Finance Act 2013

(3A) In relation to any shares acquired by the exercise of the share option, no liability to income tax arises in respect of its exercise if— (a) the individual exercises the option before the third anniversary of the date on which the option was granted at a time when the SAYE option scheme is approved, (b) the option is exercised by virtue of a provision included in the scheme— (i) under paragraph 37(1) of Schedule 3 where the relevant date is the relevant date for the purposes of paragraph 37(2) or (4), or (ii) under paragraph 37(6) of Schedule 3, (c) as a result of, as the case may be— (i) the general offer, (ii) the compromise or arrangement, or (iii) the takeover offer, the individual receives cash (and no other assets) in exchange for the shares, (d) when the decision to grant the option was taken— (i) the general offer, (ii) the compromise or arrangement, or (iii) the takeover offer, as the case may be, had not been made, (e) when that decision was taken, no arrangements were in place or under consideration for— (i) the making of a general offer which would fall within subsection (3D), (ii) the making of any compromise or arrangement which would fall within subsection (3H), or (iii) the making of a takeover offer (as defined in section 974 of the Companies Act 2006) which would fall within subsection (3I), (f) if the scheme includes a provision under paragraph 38 of Schedule 3 (“the paragraph 38 provision”), in connection with— (i) the general offer, (ii) the compromise or arrangement, or (iii) the takeover offer, as the case may be, no course of action was open to the individual which, had it been followed, would have resulted in the individual making an agreement under the paragraph 38 provision which would have prevented the individual from acquiring the shares by the exercise of the option, and (g) the avoidance of tax or national insurance contributions is not the main purpose (or one of the main purposes) of any arrangements under which the option was granted or is exercised. (3B) In subsection (3A)(c)(iii), (d)(iii) and (f)(iii) “the takeover offer” means the takeover offer (as defined in section 974 of the Companies Act 2006) giving rise to the application of sections 979 to 982 or 983 to 985 of that Act. (3C) In subsection (3A)(e) “arrangements” includes any plan, scheme, agreement or understanding, whether or not legally enforceable. (3D) A general offer falls within this subsection if it is— (a) a general offer to acquire the whole of the issued ordinary share capital of the relevant company which is made on a condition such that, if it is met, the person making the offer will have control of the relevant company, or (b) a general offer to acquire all the shares in the relevant company which are of the same class as those acquired by the exercise of the option. (3E) In subsection (3D)(a) the reference to the issued ordinary share capital of the relevant company does not include any capital already held by the person making the offer or a person connected with that person and in subsection (3D)(b) the reference to the shares in the relevant company does not include any shares already held by the person making the offer or a person connected with that person. (3F) For the purposes of subsection (3D)(a) and (b) it does not matter if the general offer is made to different shareholders by different means. (3G) For the purposes of subsection (3D)(a) a person is to be treated as obtaining control of a company if that person and others acting in concert together obtain control of it. (3H) A compromise or arrangement falls within this subsection if it is applicable to or affects— (a) all the ordinary share capital of the relevant company or all the shares of the same class as those acquired by the exercise of the option, or (b) all the shares, or all the shares of that same class, which are held by a class of shareholders identified otherwise than by reference to their employment or directorships or their participation in an approved SAYE option scheme. (3I) A takeover offer falls within this subsection if— (a) it relates to the relevant company, and (b) where there is more than one class of share in the relevant company, the class or classes to which it relates is or include the class of the shares acquired by the exercise of the option. (3J) In subsections (3D), (3H) and (3I) “the relevant company” means the company whose shares are acquired by the exercise of the option.

22

Part 6 of Schedule 3 (requirements etc relating to share options) is amended as follows.

23

• (1) Paragraph 34 (exercise of options: scheme-related employment ends) is amended as follows.

• (2) In sub-paragraph (2)—

• (a) omit the “or” after paragraph (a), and

• (b) after paragraph (b) insert—

(c) a relevant transfer within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 2006, or (d) if P holds office or is employed in a company which is an associated company (as defined in paragraph 35(4)) of the scheme organiser, that company ceasing to be an associated company of the scheme organiser by reason of a change of control (as determined in accordance with sections 450 and 451 of CTA 2010),

.

• (3) In sub-paragraphs (4) and (5A)(b) for “or (b)” substitute “ to (d) ”.

• (4) A SAYE option scheme approved before the day on which this Act is passed has effect with any modifications needed to reflect the amendments made by this paragraph.

24

• (1) Paragraph 37 (exercise of options: company events) is amended as follows.

