Finance (No. 2) Act 1997

Part I — The windfall tax

Mortgage interest payments.

1

• (1) Every company which, on 2nd July 1997, was benefitting from a windfall from the flotation of an undertaking whose privatisation involved the imposition of economic regulation shall be charged with a tax (to be known as the “windfall tax”) on the amount of that windfall.

• (2) Windfall tax shall be charged at the rate of 23 per cent.

• (3) Schedule 1 to this Act (which sets out how to quantify the windfall from which a company was benefitting on 2nd July 1997) shall have effect.

Lloyd’s underwriters.

2

• (1) For the purposes of this Part a company in existence on 2nd July 1997 was benefitting on that date from a windfall from the flotation of an undertaking whose privatisation involved the imposition of economic regulation if—

• (a) that company, or a company of which it was on that date a demerged successor, had before that date been privatised by means of a flotation;

• (b) there had, before that flotation, been a statutory transfer of property, rights and liabilities from a public corporation to the floated company or to a company which, at the time of the flotation, was a subsidiary undertaking of the floated company; and

• (c) at the time of the flotation, the floated company was carrying on an undertaking whose privatisation involved the imposition of economic regulation.

• (2) For the purposes of this Part a company was privatised by means of a flotation if—

• (a) an offer of shares in that company was at any time made to the public in the United Kingdom;

• (b) the shares which were the subject-matter of the offer were publicly-owned at the time of the offer;

• (c) the offer was or included an offer of shares for disposal at a fixed price; and

• (d) shares in that company were first admitted to listing on the Official List of the Stock Exchange in pursuance of an application made in connection with the offer.

• (3) In this Part references, in relation to a company privatised by means of a flotation, to the time of the company’s flotation are references to the time when shares in the floated company were first admitted to listing on the Official List of the Stock Exchange.

• (4) For the purposes of this Part a company in existence on 2nd July 1997 (“the relevant company”) was on that date a demerged successor of a company privatised by means of a flotation if—

• (a) after the flotation of the floated company but before 2nd July 1997, there had been a statutory transfer of property, rights and liabilities from the floated company to a company (“the transferee company”) which was a subsidiary undertaking of the floated company at the time of the transfer;

• (b) the transferee company was not a subsidiary undertaking of the floated company on 2nd July 1997 but was, on that date, a subsidiary undertaking of the relevant company; and

• (c) before 2nd July 1997 shares in the relevant company had been admitted to listing on the Official List of the Stock Exchange in pursuance of an application made in connection with the transaction, or series of transactions, by virtue of which the transferee company ceased to be a subsidiary undertaking of the floated company.

• (5) For the purposes of this section a company was, at the time of its flotation, carrying on an undertaking whose privatisation involved the imposition of economic regulation if that company, or a company which at that time was a subsidiary undertaking of that company, was at that time—

• (a) a public telecommunications operator, within the meaning of the Telecommunications Act 1984;

• (b) an airport operator in relation to an airport subject to economic regulation under Part IV of the Airports Act 1986;

• (c) the holder of an authorisation granted under section 7 of the Gas Act 1986, as originally enacted (public gas suppliers);

• (d) the holder of an appointment under section 11 of the Water Act 1989 as the water undertaker for any area of England and Wales;

• (e) the holder of a licence granted under section 6 of the Electricity Act 1989 or Article 10 of the Electricity (Northern Ireland) Order 1992 (licences authorising generation, transmission and supply of electricity); or

• (f) a company authorised by a licence under section 8 of the Railways Act 1993 to be the operator of a railway asset.

• (6) In subsection (5) above “airport operator” has the same meaning as in the Airports Act 1986.

Administration of the windfall tax etc

3

• (1) The windfall tax shall be under the care and management of the Commissioners of Inland Revenue.

• (2) Schedule 2 to this Act (which makes provision with respect to the management and collection of the windfall tax) shall have effect.

• (3) Subject to paragraph 19(5) of Schedule 8 to the Taxes Act 1988 (which is the provision about profit-related pay schemes that is amended by section 4 below), nothing in this Act or the Tax Acts shall have the effect of allowing or requiring any amount of windfall tax to be deducted in computing income, profits or losses for any of the purposes of the Tax Acts.

The windfall tax and profit-related pay

4

• (1) In paragraph 19 of Schedule 8 to the Taxes Act 1988 (ascertainment of profits for the purposes of profit-related pay schemes)—

• (a) in sub-paragraph (5)(b), after “1985” there shall be inserted “ or section 3(3) of the Finance (No. 2) Act 1997 ”; and

• (b) after paragraph (ff) of sub-paragraph (6) there shall be inserted the following paragraph—

(fg) windfall tax charged under Part I of the Finance (No. 2) Act 1997;

.

• (2) Subsection (1) above has effect in relation to the preparation, for the purposes of any scheme, of a profit and loss account for any period ending on or after 2nd July 1997.

• (3) Subsection (1) above shall not have effect in relation to an existing scheme unless, before the end of the period of six months beginning with the day on which this Act is passed, the scheme is altered, with effect for all periods ending on or after 2nd July 1997, to take account of that subsection.

• (4) Provision made, in compliance with paragraph 20(1) of Schedule 8 to the Taxes Act 1988 (consistency in preparation of accounts), by any existing scheme that is altered to take account of subsection (1) above shall not prevent a profit and loss account from being prepared in accordance with the alteration.

• (5) An alteration of an existing scheme to take account of subsection (1) above shall be treated as being within section 177B of the Taxes Act 1988 (alterations which are registrable and which, when registered, cannot give rise to the Board’s power of cancellation).

• (6) In this section “existing scheme” means a scheme which at any time in the period beginning with 2nd July 1997 and ending immediately before the day on which this Act is passed was a registered scheme under Chapter III of Part V of the Taxes Act 1988.

• (7) The preceding provisions of this section shall cease to have effect, in accordance with the notes to Part VI(3) of Schedule 18 to the Finance Act 1997, as if they were included in the repeal of Schedule 8 to the Taxes Act 1988.

Interpretation of Part I

5

• (1) In this Part—

• “company” means a company within the meaning of the Companies Act 1985 or the Companies (Northern Ireland) Order 1986;

• “fixed price”, in relation to any offer of publicly-owned shares in a company, means—a price set out in the offer; ora price subsequently fixed by a Minister of the Crown in a case in which the amount of a first instalment of the price was fixed by the offer;

• “the floated company”, in relation to the privatisation of a company by means of a flotation, means the company so privatised;

• “public corporation”, in relation to a statutory transfer, means any body corporate in existence at the time of the transfer which—had been established by or in accordance with the provisions of any enactment; andhad a membership consisting of, or including, persons appointed as members by a Minister of the Crown;

• “publicly-owned”, in relation to any shares, means held by—a Minister of the Crown or the Treasury; ora nominee for a Minister of the Crown or for the Treasury;

• “share” includes any right to require the issue of a share;

• “statutory transfer” means a transfer under a transferring enactment or by or in accordance with a statutory scheme;

• “subsidiary undertaking”—except in relation to a company formed and registered in Northern Ireland, means a subsidiary undertaking within the meaning of Part VII of the Companies Act 1985; andin relation to a company so formed and registered, means a subsidiary undertaking within the meaning of Part VIII of the Companies (Northern Ireland) Order 1986.

• (2) In this section—

• “enactment” means an enactment contained in a public general Act or any provision of Northern Ireland legislation;

• “Minister of the Crown” includes a Northern Ireland department or the head of such a department;

• “statutory scheme” means any scheme which—has been made in exercise of any power or duty conferred or imposed by any enactment;contains provision for the division of property, rights and liabilities between different persons, or for the transfer of property, rights and liabilities to a company; andwould not have taken effect or come into force but for having been approved by a Minister of the Crown;

• “transferring enactment” means an enactment under which property, rights and liabilities of a person specified in the enactment became, by virtue of that enactment, the property, rights or liabilities of a company nominated under that enactment.

• (3) In subsection (2) above the reference, in relation to a scheme, to its having been approved by a Minister of the Crown includes a reference to its having been made by a Minister of the Crown.

• (4) The reference in subsection (1) above to Part VII of the Companies Act 1985 shall be construed, in relation to times in relation to which that Part had effect without the amendments made by the Companies Act 1989, as if those amendments did have effect in relation to those times.

