (2)(b) above, reference shall be made to those accounts rather than to the account for the whole of the business.

(4)If in any such case the total of the items brought into account in the separate accounts is not equal to the total amount brought into account in the account prepared for the whole business, there shall be treated as having been required and prepared a further separate revenue account covering the balance.

F80(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F8183AA Amounts added to long term business fund of a company in excess of that company’s loss.U.K.

(1)If one or more relevant amounts are brought into account for a period of account of a company and either—

(a)the aggregate of those amounts exceeds the loss which, after the making of any reduction under subsection (6) below but before any application of section 83(3) above in relation to that period, would have arisen to the company in that period in respect of its life assurance business, or

(b)no such loss would have so arisen,

the surplus for that period shall be applied in accordance with the following provisions of this section and section 83AB below.

(2)In this section—

• “relevant amount” means so much of any amount which is added to the long term business fund of a company as mentioned in subsection (3) of section 83 above as does not fall within any of the paragraphs of subsection (4) of that section;

  “surplus”, in relation to a period of account of a company, means (subject to section 83AB(2) below)—

(a)if the aggregate of the relevant amounts brought into account for that period exceeds the amount of any loss which, after the making of any reduction under subsection (6) below but before any application of section 83(3) above in relation to that period, would have arisen to the company in that period in respect of its life assurance business, the amount of the excess; or

(b)if no such loss would have so arisen, the aggregate of the relevant amounts brought into account for that period.

(3)Where, apart from section 83AB(2) below, there is a surplus for a period of account of a company for which there are brought into account one or more relevant amounts which were added to the company’s long term business fund as part of, or in connection with, a particular transfer of business, the appropriate portion of the surplus for that period shall be treated as reducing (but not below nil) so much of any loss arising to the transferor company in the relevant accounting period as, on a just and reasonable apportionment of the loss, is referable to the business which is the subject of that particular transfer.

(4)For the purposes of subsection (3) above, the appropriate portion of the surplus for a period of account of a company is, in the case of any particular transfer of business, the amount which bears to that surplus (apart from any additions by virtue of section 83AB(2) below) the proportion which A bears to B, where—

• A is the aggregate of such of the relevant amounts added to the company’s long term business fund as part of, or in connection with, that particular transfer of business as are brought into account for that period, and

• B is the aggregate of the relevant amounts brought into account for that period.

(5)Any reduction pursuant to subsection (3) above of the loss arising to the transferor company in the relevant accounting period shall be made after—

(a)the making of any reduction under subsection (6) below, and

(b)any application of section 83(3) above,

in relation to the period of account of that company in which falls the date of the particular transfer of business in question.

(6)Any loss arising to a company in respect of its life assurance business in a period of account subsequent to one for which there is a surplus shall be reduced (but not below nil) by so much of that surplus as cannot be applied—

(a)under subsection (3) above;

(b)under this subsection, in the reduction of a loss arising to the company in an earlier period of account; or

(c)under section 83AB below, in relation to a transfer of business from the company in that or any earlier period of account.

(7)Any reduction pursuant to subsection (6) above of a loss arising to a company in a period of account shall be made—

(a)before any application of section 83(3) above in relation to that period, and

(b)if the company is also the transferor company in relation to a particular transfer of business, before the making of any reduction under subsection (3) above in relation to that one of its accounting periods which is the relevant accounting period in relation to that transfer.

(8)A surplus in respect of an earlier period of account shall be applied under subsection (6) above before a surplus in respect of a later period of account.

(9)All such adjustments to the liability to tax of any person shall be made, whether by assessment or otherwise, as may be required to give effect to this section.

(10)In this section—

• “add” has the same meaning as in section 83 above;

  “the relevant accounting period” means the accounting period of the transferor company which—

(a)ends on the date of the transfer of business mentioned in subsection (3) above, or

(b)if that transfer of business falls within section 83(6)(c) above and no accounting period of the transferor company ends on that date, ends next after that date;

(11)A transfer of business falling within section 83(6)(c) above shall be treated for the purposes of this section as a transfer of business from the company which is the reinsured under the contract of reinsurance.]