• (2) After sub-paragraph (3) insert—

(3A) In sub-paragraph (3)(a) the reference to the issued ordinary share capital of the company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (3)(b) the reference to the shares in the company does not include any shares already held by the person making the offer or a person connected with that person. (3B) For the purposes of sub-paragraph (3)(a) and (b) it does not matter if the general offer is made to different shareholders by different means.

• (3) A SAYE option scheme approved before the day on which this Act is passed which contains provision under paragraph 37(1) of Schedule 3 to ITEPA 2003 by reference to paragraph 37(2) has effect with any modifications needed to reflect the amendment made by sub-paragraph (2).

• (4) In sub-paragraph (4) for the words from “proposed” to the end substitute

applicable to or affecting— (a) all the ordinary share capital of the company or all the shares of the same class as the shares to which the option relates, or (b) all the shares, or all the shares of that same class, which are held by a class of shareholders identified otherwise than by reference to their employment or directorships or their participation in an approved SAYE option scheme.

• (5) A SAYE option scheme approved before the day on which this Act is passed which contains provision under paragraph 37(1) of Schedule 3 to ITEPA 2003 by reference to paragraph 37(4) has effect with any modifications needed to reflect the amendment made by sub-paragraph (4).

• (6) In sub-paragraph (6)—

• (a) after “982” insert “ or 983 to 985 ”, and

• (b) after “shareholder” insert “ etc ”.

• (7) A SAYE option scheme approved before the day on which this Act is passed which contains provision under paragraph 37(6) of Schedule 3 to ITEPA 2003 has effect with any modifications needed to reflect the amendments made by sub-paragraph (6).

25

• (1) In Part 7 of Schedule 3 (exercise of share options) paragraph 38 (exchange of options on company reorganisation) is amended as follows.

• (2) In sub-paragraph (2)(c)—

• (a) after “982” insert “ or 983 to 985 ”, and

• (b) after “shareholder” insert “ etc ”.

• (3) After sub-paragraph (2) insert—

(2A) In sub-paragraph (2)(a)(i) the reference to the issued ordinary share capital of the scheme company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (2)(a)(ii) the reference to the shares in the scheme company does not include any shares already held by the person making the offer or a person connected with that person. (2B) For the purposes of sub-paragraph (2)(a)(i) and (ii) it does not matter if the general offer is made to different shareholders by different means.

• (4) A SAYE option scheme approved before the day on which this Act is passed which contains provision under paragraph 38 of Schedule 3 to ITEPA 2003 has effect with any modifications needed to reflect the amendments made by this paragraph.

CSOP schemes

26

• (1) Section 524 (no charge in respect of exercise of option) is amended as follows.

• (2) In subsection (2B) for paragraph (a) substitute—

(a) has ceased to be in qualifying employment because of— (i) injury, disability, redundancy or retirement, (ii) a relevant transfer within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 2006, or (iii) in the case of a group scheme where the qualifying employment is as a director or employee of a constituent company, that company ceasing to be controlled by the scheme organiser, and

.

• (3) After subsection (2B) insert—

(2BA) For the purposes of subsection (2B) an individual is in “qualifying employment” if the individual is a full-time director or qualifying employee (as defined in paragraph 8(2) of Schedule 4) of— (a) the scheme organiser, or (b) in the case of a group scheme, a constituent company.

• (4) In subsection (2C) for “(2B)” substitute “ (2B)(a)(i) ”.