Part II — Value Added Tax and Excise Duties

Value Added Tax

Fuel and power for domestic or charity use

6

Alcoholic liquor duties

Rate of duty on spirits

7

• (1) In section 5 of the Alcoholic Liquor Duties Act 1979 (spirits), for “£18.99” there shall be substituted “ £19.56 ”.

• (2) This section shall come into force on 1st January 1998.

Rate of duty on beer

8

• (1) In section 36(1) of the Alocoholic Liquor Duties Act 1979 (beer), for “£10.82” there shall be substituted “ £11.14 ”.

• (2) This section shall come into force on 1st January 1998.

Rates of duty on wine and made-wine

9

• (1) For the Table of rates of duty in Schedule 1 to the Alocoholic Liquor Duties Act 1979 (wine and made-wine) there shall be substituted—

Description of wine or made-wine	Rates of duty per hectolitre
	£
Wine or made-wine of a strength not exceeding 4 per cent.	44.58
Wine or made-wine of a strength exceeding 4 per cent. but not exceeding 5.5 per cent.	61.30
Wine or made-wine of a strength exceeding 5.5 per cent. but not exceeding 15 per cent. and not being sparkling	144.65
Sparkling wine or sparkling made-wine of a strength exceeding 5.5 per cent. but not exceeding 8.5 per cent.	201.50
Sparkling wine or sparkling made-wine of a strength exceeding 8.5 per cent. or of a strength exceeding 8.5 per cent. but not exceeding 15 per cent.	206.66
Wine or made-wine of a strength exceeding 15 per cent. but not exceeding 22 per cent.	192.86
Description of wine or made-wine	Rates of duty per litre of alcohol in the wine or made-wine
---	---
	£
Wine or made-wine of a strength exceeding 22 per cent.	19.56

• (2) This section shall come into force on 1st January 1998.

Rates of duty on cider

10

• (1) In section 62 of the Alcoholic Liquor Duties Act 1979 (cider), for subsection (1A) there shall be substituted—

(1A) The rates at which the duty shall be charged are— (a) £37.54 per hectolitre in the case of sparkling cider of a strength exceeding 5.5 per cent.; (b) £36.74 per hectolitre in the case of cider of a strength exceeding 7.5 per cent. which is not sparkling cider; and (c) £24.49 per hectolitre in any other the case.

• (2) This section shall come into force on 1st January 1998.

Hydrocarbon oil duties

Rates of hydrocarbon oil duties etc

11

• (1) In relation to times before the coming into force of section 7(2) and (3) of the Finance Act 1997 (which makes amendments specifying separate rates of duty for light oil, for ultra low sulphur diesel and for heavy oil which is not ultra low sulphur diesel), section 6(1) of the Hydrocarbon Oil Duties Act 1979 (“the 1979 Act”) shall have effect as follows—

• (a) for “£0.4168” (rate of duty on light oil) there shall be substituted “ £0.4510 ”; and

• (b) for “£0.3686” (rate of duty on heavy oil) there shall be substituted “ £0.4028 ”.

• (2) In relation to times after the coming into force of section 7(2) and (3) of the Finance Act 1997, section 6(1A) of the 1979 Act (which is inserted by section 7(3) of the Finance Act 1997) shall have effect as follows—

• (a) in paragraph (a) (rate of duty on light oil), for “£0.4168” there shall be substituted “ £0.4510 ”;

• (b) in paragraph (b) (rate of duty on ultra low sulphur diesel), for “£0.3586” there shall be substituted “ £0.3928 ”; and

• (c) in paragraph (c) (rate of duty on heavy oil that is not ultra low sulphur diesel), for “£0.3686” there shall be substituted “ £0.4028 ”.

• (3) In section 11(1) of the 1979 Act (rebate on heavy oil), for “£0.0194” (fuel oil) and “£0.0250” (gas oil) there shall be substituted “ £0.0200 ” and “ £0.0258 ”, respectively.

• (4) In section 14(1) of the 1979 Act (rebate on light oil for use as furnace fuel), for “£0.0194” there shall be substituted “ £0.0200 ”.

• (5) This section shall be deemed to have come into force at 6 o’clock in the evening of 2nd July 1997.

Tobacco products duty

Rates of tobacco products duty

12

• (1) For the Table of rates of duty in Schedule 1 to the Tobacco Products Duty Act 1979 there shall be substituted—

1. Cigarettes...	An amount equal to 21 per cent. of the retail price plus £72.06 per thousand cigarettes.
2. Cigars...	£105.86 per kilogram.
3. Hand-rolling tobacco...	£87.74 per kilogram.
4. Other smoking tobacco and chewing tobacco...	£46.55 per kilogram.

• (2) This section shall come into force on 1st December 1997.

Vehicle excise and registration

Rates of vehicle excise duty

13

• (1) In Schedule 1 to the Vehicle Excise and Registration Act 1994 (annual rates of duty) in paragraph 1(2) (the general rate), for “£145” there shall be substituted “ £150 ”.

• (2) For the table in paragraph 9(1) of that Schedule (rates of duty for rigid goods vehicles) there shall be substituted the following table—

Revenue weight of vehicle	Revenue weight of vehicle	Rate	Rate	Rate
(1) Exceeding	(2) Not Exceeding	(3) Two axle vehicle	(4) Three axle vehicle	(5) Four or more axle vehicle
kgs	kgs	£	£	£
3,500	7,500	160	160	160
7,500	12,000	300	300	300
12,000	13,000	470	490	350
13,000	14,000	650	490	350
14,000	15,000	840	490	350
15,000	17,000	1,320	490	350
17,000	19,000	1,320	850	350
19,000	21,000	1,320	1,020	350
21,000	23,000	1,320	1,470	510
23,000	25,000	1,320	2,230	830
25,000	27,000	1,320	2,340	1,470
27,000	29,000	1,320	2,340	2,320
29,000	31,000	1,320	2,340	3,360
31,000	44,000	1,320	2,340	4,400

• (3) For the table in paragraph 11(1) of that Schedule (rates of duty for tractive units) there shall be substituted the following table—

Revenue weight of tractive unit	Revenue weight of tractive unit	Rate for tractive unit with two axles	Rate for tractive unit with two axles	Rate for tractive unit with two axles	Rate for tractive unit with three or more axles	Rate for tractive unit with three or more axles	Rate for tractive unit with three or more axles
(1) Exceeding	(2) Not exceeding	(3) Any no. of semi-trailer axles	(4) 2 or more semi-trailer axles	(5) 3 or more semi-trailer axles	(6) Any no. of semi-trailer axles	(7) 2 or more semi-trailer axles	(8) 3 or more semi-trailer axles
kgs	kgs	£	£	£	£	£	£
3,500	7,500	160	160	160	160	160	160
7,500	12,000	300	300	300	300	300	300
12,000	16,000	460	460	460	460	460	460
16,000	20,000	520	460	460	460	460	460
20,000	23,000	810	460	460	460	460	460
23,000	26,000	1,190	590	460	590	460	460
26,000	28,000	1,190	1,130	460	1,130	460	460
28,000	31,000	1,740	1,740	1,090	1,740	660	460
31,000	33,000	2,530	2,530	1,740	2,530	1,000	460
33,000	34,000	5,170	5,170	1,740	2,530	1,470	570
34,000	36,000	5,170	5,170	2,840	2,530	2,100	860
36,000	38,000	5,170	5,170	3,210	2,820	2,820	1,280
38,000	44,000	5,170	5,170	3,210	2,820	2,820	1,280

• (4) This section applies in relation to licences taken out after 15th November 1997.

Payments where vehicle information transmitted electronically

14

• (1) In section 7 of the Vehicle Excise and Registration Act 1994 (issue of vehicle licences), in subsection (3B) (conditions that may be imposed in place of requirement to make a declaration), after “include” there shall be inserted “ (a) ” and at the end there shall be inserted

; and (b) a condition requiring such payments as may be specified by the Secretary of State to be made to him in respect of— (i) steps taken by him for facilitating compliance by any person with any condition falling within paragraph (a); and (ii) in such circumstances as may be so specified, the processing of applications for vehicle licences where particulars are transmitted in accordance with that paragraph.

• (2) Subsection (1) above applies to applications made on or after the day on which this Act is passed.