[F8283AB Treatment of surplus where there is a subsequent transfer of business from the company etc.U.K.

(1)If an amount is added to the long term business fund of a company as part of or in connection with a transfer of business to the company, or a demutualisation of the company not involving a transfer of business, and—

(a)there is a surplus for the period of account of the company for which that amount is brought into account,

(b)at any time after the transfer of business or demutualisation, there is a transfer of business from the company (the “subsequent transfer”), and

(c)at the end of the relevant period of account there remains at least some of the surplus mentioned in paragraph (a) above which cannot be applied—

(i)under subsection (3) of section 83AA above,

(ii)under subsection (6) of that section, in the reduction of a loss arising to the company in an earlier period of account, or

(iii)under this section, in relation to an earlier subsequent transfer,

so much of the surplus falling within paragraph (c) above as, on a just and reasonable apportionment, is referable to business which is the subject of the subsequent transfer shall be applied under this section.

(2)An amount of surplus which is to be applied under this section shall be so applied by being treated as an amount of surplus (additional to any other amounts of surplus) for the period of account of the transferee company which last precedes the period of account of that company in which the subsequent transfer is effected, whether or not there is in fact any such preceding period of account.

(3)If, in a case where an amount is treated under subsection (2) above as an amount of surplus for a period of account of a company, the period is not one for which there is brought into account an amount added to the company’s long term business fund in connection with the subsequent transfer, subsection (1) above shall have effect in relation to any transfer of business from the company subsequent to that transfer as if an amount had been so added and had been brought into account for that period.

(4)Any question as to what is a just and reasonable apportionment in any case for the purposes of subsection (1) above shall be determined by the Special Commissioners who shall determine the question in the same manner as they determine appeals; but any person affected by the apportionment shall be entitled to appear and be heard or make representations in writing.

(5)A surplus in respect of an earlier period of account shall be applied under this section before a surplus in respect of a later period of account.

(6)All such adjustments to the liability to tax of any person shall be made, whether by assessment or otherwise, as may be required to give effect to this section.

(7)In this section—

• “add” has the same meaning as in section 83 above;

  “demutualisation” has the same meaning as in section 83 above;

  “the relevant period of account” means the period of account of the company from which the subsequent transfer is effected which consists of or includes the accounting period of that company which—

(a)ends with the day on which the subsequent transfer is effected; or

(b)if the subsequent transfer is a transfer of business falling within section 83(6)(c) above and no accounting period of the company ends on that day, ends next after that day;

• “surplus” has the same meaning as in section 83AA above;

• “transfer of business” has the same meaning as in section 83(3) above;

• “transferee company” means the company to which the subsequent transfer of business is effected.

(8)Where it is necessary for any purpose of this section to identify the time at which a demutualisation of a company takes place, that time shall be taken to be the time when the company first issues shares.

(9)A transfer of business falling within section 83(6)(c) above shall be treated for the purposes of this section as a transfer of business from the company which is the reinsured under the contract of reinsurance to the company which is the reinsurer under that contract.]

84 Interpretation of sections 85 to 89 and further provisions about insurance companies.U.K.

[F83(1)In sections 85 to 89 below “basic life assurance and general annuity business” has the same meaning as in Chapter I of Part XII of the Taxes Act 1988.]

(2)Any reference in the sections referred to in subsection (1) above or the following provisions of this section to a straddling period is a reference to an accounting period which begins before 1st January 1990 and ends on or after that date.