• (5) After subsection (2C) insert—

(2D) Subsection (2B)(a)(iii) does not cover a case where the constituent company was controlled by the scheme organiser by virtue of paragraph 34 of Schedule 4 (jointly owned companies). (2E) In relation to any shares acquired by the exercise of the share option, no liability to income tax arises in respect of its exercise if— (a) the individual exercises the option before the third anniversary of the date on which the option was granted at a time when the CSOP scheme is approved, (b) the option is exercised by virtue of a provision included in the scheme under paragraph 25A of Schedule 4, (c) as a result of, as the case may be— (i) the general offer, (ii) the compromise or arrangement, or (iii) the takeover offer, the individual receives cash (and no other assets) in exchange for the shares, (d) when the decision to grant the option was taken— (i) the general offer, (ii) the compromise or arrangement, or (iii) the takeover offer, as the case may be, had not been made, (e) when that decision was taken, no arrangements were in place or under consideration for— (i) the making of a general offer which would fall within subsection (2H), (ii) the making of any compromise or arrangement which would fall within subsection (2L), or (iii) the making of a takeover offer (as defined in section 974 of the Companies Act 2006) which would fall within subsection (2M), (f) if the scheme includes a provision under paragraph 26 of Schedule 4 (“the paragraph 26 provision”), in connection with— (i) the general offer, (ii) the compromise or arrangement, or (iii) the takeover offer, as the case may be, no course of action was open to the individual which, had it been followed, would have resulted in the individual making an agreement under the paragraph 26 provision which would have prevented the individual from acquiring the shares by the exercise of the option, and (g) the avoidance of tax or national insurance contributions is not the main purpose (or one of the main purposes) of any arrangements under which the option was granted or is exercised. (2F) In subsection (2E)(c)(iii), (d)(iii) and (f)(iii) “the takeover offer” means the takeover offer (as defined in section 974 of the Companies Act 2006) giving rise to the application of sections 979 to 982 or 983 to 985 of that Act. (2G) In subsection (2E)(e) “arrangements” includes any plan, scheme, agreement or understanding, whether or not legally enforceable. (2H) A general offer falls within this subsection if it is— (a) a general offer to acquire the whole of the issued ordinary share capital of the relevant company which is made on a condition such that, if it is met, the person making the offer will have control of the relevant company, or (b) a general offer to acquire all the shares in the relevant company which are of the same class as those acquired by the exercise of the option. (2I) In subsection (2H)(a) the reference to the issued ordinary share capital of the relevant company does not include any capital already held by the person making the offer or a person connected with that person and in subsection (2H)(b) the reference to the shares in the relevant company does not include any shares already held by the person making the offer or a person connected with that person. (2J) For the purposes of subsection (2H)(a) and (b) it does not matter if the general offer is made to different shareholders by different means. (2K) For the purposes of subsection (2H)(a) a person is to be treated as obtaining control of a company if that person and others acting in concert together obtain control of it. (2L) A compromise or arrangement falls within this subsection if it is applicable to or affects— (a) all the ordinary share capital of the relevant company or all the shares of the same class as those acquired by the exercise of the option, or (b) all the shares, or all the shares of that same class, which are held by a class of shareholders identified otherwise than by reference to their employment or directorships or their participation in an approved CSOP scheme. (2M) A takeover offer falls within this subsection if— (a) it relates to the relevant company, and (b) where there is more than one class of share in the relevant company, the class or classes to which it relates is or include the class of the shares acquired by the exercise of the option. (2N) In subsections (2H), (2L) and (2M) “the relevant company” means the company whose shares are acquired by the exercise of the option.

27

Part 5 of Schedule 4 (requirements etc relating to share options) is amended as follows.

28

In paragraph 21 (introduction) in sub-paragraph (2)—

• (a) after the entry for paragraph 24 omit “or”, and

• (b) after the entry for paragraph 25 insert

, or paragraph 25A (exercise of options: company events)

.

29

After paragraph 25 insert—

(25A) (1) The scheme may provide that share options relating to shares in a company may be exercised within 6 months after the relevant date for the purposes of sub-paragraph (2) or (6). (2) The relevant date for the purposes of this sub-paragraph is the date when— (a) a person has obtained control of the company as a result of making an offer falling within sub-paragraph (3), and (b) any condition subject to which the offer is made has been satisfied. (3) An offer falls within this sub-paragraph if it is— (a) a general offer to acquire the whole of the issued ordinary share capital of the company which is made on a condition such that, if it is met, the person making the offer will have control of the company, or (b) a general offer to acquire all the shares in the company which are of the same class as the shares to which the option relates. (4) In sub-paragraph (3)(a) the reference to the issued ordinary share capital of the company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (3)(b) the reference to the shares in the company does not include any shares already held by the person making the offer or a person connected with that person. (5) For the purposes of sub-paragraph (3)(a) and (b) it does not matter if the general offer is made to different shareholders by different means. (6) The relevant date for the purposes of this sub-paragraph is the date when the court sanctions under section 899 of the Companies Act 2006 (court sanction for compromise or arrangement) a compromise or arrangement applicable to or affecting— (a) all the ordinary share capital of the company or all the shares of the same class as the shares to which the option relates, or (b) all the shares, or all the shares of that same class, which are held by a class of shareholders identified otherwise than by reference to their employment or directorships or their participation in an approved CSOP scheme. (7) The scheme may provide that share options relating to shares in a company may be exercised at any time when any person is bound or entitled to acquire shares in the company under sections 979 to 982 or 983 to 985 of the Companies Act 2006 (takeover offers: right of offeror to buy out minority shareholder etc). (8) For the purposes of this paragraph a person is to be treated as obtaining control of a company if that person and others acting in concert together obtain control of it.

30

• (1) In Part 6 of Schedule 4 (exercise of share options) paragraph 26 (exchange of options on company reorganisation) is amended as follows.