• (3) In section 22 of the Vehicle Excise and Registration Act 1994, after subsection (2) (regulations about registration and identification of exempt vehicles, etc.) there shall be inserted the following subsections—

(2A) Regulations under subsection (2) may, in particular— (a) require a person applying for a nil licence— (i) to make such a declaration, and (ii) to furnish such particulars, (whether or not with respect to the vehicle for which the licence is to be taken out) as may be prescribed by the regulations, and (b) provide for any requirement to make such a declaration not to apply in such circumstances as may be so prescribed. (2B) The circumstances which may be prescribed by the regulations by virtue of subsection (2A)(b) include where a person applying for a nil licence agrees to comply with such conditions as may be specified in relation to him by the Secretary of State. (2C) The conditions which may be specified by virtue of subsection (2B) include— (a) a condition that particulars for the time being prescribed by the regulations by virtue of subsection (2A)(a) are furnished by being transmitted to the Secretary of State by such electronic means as he may specify; and (b) a condition such as is mentioned in section 7(3B)(b) (treating the references to paragraph (a) of subsection (3B) as references to paragraph (a) of this subsection).

Part III — Income tax and corporation tax

Reliefs for interest and private medical insurance

Mortgage interest payments

15

• (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2) In section 369 of that Act (deduction at source of mortgage interest relief), in subsection (1A) (percentage of interest deductible), for paragraph (a) there shall be substituted—

(a) in relation to so much of any payment of relevant loan interest as is not a payment in relation to which paragraph (b) below has effect, means 10 per cent; and

.

• (3) Subsection (1) above has effect in relation to any payment of interest (whenever falling due) made in the year 1998-99 or any subsequent year of assessment; and subsection (2) above has effect in relation to any payment of interest which becomes due in the year 1998-99 or any subsequent year of assessment.

Limit on relief for interest for 1998-99

16

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

Withdrawal of relief on medical insurance premiums

17

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

Corporation tax

Rates for financial year 1997

18

• (1) The rate at which corporation tax is charged for the financial year 1997 shall be, and shall be deemed always to have been, 31 per cent. (and not 33 per cent. as provided by section 58 of the Finance Act 1997).

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) All such adjustments shall be made, whether by way of discharge or repayment of tax or otherwise, as may be required in consequence of the provisions of this section.

Distributions, tax credits etc on and after 2nd July 1997

Pension funds no longer entitled to payment of tax credits

19

• (1) In section 231 of the Taxes Act 1988 (tax credits for certain recipients of qualifying distributions)—

• (a) in subsection (2) (payment of tax credits to companies resident in the United Kingdom) for “Subject to section 241(5)” there shall be substituted “ Subject to sections 231A and 241(5) ”; and

• (b) at the beginning of subsection (3) (claims by other persons to set tax credits against income tax liability and to receive payment of any excess of tax credit over that liability) there shall be inserted “ Subject to section 231A, ”.

• (2) After section 231 of the Taxes Act 1988 there shall be inserted—

(231A) (1) No claim shall be made under section 231(2) for payment of the amount of a tax credit if or to the extent that the qualifying distribution to which the credit relates is income of a pension fund. (2) In the case of any pension fund, for any year of assessment the aggregate amount of the tax credits in respect of which claims are made under section 231(3) must not exceed the aggregate amount of the tax credits in respect of the qualifying distributions comprised in the income of the pension fund and brought into charge to tax. (3) Accordingly, no payment shall be made under section 231(3) in respect of so much of the excess there mentioned as is referable to a tax credit in respect of a qualifying distribution if or to the extent that the qualifying distribution is income of a pension fund. (4) In this section— - “income”, in relation to a pension fund, means income derived from investments or deposits held for the purposes of the pension fund; - “pension fund” means any scheme, fund or other arrangements established and maintained (whether in the United Kingdom or elsewhere) for the purpose of providing pensions, retirement annuities, allowances, lump sums, gratuities or other superannuation benefits (with or without subsidiary benefits); - “scheme” includes any deed, agreement or series of agreements. (5) For convenience of identification only, the schemes, funds or other arrangements which are “pension funds” for the purposes of this section by virtue of the definition of that expression in subsection (4) above include, in particular, those whose income is, in whole or in part, exempt, or eligible for exemption, from tax under or by virtue of any of the following provisions— (a) section 512(2); (b) section 592(2); (c) section 608(2)(a); (d) section 613(4); (e) section 614(2), (3), (4) or (5); (f) section 620(6); (g) section 643(2). (6) The preceding provisions of this section do not have effect in relation to— (a) claims made in respect of tax credits to which entitlement arises by virtue of section 232(3); or (b) claims made by virtue of arrangements having effect under section 788.

• (3) This section has effect in relation to qualifying distributions made on or after 2nd July 1997.

Losses etc not to be set against surplus franked investment income

20

• (1) No claim shall be made under section 242 or 243 of the Taxes Act 1988 (set off of losses etc against surplus of franked investment income) for any accounting period beginning on or after 2nd July 1997; and section 244(1) of that Act shall cease to have effect accordingly.

• (2) Sections 242(5) and (6) and 243(4) of the Taxes Act 1988 (restoration of loss etc in later accounting period for which there is a surplus of franked payments) shall not have effect where the later accounting period mentioned in section 242(5)(b) begins on or after 2nd July 1997.

• (3) No amount shall be deducted under paragraph (a), or carried forward and deducted under paragraph (b), of section 244(2) (deduction of tax credit paid from ACT subsequently available for set off or surrender) for any accounting period beginning on or after 2nd July 1997.

• (4) For the purposes of sections 242 and 243 of the Taxes Act 1988, if—

• (a) a company has a surplus of franked investment income for an accounting period beginning before 2nd July 1997 and ending on or after that date, and

• (b) that surplus exceeds the surplus of franked investment income which the company would have had for that accounting period had it ended on 1st July 1997,

the surplus shall be treated as reduced by the excess.

• (5) Sections 242 to 244 of the Taxes Act 1988 cease to have effect in consequence of, and in accordance with, the foregoing provisions of this section.

• (6) In section 237(4) of the Taxes Act 1988 (bonus issue and related tax credit not to be franked investment income for the purposes of sections 241 and 244) for “sections 241 and 244” there shall be substituted “ section 241 ”.

• (7) Subsection (6) above has effect in accordance with subsection (5) above.

Estates in administration: distributions to which s.233(1) applies

21

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Lloyd’s underwriters

22

• (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) In subsection (4) of that section (subsection (2) applies in relation to distributions and associated tax credits notwithstanding section 11(2)(a) or 208 of the Taxes Act 1988)—

• (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (b) the words “(and any associated tax credits)” shall cease to have effect.

• (4) After that subsection there shall be inserted—

(4A) Notwithstanding anything in section 11(2)(a) or 208 of the Taxes Act 1988, UK distributions in respect of any assets of a corporate member which are mentioned in paragraph (a) or (b) of subsection (3) above— (a) shall be taken into account in computing profits of the corporate member for tax purposes; and (b) shall be so taken into account under Case I of Schedule D (and not under any other Schedule or any other Case of Schedule D). (4B) Section 231(1) of the Taxes Act 1988 (entitlement to tax credit) shall not apply where the distribution there mentioned is a distribution in respect of any asset of a corporate member’s premiums trust fund. (4C) In this section “UK distributions” means dividends or other distributions of a company resident in the United Kingdom.

• (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (6) In section 231(1) of the Taxes Act 1988 (recipient of distribution made by UK resident company entitled to tax credit subject to sections 247 and 441A) after “441A,” there shall be inserted “ section 171(2B) of the Finance Act 1993 and section 219(4B) of the Finance Act 1994, ”.

• (7) This section has effect in relation to distributions made on or after 2nd July 1997.

Insurance companies and friendly societies

23

Schedule 3 to this Act (which makes provision in relation to insurance companies and friendly societies) shall have effect.

Distributions, tax credits etc: avoidance

Taxation of dealers in respect of distributions etc

24

• (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (11) In section 234 of the Taxes Act 1988 (information relating to distributions) in subsection (1), the words“but subject to section 95(1A)(c)” shall be omitted.

• (12) In section 246D(1) of the Taxes Act 1988 (individuals entitled to FIDs treated as receiving grossed-up amount) after “that individual shall be treated” there shall be inserted “ (except for the purposes of section 95(1)) ”.