(3)For the purposes of the sections referred to in subsection (1) above and for the purposes of subsection (5)(b) below it shall be assumed that a straddling period consists of two separate accounting periods—

(a)the first beginning at the beginning of the straddling period and ending on 31st December 1989; and

(b)the second beginning on 1st January 1990 and ending at the end of the straddling period;

and in those sections and subsection (5)(b) below the first of those two notional accounting periods is referred to as “the 1989 component period” and the second is referred to as “the 1990 component period”.

(4)Chapter I of Part XII of the Taxes Act 1988 (insurance companies) shall have effect subject to the amendments in Schedule 8 to this Act, being—

(a)amendments relating to franked investment income, loss relief and group relief; and

(b)amendments consequential on or supplemental to sections 82 and 83 above and sections 85 to 89 below.

(5)Subject to subsection (6) below, in Schedule 8 to this Act,—

(a)paragraphs 2 and 6 shall be deemed to have come into force on 14th March1989; and

(b)the remainder shall have effect with respect to accounting periods beginning on or after 1st January 1990 (including the 1990 component period).

(6)Nothing in subsection (5) above affects the operation, by virtue of any provision of sections 82 and 83 above and sections 85 to 89 below, of any enactment repealed or amended by Schedule 8 to this Act and, so long as the provisions of that Schedule do not have effect in relation to sections 434 and435 of the Taxes Act 1988, nothing in subsection (5)(a) above affects the continuing operation of section 433 of that Act for the purpose only of determining the fraction of the profits referred to in subsection (6) of section 434 and subsection (1)(b) of section 435.

85 Charge of certain receipts of basic life assurance business.U.K.

(1)Subject to subsection (2) below, where the profits of an insurance company in respect of its life assurance business are not charged under Case I of Schedule D, there shall be chargeable under Case VI of that Schedule any receipts referable to the company’s [F84basic life assurance and general annuity business]—

(a)which, if those profits were charged under Case I of Schedule D, would betaken into account in computing those profits; and

(b)which would not be within the charge to tax (except under Case I of Schedule D) apart from this section;

and for the purposes of paragraph (a) above, the provisions of section 83 above as to the manner in which any item is to be taken into account shall be disregarded.

(2)The receipts referred to in subsection (1) above do not include—

(a)any premium; or

(b)any sum received by virtue of a claim under an insurance contract(including a re-insurance contract); or

(c)any repayment or refund (in whole or in part) of a sum disbursed by the company as acquisition expenses falling within paragraphs (a) to (c) of subsection (1) of section 86 below; or

[F85(ca)any reinsurance commission; or]

(d)any sum which is taken into account under section 76(1)(a) of the Taxes Act 1988 as a deduction from the amount treated as expenses of management of the company; or

(e)any sum which is not within the charge to tax (except under Case I of Schedule D) because of an exemption from tax.

(3)This section has effect with respect to the receipts of accounting periods beginning on or after 1st January 1990 (including the 1990 component period).

86 Spreading of relief for acquisition expenses.U.K.

(1)For the purposes of this section, the acquisition expenses for any period of an insurance company carrying on life assurance business are such of the following expenses of management as are for that period attributable to the company’s [F86basic life assurance and general annuity business],—

(a)commissions (however described), other than commissions [F87for persons who collect premiums from house to house],

(b)any other expenses of management which are disbursed solely for the purpose of the acquisition of business, and

(c)so much of any other expenses of management which are disbursed partly for the purpose of the acquisition of business and partly for other purposes as are properly attributable to the acquisition of business,

[F88reduced by the items specified in subsection (1A) below.]

[F89(1A)Those items are—

(a)the appropriate portion of any deduction falling to be made under paragraph (aa) of subsection (1) of section 76 of the Taxes Act 1988 for the period in question;

(b)any such repayments or refunds falling within paragraph (c) of that subsection as are received in that period;

(c)any reinsurance commissions falling within paragraph (ca) of that subsection.