• (2) In sub-paragraph (2)(c)—

• (a) after “982” insert “ or 983 to 985 ”, and

• (b) after “shareholder” insert “ etc ”.

• (3) After sub-paragraph (2) insert—

(2A) In sub-paragraph (2)(a)(i) the reference to the issued ordinary share capital of the scheme company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (2)(a)(ii) the reference to the shares in the scheme company does not include any shares already held by the person making the offer or a person connected with that person. (2B) For the purposes of sub-paragraph (2)(a)(i) and (ii) it does not matter if the general offer is made to different shareholders by different means.

• (4) A CSOP scheme approved before the day on which this Act is passed which contains provision under paragraph 26 of Schedule 4 to ITEPA 2003 has effect with any modifications needed to reflect the amendments made by this paragraph.

Enterprise management incentives

31

• (1) In Part 6 of Schedule 5 (company reorganisations) in paragraph 39 (introduction) after sub-paragraph (3) insert—

(4) In sub-paragraph (2)(a)(i) the reference to the issued share capital of the company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (2)(a)(ii) the reference to the shares in the company does not include any shares already held by the person making the offer or a person connected with that person. (5) For the purposes of sub-paragraph (2)(a)(i) and (ii) it does not matter if the general offer is made to different shareholders by different means.

• (2) The amendment made by this paragraph comes into force on such day as the Treasury may by order appoint.

PART 3 — Material interest rules

Introduction

32

Part 7 of ITEPA 2003 (employment income: income and exemptions relating to securities) is amended as follows.

Share incentive plans

33

Part 3 of Schedule 2 (eligibility of individuals) is amended as follows.

34

In paragraph 13 (introduction)—

• (a) after the entry for paragraph 18 insert “ and ”, and

• (b) omit the entry for paragraph 19 and the “and” before it.

35

In paragraph 14 (time of eligibility to participate) in sub-paragraph (7)—

• (a) after paragraph (b) insert “ and ”, and

• (b) omit paragraph (c) and the “and” before it.

36

Omit paragraphs 19 to 24 (the “no material interest” requirement).

37

In Part 11 of Schedule 2 (supplementary provisions) in paragraph 100 (index of defined expressions), in the entry for “close company”, omit “(and see paragraph 20(4))”.

38

• (1) The amendments made by paragraphs 33 to 37 above have effect for the purpose of determining whether an individual is eligible to participate in an award of shares on the day on which this Act is passed or any later day.

• (2) A SIP approved before the day on which this Act is passed has effect accordingly with the omission of any provision falling within a provision of Schedule 2 to ITEPA 2003 omitted by those paragraphs.

SAYE option schemes

39

Part 3 of Schedule 3 (eligibility of individuals) is amended as follows.

40

In paragraph 9 (introduction) omit the entry for paragraph 11 and the “and” before it.

41

Omit paragraphs 11 to 16 (the “no material interest” requirement).

42

In Part 9 of Schedule 3 (supplementary provisions) in paragraph 49 (index of defined expressions), in the entry for “close company”, omit “(and see paragraph 11(4))”.

43

• (1) The amendments made by paragraphs 39 to 42 above have effect for the purpose of determining whether an individual is eligible to participate in a scheme on the day on which this Act is passed or any later day.

• (2) A SAYE option scheme approved before the day on which this Act is passed has effect accordingly with the omission of any provision falling within a provision of Schedule 3 to ITEPA 2003 omitted by those paragraphs.

CSOP schemes

44

• (1) In Part 3 of Schedule 4 (eligibility of individuals) in paragraphs 10(2) and (3), 11(3) and (4) and 13(2) (which relate to the “no material interest” requirement) for “25%” substitute “ 30% ”.

• (2) The amendments made by this paragraph have effect for the purpose of determining whether a person is eligible to participate in a scheme on the day on which this Act is passed or any later day (by altering what constitutes a material interest on that day and within the 12 months preceding that day).

• (3) A CSOP scheme approved before the day on which this Act is passed has effect with any modifications needed to reflect the amendments made by this paragraph.

PART 4 — Restricted shares

Introduction

45

Part 7 of ITEPA 2003 (employment income: income and exemptions relating to securities) is amended as follows.

Share incentive plans

46

Part 4 of Schedule 2 (types of shares that may be awarded) is amended as follows.

47

In paragraph 25 (introduction) in sub-paragraph (1)—

• (a) after the entry for paragraph 28 insert “ and ”, and

• (b) omit the entry for paragraph 30 and the “and” before it.

48

Omit paragraphs 30 to 33 (only certain kinds of restrictions allowed).