• (13) In Schedule 23A to the Taxes Act 1988 (manufactured dividends and interest) paragraph 2A(2) (which provides that if the dividend manufacturer is a company not resident in the UK no amount shall be deductible in the case of that company in respect of the manufactured dividend) shall be omitted (and accordingly paragraph 2(3)(c) of that Schedule has effect instead).

• (14) In Schedule 7 to the Finance Act 1997 (special treatment for certain distributions) in paragraph 2 (distributions treated as FIDs) in sub-paragraph (3)—

• (a) paragraph (a) (subjection to section 95(1A)(b)) shall be omitted; and

• (b) in paragraph (b) (subjection to section 247(5B) to (5D)) for “of that Act” there shall be substituted “ of the Taxes Act 1988 ”.

• (15) This section has effect in relation to—

• (a) any distribution made on or after 2nd July 1997; and

• (b) any payment which is representative of such a distribution.

Repeal of s.95(5) of the Taxes Act 1988: consequential amendments

25

• (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (8) This section has effect on and after 2nd July 1997.

Purchase and sale of securities

26

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

Payments to companies under section 687 of the Taxes Act 1988

27

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

Arrangements to pass on value of tax credit

28

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

Unauthorised unit trusts

29

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

Distributions, tax credits etc in and after 1999-00

Tax credits

30

• (1) Section 231 of the Taxes Act 1988 (tax credits for certain recipients of qualifying distributions) shall be amended in accordance with subsections (2) to (7) below.

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (4) Subsection (2) (payment of tax credit to company resident in UK) shall cease to have effect.

• (5) In subsection (3) (which includes provision for payment of excess of tax credit over income tax liability to person not being a company resident in the UK)—

• (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (b) the words “and subject to subsections (3A) and (3D) below where the credit exceeds that income tax, to have the excess paid to him” shall cease to have effect.

• (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (7) In consequence of subsection (5) above, subsections (3A) to (3D) shall cease to have effect.

• (8) Section 231A of the Taxes Act 1988 (which is superseded by the foregoing provisions of this section) shall cease to have effect.

• (9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (11) This section has effect in relation to distributions made on or after 6th April 1999.

Rates of tax applicable to Schedule F income etc

31

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

Trusts

32

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

Estates of deceased persons in administration

33

• (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tax credits and taxation of distributions: miscellaneous provisions

34

Schedule 4 to this Act (which contains provisions relating to tax credits and the taxation of distributions) shall have effect.

Transitional relief for charities etc

35

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

Foreign income dividends

36

• (1) No election shall be made under section 246A of the Taxes Act 1988 (election for dividend to be treated as foreign income dividend) in respect of any distributions made on or after 6th April 1999.

• (2) No amount shall be shown as available for distribution as foreign income dividends in the distribution accounts of an authorised unit trust for a distribution period the distribution date for which falls on or after 6th April 1999.

• (3) No distribution made on or after 6th April 1999 shall be treated as a foreign income dividend by virtue of paragraph 2(1) of Schedule 7 to the Finance Act 1997 (Tax Acts to have effect as if qualifying distributions to which Schedule 7 applies were foreign income dividends).

• (4) Schedule 6 to this Act (which makes provision for and in connection with the repeal of provisions relating to foreign income dividends) shall have effect.

• (5) In subsection (2) above, “distribution accounts”, “distribution date” and “distribution period” shall be construed in accordance with section 468H of the Taxes Act 1988 (interpretation of sections 468I to 468R of that Act).

Gilt-edged securities

Interest to be paid gross

37

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

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (5) Section 51A (interest on gilt-edged securities held under authorised arrangements to be paid without deduction of tax) shall cease to have effect.

• (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (8) ... this section has effect in relation to payments of interest falling due on or after 6th April 1998.

• (9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Paying and collecting agents

38

• (1) Chapter VIIA of Part IV of the Taxes Act 1988 (paying and collecting agents) shall be amended as follows.

• (2) Section 118A (interpretation of Chapter) shall become subsection (1) of that section and, in paragraph (k) of that subsection (meaning of “international organisation”), for “has the meaning given by section 51A(8)” there shall be substituted “ means an organisation of which two or more sovereign powers, or the governments of two or more sovereign powers, are members ”.

• (3) After that subsection there shall be inserted the following subsection—

(2) If, in any proceedings, any question arises whether a person is an international organisation for the purposes of this Chapter, a certificate issued by or under the authority of the Secretary of State stating any fact relevant to that question shall be conclusive evidence of that fact.

• (4) In section 118D(4) (payments of interest payable without deduction of tax not to be chargeable payments), after “by virtue of” there shall be inserted “ section 50(A1) or of ”.

• (5) In subsection (3) of section 118G (United Kingdom public revenue dividends excluded from being chargeable payments)—

• (a) paragraphs (b) and (d) to (f) shall be omitted; and

• (b) for paragraph (c) there shall be substituted the following paragraph—

(ca) they are payable in respect of a FOTRA security (within the meaning of section 154 of the Finance Act 1996) which— (i) is not registered (within the meaning of section 50 of this Act); and (ii) is, for the time being, beneficially owned by a person who is not ordinarily resident in the United Kingdom.

• (6) In section 118G(7), for paragraphs (a) and (b) there shall be substituted “ foreign dividends on foreign holdings held by a nominee approved for the purposes of this subsection ”.

• (7) Section 118G(8) and (10) shall cease to have effect.

• (8) This section has effect in relation to payments falling due on or after 6th April 1998.

Relief for losses etc

Carry-back of trading losses

39

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

Carry-back of loan relationship deficits

40

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

Restrictions on group relief

41

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

Capital allowances for small and medium-sized businesses

Temporary first-year allowances

42

Expenditure of a small company or small business

43

Capital allowances and finance leases

Writing-down allowances for finance lessors

44

Hire-purchase by finance lessors

45

Sale and leaseback etc. using finance leases

46

Meaning of “finance lease”

47

Films

Relief for expenditure on production and acquisition

48

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

Part IV — Miscellaneous and supplemental

Stamp duty

Stamp duty on conveyance or transfer on sale

49

• (1) Section 55 of the Finance Act 1963 and section 4 of the Finance Act Northern Ireland) 1963 (both of which provide for rates of stamp duty on conveyance and transfer on sale) shall each be amended in accordance with the provisions of subsections (2) to (4) below.

• (2) Subject to the modification mentioned in subsection (5) below, in subsection (1) (which specifies rates of stamp duty), for paragraphs (b) and (c) there shall be substituted—

(b) where paragraph (a) above does not apply and— (i) the amount or value of the consideration does not exceed £500, and (ii) the instrument is certified as described in section 34(4) of the Finance Act 1958 at £250,000, the rate of 50p for every £50 or part of £50 of the consideration; (c) where paragraph (a) above does not apply and— (i) the amount or value of the consideration exceeds £500 but does not exceed £250,000, and (ii) the instrument is certified as described in section 34(4) of the Finance Act 1958 at £250,000, the rate of £1 for every £100 or part of £100 of the consideration; (d) where paragraphs (a) to (c) above do not apply and— (i) the amount or value of the consideration does not exceed £500,000, and (ii) the instrument is certified as described in section 34(4) of the Finance Act 1958 at £500,000, the rate of £1.50p for every £100 or part of £100 of the consideration; and (e) in any other case the rate of £2 for every £100 or part of £100 of the consideration;

.

• (3) In subsection (1A) (disregard of paragraph (a) to paragraph (c) of subsection (1) in relation to conveyances or transfers of stock or marketable securities) for “paragraph (c)” there shall be substituted “ paragraph (e) ”.

• (4) In subsection (2) (disregard of paragraph (a) for the purposes of leases where consideration includes rent which exceeds £600 a year)—

• (a) after the words “shall have effect as if” there shall be inserted “ (a) ”, and

• (b) after the word “omitted” there shall be inserted—

and (b) in paragraph (d) for the words “paragraphs (a) to (c)” there were substituted the words “paragraphs (b) and (c)”.

• (5) In section 4 of the Finance Act Northern Ireland) 1963, for the words “section 34(4) of the Finance Act 1958”, wherever they occur, there shall be substituted the words “ section 7(4) of the Finance Act Northern Ireland) 1958 ”.

• (6) This section shall apply to instruments executed on or after 8th July 1997, except where the instrument in question is executed in pursuance of a contract made on or before 2nd July 1997.