(1B)For the purposes of paragraph (a) of subsection (1A) above, “the appropriate portion” of the deduction there mentioned is the amount which bears to the whole of that deduction the proportion which the acquisition expenses, without making the reduction required by subsection (1) above, would bear to the whole of the expenses of management, without making the deductions required by paragraphs (aa), (a), (c) and (ca) of section 76(1) of the Taxes Act 1988.]

(2)The exclusion from paragraph (a) of subsection (1) above of commissions [F90for persons who collect premiums from house to house] shall not prevent such commissions constituting expenses of management for the purposes of paragraph(b) or paragraph (c) of that subsection.

(3)Nothing in subsections (1) and (2) above applies to commissions (however described) in respect of insurances made before 14th March 1989, but without prejudice to the application of those subsections to any commission attributable to a variation on or after that date in a policy issued in respect of an insurance made before that date; and, for this purpose, the exercise of any rights conferred by a policy shall be regarded as a variation of it.

[F91(3A)Nothing in subsection (1), (2) or (3) above applies to commissions (however described) in respect of annuity contracts made in accounting periods beginning before 1st January 1992, but without prejudice to the application of subsections (1) and (2) above to any commission attributable to a variation, in an accounting period beginning on or after that date, of an annuity contract so made; and for this purpose the exercise of any rights conferred by an annuity contract shall be regarded as a variation of it.]

(4)In subsection (1) above “the acquisition of business” includes

[F92(a)]the securing on or after 14th March 1989 of the payment of increased or additional premiums in respect of a policy of insurance issued in respect of an insurance already made (whether before, on or after that date) [F93and

(b)the securing, in an accounting period beginning on or after 1st January 1992, of the payment of increased or additional consideration in respect of an annuity contract already made (whether in an accounting period beginning before, or on or after, that date)].

(5)In relation to any period, the expenses of management attributable to a company’s [F86basic life assurance and general annuity business] are expenses—

(a)which are disbursed for that period (disregarding any treated as so disbursed by section 75(3) of the Taxes Act 1988); and

(b)which, disregarding subsection (6) below, are deductible as expenses of management in accordance with sections 75 and 76 of the Taxes Act 1988.

[F94(5A)References in this section to expenses of management do not include any amounts treated as additional expenses of management by virtue of section 434D(6)(a) of the Taxes Act 1988 (capital allowances in respect of expenditure on management assets).]

(6)Notwithstanding anything in sections 75 and 76 of the Taxes Act 1988 but subject to subsection (7) below, only one-seventh of the acquisition expenses for any accounting period (in this section referred to as “the base period”) shall be treated as deductible under those sections for the base period, and in subsections (8) and (9) below any reference to the full amount of the acquisition expenses for the base period is a reference to the amount of those expenses which would be deductible for that period apart from this subsection.

(7)In the case of the acquisition expenses for an accounting period or part of an accounting period falling wholly within 1990, subsection (6) above shall have effect as if for “one-seventh” there were substituted “five-sevenths”; and, in the case of the acquisition expenses for an accounting period or part of an accounting period falling wholly within 1991,1992 or 1993, the corresponding substitution shall be “four-sevenths”, “three-sevenths” or “two-sevenths” respectively.

(8)Where, by virtue of subsection (6) (and, where appropriate, subsection(7)) above, only a fraction of the full amount of the acquisition expenses for the base period is deductible under sections 75 and 76 of the Taxes Act 1988 for that period, then, subject to subsection (9) below, a further one-seventh of the full amount shall be so deductible for each succeeding accounting period after the base period until the whole of the full amount has become so deductible, except that, for any accounting period of less than a year, the fraction of one-seventh shall be proportionately reduced.

(9)For any accounting period for which the fraction of the full amount of the acquisition expenses for the base period which would otherwise be deductible in accordance with subsection (8) above exceeds the balance of those expenses which has not become deductible for earlier accounting periods, only that balance shall be deductible.

(10)This section has effect for accounting periods beginning on or after 1stJanuary 1990 (including the 1990 component period).

87 Management expenses.U.K.