• (7) This section shall be deemed to have come into force on 8th July 1997.

Provisional collection of taxes

Statutory effect of resolutions etc

50

• (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Supplemental

Interpretation

51

In this Act “the Taxes Act 1988” means the Income and Corporation Taxes Act 1988.

Repeals

52

• (1) The enactments mentioned in Schedule 8 to this Act (which include spent provisions) are hereby repealed to the extent specified in the third column of that Schedule.

• (2) The repeals specified in that Schedule have effect subject to the commencement provisions and savings contained or referred to in the notes set out in that Schedule.

Short title

53

This Act may be cited as the Finance (No. 2) Act 1997.

SCHEDULE 1

The basic rule

1

• (1) Subject to paragraph 7 below, where a company was benefitting on 2nd July 1997 from a windfall from the flotation of an undertaking whose privatisation involved the imposition of economic regulation, the amount of that windfall shall be taken for the purposes of this Part to be the excess (if any) of the amount specified in sub-paragraph (2)(a) below over the amount specified in sub-paragraph (2)(b) below.

• (2) Those amounts are the following amounts (determined in accordance with paragraphs 2 to 6 below), that is to say—

• (a) the value in profit-making terms of the disposal made on the occasion of the company’s flotation; and

• (b) the value which for privatisation purposes was put on that disposal.

Value of a disposal in profit-making terms

2

• (1) Subject to paragraph 4 below, the value in profit-making terms of the disposal made on the occasion of a company’s flotation is the amount produced by multiplying the average annual profit for the company’s initial period by the applicable price-to-earnings ratio.

• (2) For the purposes of this paragraph the average annual profit for a company’s initial period is the amount produced by the following formula—

$$A=365×PD$Where—A is the average annual profit for the company’s initial period;P is the amount, ascertained in accordance with paragraph 5 below, of the total profits for the company’s initial period; andD is the number of days in the company’s initial period.$

• (3) For the purposes of this paragraph the applicable price-to-earnings ratio is 9.

Value put on a disposal for privatisation purposes

3

• (1) Subject to paragraph 4 below, the value which for privatisation purposes was put on the disposal made on the occasion of a company’s flotation is the amount produced by multiplying the institutional price by the number of shares comprised in the ordinary share capital of the company at the time of its flotation.

• (2) In this paragraph “the institutional price”, in relation to a company, means the highest fixed price per share at which publicly-owned shares in the company were offered for disposal on the occasion of the company’s flotation.

• (3) Subject to sub-paragraph (4) below, where publicly-owned shares in a company were offered for disposal in accordance with any arrangements for the payment of the price in two or more instalments, the price per share at which those shares were offered shall be ascertained by aggregating the instalments.

• (4) Where the arrangements under which any publicly-owned shares in a company were offered for disposal provided for any discount on the payment of the whole or any part of the price for those shares, that discount shall be disregarded for the purposes of this paragraph in determining the price per share at which those shares were offered.

Cases where company privatised in stages

4

• (1) For the purposes of this Schedule, where the disposal percentage in the case of any company was 85 per cent. or less—

• (a) the value in profit-making terms of the disposal made on the occasion of the company’s flotation, and

• (b) the value which for privatisation purposes was put on that disposal,

shall each be taken to be the disposal percentage of the amount which, under paragraph 2 or 3 above, would be the amount of that value but for this paragraph.

• (2) For the purposes of this paragraph “the disposal percentage”, in relation to any company, means the percentage which expresses (in terms of nominal value) how much of the ordinary share capital of the company at the time of its flotation was represented by the publicly-owned shares in the company offered for disposal on the occasion of the company’s flotation.

Total profits for the initial period

5

• (1) For the purposes of paragraph 2 above the amount of the total profits for a company’s initial period is the sum of the amounts falling within sub-paragraph (2) below.

• (2) Subject to sub-paragraph (3) and paragraph 6(3) below, those amounts are every amount which, for a financial year of the company ending in or at the end of its initial period, is shown in the relevant accounts for that year—

• (a) where those accounts are prepared in accordance with section 227 of the Companies Act 1985 (group accounts), as the profit of that company and its subsidiary undertakings for that year; and

• (b) in any other case, as the profit of that company for that year.

• (3) Where—

• (a) any profit shown in the relevant accounts of a company for any financial year has been computed using a current cost accounting method, but

• (b) the information which was contained in those accounts, or which was provided to the registrar together with those accounts, included information from which it can be ascertained what that profit would have been if an historical cost accounting method had been used,

the amount shown as that profit in those accounts shall be deemed to be the amount (as ascertained from that information) which would have been so shown if that historical cost accounting method had been used.

• (4) In this paragraph references, in relation to any financial year of a company, to the relevant accounts are references to any such accounts for that year as have been or are delivered to the registrar under section 242 of the Companies Act 1985 and consist—

• (a) in the case of a financial year at the end of which the company was a parent undertaking, in consolidated group accounts prepared in accordance with section 227 of that Act (group accounts); and

• (b) in any other case, in accounts prepared in accordance with section 226 of that Act (individual accounts).

• (5) Subject to sub-paragraph (6) below, references in this paragraph to the amount shown in any accounts as the profit for any financial year are references to the amount of the profit (if any) for that year which is set out in the profit and loss account comprised in those accounts as the item which is, or is the equivalent of, the final item of the statutory format which for that year was used for that profit and loss account.

• (6) Where any amount shown in any accounts is less than it would have been if no provision or other deduction had been made—

• (a) in relation to the windfall tax, or

• (b) in anticipation of the imposition of a charge with characteristics similar to those of the windfall tax,

this Schedule shall have effect as if the amount shown were the amount it would have been if that provision or deduction had not been made.

• (7) Nothing in this paragraph shall, in the case of any company—

• (a) prevent any charge to windfall tax from being treated as having arisen on 2nd July 1997 by reference to accounts delivered to the registrar after that date; or

• (b) prevent any requirement to pay an instalment of windfall tax, or any other liability under Schedule 2 to this Act, from arising before the delivery to the registrar of the accounts by reference to which the amount of that charge is computed;

and any power of the Board under that Schedule to make an assessment shall include power to make an assessment on the basis that accounts will be delivered to the registrar showing such amounts as may, to the best of their judgement, be determined by the Board.

• (8) Subject to sub-paragraph (9) below, this paragraph shall have effect in relation to any time at which the Companies Act 1985 had effect without the amendments made by the Companies Act 1989—

• (a) as if the references in sub-paragraphs (2) and (4) above to sections 226, 227 and 242 of the Companies Act 1985 were references, respectively, to sections 227, 229 and 241 of that Act, as it had effect without those amendments;

• (b) as if the reference in sub-paragraph (2) above to a company’s subsidiary undertakings were a reference to its subsidiaries (within the meaning of that Act as it so had effect); and

• (c) as if the reference in sub-paragraph (4)(a) above to a company’s being a parent undertaking were a reference to its having such subsidiaries.

• (9) In relation to a company formed and registered in Northern Ireland, this paragraph shall have effect as if the references in sub-paragraphs (2) and (4) above to sections 226, 227 and 242 of the Companies Act 1985 were references, respectively, to Articles 234, 235 and 250 of the Companies (Northern Ireland) Order 1986.

• (10) In this paragraph—

• “the registrar” means—except in relation to a company formed and registered in Northern Ireland, the registrar within the meaning of the Companies Act 1985; andin relation to a company so formed and registered, the registrar within the meaning of the Companies (Northern Ireland) Order 1986;and

• “statutory format”, in relation to a profit and loss account, means a format set out in the provisions (as they had effect in relation to that account) of Schedule 4 to the Companies Act 1985 or Schedule 4 to the Companies (Northern Ireland) Order 1986.

Meaning of the initial period etc

6

• (1) In this Schedule “initial period”, in relation to a company privatised by means of a flotation, means (subject to sub-paragraph (2) below) the period which—

• (a) begins with the first day of the first financial year of the company to begin after the time of its flotation; and

• (b) ends with the end of the fourth financial year of the company to begin after the time of its flotation.

• (2) Where the initial period of a company privatised by means of a flotation would (but for this sub-paragraph) include any time on or after 1st April 1997, sub-paragraph (1) above shall not apply and the initial period of that company shall be taken, instead, to be the period which—

• (a) begins with the day on which the time of its flotation falls; and

• (b) ends with the end of the last financial year of the company to end before 1st April 1997.

• (3) Where—

• (a) sub-paragraph (2) above applies for determining a company’s initial period, and

• (b) there is a financial year of that company beginning before but ending after the beginning of that initial period,

the amount which for that year is shown as mentioned in paragraph 5(2) above shall be included in the sums added together for the purposes of paragraph 5(1) above to the extent only that that amount is attributable, on an apportionment made in accordance with the following provisions of this paragraph, to the part of that year falling within the company’s initial period.

• (4) Except in a case where sub-paragraph (5) below applies, an apportionment for the purposes of sub-paragraph (3) above shall be made on a time basis according to the respective lengths of—

• (a) the part of the financial year falling before the beginning of the company’s initial period; and

• (b) the remainder of that financial year.

• (5) Where the circumstances of a particular case are such that—

• (a) the making of an apportionment on the basis mentioned in sub-paragraph (4) above would work in a manner that would be unjust or unreasonable, but

• (b) it would be just and reasonable to make the apportionment on the alternative basis,

the apportionment shall be made, instead, on the alternative basis.

• (6) For the purposes of this paragraph an apportionment in the case of any company of the amount shown for any financial year as a profit for that year is made on the alternative basis where it is made according to how much of that profit accrued in each of the two parts of that financial year that are mentioned in sub-paragraph (4) above.

Apportionment between demerged successors and predecessors

7

• (1) This paragraph applies where—

• (a) a company (“the predecessor company”) was benefitting on 2nd July 1997 from a windfall from the flotation of an undertaking whose privatisation involved the imposition of economic regulation; and

• (b) another company which on that date was a demerged successor of the predecessor company is also taken for the purposes of this Part to have been benefitting from such a windfall on that date.

• (2) Where this paragraph applies—

• (a) the amount of the windfall from which the predecessor company was benefitting on 2nd July 1997 shall be equal to only the appropriate fraction of the amount (“the total windfall”) which (but for this paragraph) would have been the amount of that windfall under paragraphs 1 to 6 above; and

• (b) the amount of the windfall from which the demerged successor shall be taken to have been benefitting on that date shall be equal to the remainder of the total windfall.

• (3) In this paragraph “the appropriate fraction” means the following fraction—

$$PP+S$Where—P is the amount produced by multiplying the number of shares comprised at the end of the relevant day in the ordinary share capital of the predecessor company by the market price on that day of an ordinary share in that company; andS is the amount produced by multiplying the number of shares comprised at the end of the relevant day in the ordinary share capital of the demerged successor by the market price on that day of an ordinary share in the demerged successor.$

• (4) For the purposes of this paragraph references to the market price of shares on any day are references to the sum of—

• (a) the lower of the two prices shown in the Stock Exchange Daily Official List for that day as the closing prices for the shares on that day; and

• (b) one half of the difference between those two prices.

• (5) In this paragraph “the relevant day” means the day on which shares in the demerged successor were first listed on the Official List of the Stock Exchange.

General interpretation of the Schedule

8

• (1) In this Schedule “financial year”, in relation to a company, means (subject to sub-paragraph (2) below)—

• (a) a financial year of that company within the meaning of Part VII of the Companies Act 1985; or

• (b) any period which—

• (i) began before the coming into force of section 3 of the Companies Act 1989 (new definition of financial year); and

• (ii) was a financial year of that company for the purposes of that Part, as it had effect without the amendments made by that section.

• (2) Sub-paragraph (1) above does not apply to a company formed and registered in Northern Ireland; and in relation to such a company, references in this Schedule to a financial year are references to a financial year within the meaning of Part VIII of the Companies (Northern Ireland) Order 1986.

• (3) In this Schedule references, in relation to a company privatised by means of a flotation, to the shares offered for disposal on the occasion of the company’s flotation are references to the following shares in that company, that is to say—

• (a) those that were the subject-matter of the offer to the public in respect of which that company is regarded for the purposes of this Part as having been so privatised; and

• (b) any publicly-owned shares not falling within paragraph (a) above that were the subject-matter of an offer for disposal made on the same occasion as the offer mentioned in that paragraph.

• (4) References in this Schedule to an offer for the disposal of shares in a company include references to any offer to transfer or confer an immediate or contingent right to or interest in any such shares, whether or not for a consideration; and (subject to sub-paragraph (5) below) references to the shares that are the subject-matter of such an offer shall be construed accordingly.

• (5) For the purposes of sub-paragraph (3) above where—

• (a) an offer for the disposal of publicly-owned shares in a company contained provision for a person to become entitled to further shares in that company if he satisfied conditions specified in the offer, and

• (b) those conditions included a condition as to the period for which shares in that company continued to be held by that person,

shares which (apart from this sub-paragraph) would fall to be treated as the subject-matter of the offer by virtue only of that provision shall be treated as the subject-matter of the offer to the extent only that persons did in fact become entitled to them before 2nd July 1997 as a result of having satisfied the conditions in question.

• (6) In this Schedule a reference, in relation to any time, to the ordinary share capital of a company is a reference to the following, taken together, that is to say—

• (a) the shares comprised in the ordinary share capital of the company (within the meaning of the Tax Acts); and

• (b) any shares that would have been so comprised at that time if the issued share capital of the company at that time had included any shares in the company that had been allotted but not issued.

SCHEDULE 2

Returns

1

• (1) The Board may by notice require any company which in their opinion is or may be a chargeable company to deliver to the Board a return complying with this paragraph.

• (2) A company which has been required under this paragraph to deliver a return to the Board shall do so—

• (a) except in a case where the Board’s notice requiring the return is given after 1st November 1997, on or before 1st December 1997; and

• (b) in the excepted case, before the end of the period of 30 days beginning with the day after that on which that notice is given.

• (3) A return delivered to the Board under this paragraph must—

• (a) set out the amount of windfall tax (if any) with which the company is charged;

• (b) contain all such information about the matters mentioned in sub-paragraph (4) below as the Board may reasonably require; and

• (c) be accompanied by all such accounts, statements and other records as the Board may reasonably require.

• (4) Those matters are—

• (a) the method used for the computation of any amount set out in the return as the amount of windfall tax with which the company is charged;

• (b) the accounts, statements and other records by reference to which the computation of any amount so set out has been made;

• (c) any group of companies of which that company is or has at any time been a member; and

• (d) any other matters relevant to the extent of any liability of the company under this Part.

• (5) A return delivered to the Board under this paragraph—

• (a) shall be in such form as the Board may require; and

• (b) shall contain a declaration by the person making the return that it is correct and complete.

• (6) Where—

• (a) a company has delivered a return to the Board under this paragraph, and

• (b) that return sets out any amount as the amount of windfall tax with which the company is charged,

that amount shall be taken, except in so far as any other amount is assessed or otherwise determined under the following provisions of this Schedule, to be the amount of windfall tax with which that company is charged.

• (7) Where—

• (a) the Board have, at any time before the passing of this Act, given notice to any company requiring it to deliver a return, and

• (b) that notice stated that it was given in anticipation of the passing of this Act and that, in the opinion of the Board, the company is likely to be a chargeable company,

that notice shall have effect on and after the day on which this Act is passed as if it were a notice given on that day in exercise of the power conferred by sub-paragraph (1) above.

Notification of liability and failure to make return

2

• (1) If a chargeable company has not, before 1st December 1997, either—

• (a) given notice to the Board that it is a chargeable company, or

• (b) been required by a notice under paragraph 1(1) above to deliver a return to the Board,

that company shall be liable to a penalty of an amount not exceeding the amount of the windfall tax with which it is charged.

• (2) A company which—

• (a) has been required by a notice under sub-paragraph (1) of paragraph 1 above to deliver a return to the Board, and

• (b) fails to deliver the required return in accordance with that paragraph,

shall be liable to the penalties set out in sub-paragraph (3) below.

• (3) Those penalties are—

• (a) a penalty of £3,000;

• (b) in a case where the required return has not been delivered by the end of three months from the relevant time, a penalty (in addition to the penalty under paragraph (a) above) of an amount not exceeding 10 per cent. of the amount of windfall tax with which that company is charged; and

• (c) in a case where the required return has not been delivered by the end of six months from the relevant time, a penalty (in addition to the penalties under paragraphs (a) and (b) above) of an amount not exceeding 20 per cent. of the amount of windfall tax with which that company is charged.

• (4) In sub-paragraph (3) above “the relevant time”, in relation to the delivery of a return, means the time by which that return should under paragraph 1(2) above have been delivered.

Payment of windfall tax

3

• (1) The amount of windfall tax with which a chargeable company is charged shall be paid by that company in two instalments as follows—

• (a) one half of the amount charged shall be paid on or before 1st December 1997; and

• (b) the rest shall be paid on or before 1st December 1998.

• (2) The Board, if requested to do so, shall give a receipt for any windfall tax paid.

• (3) The application by this Schedule of any enactment referring to the time at which an amount of tax becomes due and payable shall have effect, in relation to an amount of windfall tax, as if it referred to the time by which that amount is required to be paid under this paragraph.

General power to make assessments

4

• (1) Subject to the following provisions of this Schedule, the amount of windfall tax with which a company is charged may be assessed on that company by the Board.

• (2) An assessment of the amount of windfall tax with which a company is charged may be made whether or not any amount has been paid by that company in respect of that tax when the assessment is made.

• (3) Subject to sub-paragraph (4) below, where—

• (a) a company has delivered a return to the Board in pursuance of paragraph 1 above, and

• (b) the Board are satisfied that the return is correct and complete,

the Board shall make an assessment in accordance with the return.

• (4) The Board shall not be required to make an assessment under sub-paragraph (3) above in the case of a company whose return shows that it is not charged with windfall tax.

• (5) Where the Board make an assessment under this paragraph in a case in which the assessment is not one which the Board are required to make under sub-paragraph (3) above in accordance with a return, the Board’s assessment shall be made to the best of their judgement.

Power to make assessments on discovery of unassessed liabilities

5

• (1) If the Board discover that any company which—

• (a) has made a return in relation to which paragraph 4(4) above applied, or

• (b) has been assessed to an amount of windfall tax,

has not been assessed to as much windfall tax as it should have been, they may make an assessment or further assessment of the amount which, in their opinion, is windfall tax with which that company is charged but to which it has not been assessed.

• (2) Where—

• (a) the Board discover that an amount of windfall tax has been repaid which ought not to have been repaid, and

• (b) that amount is not assessable under sub-paragraph (1) above,

that amount may be assessed by the Board, and recovered under this Schedule from the company to which it was repaid, as if it were an amount of windfall tax which that company is liable to pay.

• (3) Where the amount of any assessment to windfall tax is reduced, the company assessed shall not for the purposes of this paragraph be treated, at any time after the reduction, as having been already assessed to the amount of windfall tax comprised in the reduction.

Supplemental provisions about assessments

6

• (1) An assessment shall not be made under this Schedule at any time on or after 1st December 2003.

• (2) Where an assessment is made under this Schedule, notice of that assessment shall be served on the company assessed.

• (3) The notice of any assessment under this Schedule must state—

• (a) the date on which it is issued; and

• (b) the time within which any appeal against the assessment may be made.

• (4) After the notice of any assessment under this Schedule has been served on the company assessed—

• (a) the assessment shall not be withdrawn;

• (b) the assessment shall not be amended, except in accordance with provision made or applied by this Schedule; and

• (c) the company shall not, except in accordance with any provision so made or applied, be entitled to the repayment of any amount on the grounds that the amounts of windfall tax assessed on that company are excessive.

• (5) Where notice of any assessment under this Schedule has been served on the company assessed, the amount of the assessment—

• (a) shall be deemed (subject to the provisions of this Schedule) to be an amount of windfall tax with which that company is charged; and

• (b) subject to the provisions of this Part about the payment of windfall tax in instalments, may be recovered accordingly.

• (6) Liability to pay an instalment of windfall tax does not depend on the making of an assessment; and nothing in the provisions of this Schedule about the making of assessments shall affect the times which are taken for the purposes of this Part to be the times by which companies are required under paragraph 3 above to pay instalments of windfall tax.

Claims to relieve double assessment

7

• (1) If, on a claim made to the Board, it appears to their satisfaction that a company has been assessed to the same amount of windfall tax more than once, the Board shall direct that so much of any assessment made on that company under this Schedule as appears to them to be excessive is to be vacated.

• (2) A claim under sub-paragraph (1) above—

• (a) must be made in such form as the Board may require; and

• (b) shall not be made after the end of the period of six years beginning with the day of the service on the claimant of the notice of the most recent assessment to which the claim relates.

• (3) On the giving of a direction under this paragraph with respect to any assessment, that assessment shall be vacated to the extent specified in the direction.

Claims to correct errors or mistakes in returns etc.

8

• (1) If any company which has paid an amount of windfall tax assessed under this Schedule alleges that it has been, or continues to be, assessed to too much windfall tax by reason of—

• (a) some error or mistake in a return under paragraph 1 above, or

• (b) some error or mistake discovered by the claimant in a previous claim made by the claimant under paragraph 7 above or this paragraph,

the company may make a claim for relief under this paragraph in respect of that error or mistake.

• (2) A claim under this paragraph—

• (a) must be made in such form as the Board may require; and

• (b) shall not be made—

• (i) if it relates to an error or mistake in a return, at any time on or after 1st December 2003; or

• (ii) if it relates to an error or mistake in a claim, at any time after the latest time at which that claim could have been made.

• (3) On receiving a claim under this paragraph, the Board shall—

• (a) inquire into the matter; and

• (b) give, by way of repayment to the claimant, such relief (if any) as, having regard to all the relevant circumstances, they consider just and reasonable in respect of the error or mistake in question.

Appeals against assessments and decisions on claims

9

• (1) An appeal to the Special Commissioners shall lie against each of the following, that is to say—

• (a) an assessment under this Schedule;

• (b) a decision by the Board on a claim under paragraph 7 or 8 above.

• (2) An appeal under sub-paragraph (1) above shall be made by notice to the Board.

• (3) Subject to the following provisions of this paragraph, a notice of appeal under sub-paragraph (2) above—

• (a) shall not be given more than 30 days after the day on which notice of the assessment or decision appealed against was given to the appellant; and

• (b) must specify the grounds of appeal.

• (4) An appeal under this paragraph may be brought out of time if, on an application made for the purpose by the appellant, the Board are satisfied—

• (a) that the appellant has a reasonable excuse for not having brought the appeal within the time allowed by sub-paragraph (3) above; and

• (b) that there was no unreasonable delay in the making of that application;

and, where the Board are not so satisfied, they shall refer the application to the Special Commissioners, who (if they are so satisfied) may themselves allow the appeal to be brought out of time.

• (5) The Special Commissioners—

• (a) may allow grounds in addition to those specified in the notice of appeal to be put forward on an appeal under this paragraph; and

• (b) may take the additional grounds into consideration if they are satisfied that their omission from the notice was neither wilful nor unreasonable.

• (6) Section 55 of the Management Act (postponement of tax to which an appeal relates) shall apply to an appeal under this paragraph against an assessment under this Schedule as it applies to an appeal against an assessment mentioned in subsection (1) of that section but as if, in that section—

• (a) references to tax were references to windfall tax;

• (b) references to the inspector were references to the Board; and

• (c) subsections (6)(a) and (b)(i), (6A) and (9)(a) were omitted.

Powers of Special Commissioners on an appeal

10

• (1) Where there is an appeal to the Special Commissioners against an assessment under this Schedule—

• (a) the Commissioners may, if it appears to them that the amount of the assessment is too much or too little, reduce or increase the amount of the assessment accordingly; and

• (b) the assessment shall stand good if it is not reduced or increased under paragraph (a) above.

• (2) Where an appeal is brought under paragraph 9 above against a decision of the Board on a claim under paragraph 7 or 8 above, the Special Commissioners shall hear and determine that appeal in accordance with the principles to be followed by the Board in determining claims under that paragraph.

• (3) On an appeal to the Special Commissioners against a decision of the Board on a claim under paragraph 7 or 8 above, the powers of the Special Commissioners shall include power, if they think fit, to modify or cancel any decision made by the Board on that claim, including one made in favour of the appellant.

Procedures on appeal

11

• (1) Subject to the following provisions of this paragraph, the following provisions of the Management Act shall apply for the purposes of and in relation to appeals to the Special Commissioners under paragraph 9 above as they apply for the purposes of or in relation to appeals to the Special Commissioners under the Tax Acts, that is to say—

• (a) section 46A (regulations about the jurisdiction of the Special Commissioners);

• (b) section 54 (settling appeals by agreement);

• (c) section 56A (appeals from the Special Commissioners);

• (d) sections 56B to 56D (regulations about practice and procedure etc.).

• (2) The Special Commissioners (Jurisdiction and Procedure) Regulations 1994 shall have effect, with the necessary modifications, in relation to appeals to the Special Commissioners under this Schedule as they have effect in relation to appeals to the Special Commissioners under the Tax Acts; but this sub-paragraph shall be without prejudice to the power of the Lord Chancellor, by virtue of sub-paragraph (1) above, to modify those regulations as applied by this sub-paragraph.

• (3) Subject to paragraph 5 above and the provisions applied by sub-paragraphs (1) and (2) above, the determination of the Special Commissioners on an appeal under this Schedule shall be final and conclusive.

• (4) Where an appeal has been made to the Special Commissioners against a decision of the Board on a claim under paragraph 8 above, neither the appellant nor the Board shall be entitled, by virtue of anything in sub-paragraph (1) above, to appeal except against so much (if any) of the decision of the Special Commissioners as relates to a point of law arising in connection with the computation in accordance with Schedule 1 to this Act of the amount of the windfall from which any company was benefitting on 2nd July 1997.

• (5) Section 53 of the Management Act (appeal against the summary determination of a penalty) shall apply in relation to any summary determination of a penalty pursuant to—

• (a) the regulations applied by sub-paragraph (2) above, or

• (b) any modification of those regulations made by virtue of this Schedule,

as it applies in relation to any other such summary determination as is mentioned in that section.

• (6) Subsections (2B) and (2C) of section 58 of the Management Act (Northern Ireland modifications) shall apply as if the reference to the Taxes Acts included a reference to this Schedule and, accordingly, as if the reference to section 56A of that Act included a reference to that section as applied by this paragraph.

• (7) In the application for the purposes of this Schedule of—

• (a) section 58(2B) and (2C) of the Management Act, and

• (b) the regulations mentioned in sub-paragraph (2) above,

references to proceedings in Northern Ireland shall have effect as references to proceedings on an appeal to the Special Commissioners by a company whose head office or principal place of business is in Northern Ireland.

• (8) Sections 21 and 22 of the Interpretation Act Northern Ireland) 1954 (rules of court and powers of appellate courts) shall apply as if references in those sections to an enactment included a reference to sub-paragraphs (6) and (7) above.

Interest

12

• (1) Where any amount of windfall tax with which a company is charged is not paid before the time by which it is required to be paid under paragraph 3 above, that amount of that tax shall carry interest from that time until payment.

• (2) Sub-paragraph (1) above applies to an amount whether or not the payment of that amount is postponed under section 55 of the Management Act (as applied by paragraph 9(6) above).

• (3) Any amount paid by way of windfall tax which is repayable shall carry interest from whichever is the later of—

• (a) the time by which that amount was required to be paid under paragraph 3 above, and

• (b) the time when that amount was in fact paid,

until the time when that amount is repaid.

• (4) The rate of interest under this paragraph for any period shall be—

• (a) in the case of interest under sub-paragraph (1) above, the rate applicable under section 178 of the Finance Act 1989 for the purposes of section 87A of the Management Act (interest on unpaid corporation tax); and

• (b) in the case of interest under sub-paragraph (3) above, the rate applicable under section 178 of the Finance Act 1989 for the purposes of section 826 of the Taxes Act 1988 (interest on overpaid corporation tax).

• (5) Where any amount paid by way of windfall tax is repayable to a person who has paid interest under sub-paragraph (1) above, that person shall be entitled to a repayment of so much of that interest as would represent the interest paid on that amount if, after—

• (a) making an appropriate apportionment of the payments made to the Board between the instalments due from the person making them, and

• (b) taking account of any previous repayment,

it is assumed that the amount repayable is to be equated with the most recent payment or payments made to the Board.

• (6) Interest under sub-paragraph (1) above—

• (a) shall be paid without any deduction of income tax; and

• (b) shall not be allowed as a deduction in computing income, profits or losses for any of the purposes of the Tax Acts;

and interest paid under sub-paragraph (3) above shall be disregarded in computing income, profits or losses for any such purposes.

Collection of information

13

• (1) For the purposes of this Part, section 20 of the Management Act (power to call for documents of taxpayer and others), together with sections 20B, 20BB and 20D(3) of that Act so far as they relate to section 20, shall be deemed to apply with the modifications set out in sub-paragraph (2) below.

• (2) Those modifications are as follows—

• (a) references to a tax liability shall be deemed to be references to a liability to pay an amount of windfall tax;

• (b) references to an inspector shall be deemed to be references to any officer of the Board and references to the Taxes Acts shall be deemed to be references to this Part;

• (c) in sections 20(7) and (8H) and 20B(1B) and (6)(b), the words “General or” shall be deemed to be omitted.

• (3) For the purposes of this Part subsection (1) of section 98 of the Management Act (failure to comply with notice) shall apply as if this paragraph were included in the reference in column 1 of the Table in that section to Part III of that Act.

Penalties for furnishing false information

14

• (1) Where a chargeable company fraudulently or negligently delivers an incorrect return in response to a requirement under paragraph 1 above, that company shall be liable to a penalty of an amount not exceeding the understated amount.

• (2) In sub-paragraph (1) above “the understated amount”, in relation to a return delivered by a chargeable company, means the amount (if any) by which the amount of windfall tax with which that company is charged exceeds the amount set out in the return as the amount with which it is charged.

• (3) For the purposes of this Part—

• (a) subsection (2) of section 98 of the Management Act (penalties for furnishing incorrect information etc.) shall apply as if the provisions of this Schedule (except paragraph 1) were specified in one of the columns of the Table in that section; and

• (b) section 99 of that Act (penalty for assisting in preparation of incorrect return) shall apply as if the reference in paragraph (a) of that section to tax included a reference to windfall tax.

• (4) Section 97(1) of the Management Act (obligation to correct incorrect return) shall apply for the purposes of this paragraph in relation to a return delivered in response to a requirement under paragraph 1 above as it applies for the purposes of section 96 of that Act in relation to such a return as is mentioned in that section.

Recovery of tax

15

• (1) The provisions of the Management Act which are set out in sub-paragraph (2) below (which all relate to the recovery of tax) shall apply, subject to the modifications set out in sub-paragraph (3) below, in relation to—

• (a) amounts of windfall tax due from any company,

• (b) any penalty under this Schedule, or

• (c) any interest for which a company is liable under paragraph 12 above or 17(5)(g) below,

as they apply in relation to sums charged by way of tax; and, in the case of amounts falling within paragraph (b) or (c) above, those provisions shall so apply as if those amounts were amounts of tax due and payable under an assessment.

• (2) The provisions applied by sub-paragraph (1) above are—

• (a) section 61 (distraint);

• (b) sections 63 and 63A (recovery in Scotland);

• (c) sections 66 to 68 (court proceedings for the recovery of tax);

• (d) section 70(1) (certificate of non-payment); and

• (e) section 70A (payment by cheque).

• (3) The modifications mentioned in that sub-paragraph are as follows—

• (a) in all those provisions references to the collector shall be deemed to include references to any other officer of the Board;

• (b) in section 63, the words “under section 60 of this Act” in subsection (1)(b) shall be deemed to be omitted and so shall subsections (3) and (4); and

• (c) in section 70A—

• (i) the reference in subsection (1) to the purposes of the Management Act and the provisions mentioned in subsection (2) of that section shall be deemed to be a reference to the purposes of this Part; and

• (ii) subsection (2) shall be deemed to be omitted.

Recovery against other group members

16

• (1) Subject to sub-paragraph (3) below, where any amount of windfall tax with which a company is charged is not paid before the end of the period of six months beginning with the time by which it was required to be paid under paragraph 3 above (“the six month period”), any company falling within sub-paragraph (2) below may be assessed (in the name of the chargeable company) to all or any part of the unpaid windfall tax with which the chargeable company is charged.

• (2) A company falls within this sub-paragraph if it is one or other or both of the following, that is to say—