49

In Part 5 of Schedule 2 (free shares) in paragraph 35 (maximum annual award) omit sub-paragraphs (3) and (4).

50

In Part 6 of Schedule 2 (partnership shares) in paragraph 43 (introduction) after sub-paragraph (2) insert—

(2A) The plan must provide that partnership shares are not to be subject to any provision for forfeiture.

51

In Part 7 of Schedule 2 (matching shares) in paragraph 59 (general requirement for matching shares) omit sub-paragraph (2).

52

In Part 9 of Schedule 2 (trustees) in paragraph 75 (duty to give notice of award of shares etc) in sub-paragraphs (2) and (3) after paragraph (a) insert—

(aa) if the shares are subject to any restriction, giving details of the restriction,

.

53

• (1) In Part 10 of Schedule 2 (approval of plans) paragraph 84 (disqualifying events) is amended as follows.

• (2) In sub-paragraph (3)—

• (a) after paragraph (b) insert “ or ”, and

• (b) omit paragraph (c) and the “or” after it.

• (3) In sub-paragraph (4)(b) for “provision for forfeiture” substitute “ restriction ”.

54

Part 11 of Schedule 2 (supplementary provision) is amended as follows.

55

In paragraph 92 (determination of market value) for sub-paragraph (2) substitute—

(2) For the purposes of this Schedule the market value of shares subject to a restriction is to be determined as if they were not subject to the restriction.

56

In paragraph 99 (minor definitions) after sub-paragraph (3) insert—

(4) For the purposes of the SIP code— (a) shares are subject to a “restriction” if there is any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) of section 423 (restricted securities) would apply if the references in those subsections to the employment-related securities were to the shares, and (b) the “restriction” is that provision.

57

In paragraph 100 (index of defined expressions) at the appropriate place insert—

restriction (in relation to shares)	paragraph 99(4)

.

58

• (1) The amendments made by paragraphs 46 to 48 and 50 to 52 above have effect in relation to awards of shares made on or after the day on which this Act is passed.

• (2) A SIP approved, or a trust instrument made, before that day has effect with any modifications needed to reflect the amendments made by paragraphs 46 to 57 above.

• (3) In particular, in relation to awards of shares on or after that day, such a SIP has effect with the omission of any provision falling within a provision of Schedule 2 to ITEPA 2003 omitted by paragraph 48 above.

SAYE option schemes

59

Part 4 of Schedule 3 (shares to which schemes can apply) is amended as follows.

60

In paragraph 17 (introduction) in sub-paragraph (1)—

• (a) after the entry for paragraph 20 insert “ and ”, and

• (b) omit the entry for paragraph 21 and the “and” after it.

61

Omit paragraph 21 (only certain kinds of restrictions allowed).

62

In Part 6 of Schedule 3 (requirements etc relating to share options) in paragraph 28 (requirements as to price of acquisition of shares) after sub-paragraph (4) insert—

(5) At the time a share option is granted— (a) it must be stated whether or not the shares which may be acquired by the exercise of the option may be subject to any restriction, and (b) if so, the details of the restriction must also be stated. (6) For the purposes of this paragraph the market value of shares subject to a restriction is to be determined as if they were not subject to the restriction.

63

In Part 7 of Schedule 3 (exchange of share options) in paragraph 39 (requirements about share options granted in exchange) after sub-paragraph (6) insert—

(7) For the purposes of this paragraph the market value of shares subject to a restriction is to be determined as if they were not subject to the restriction.

64

Part 9 of Schedule 3 (supplementary provisions) is amended as follows.

65

In paragraph 48 (minor definitions) after sub-paragraph (2) insert—

(3) For the purposes of the SAYE code— (a) shares are subject to a “restriction” if there is any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) of section 423 (restricted securities) would apply if the references in those subsections to the employment-related securities were to the shares, and (b) the “restriction” is that provision.

66

In paragraph 49 (index of defined expressions) at the appropriate place insert—

restriction (in relation to shares)	paragraph 48(3)

.

67

• (1) The amendments made by paragraphs 59 to 62 above have effect in relation to options granted on or after the day on which this Act is passed.

• (2) The amendment made by paragraph 63 above has effect for cases where the old options are granted on or after that day.

• (3) A SAYE option scheme approved before that day has effect with any modifications needed to reflect the amendments made by paragraphs 59 to 66 above.

• (4) In particular, in relation to options granted on or after that day, such a SAYE option scheme has effect with the omission of any provision falling within a provision of Schedule 3 to ITEPA 2003 omitted by paragraph 61 above.

CSOP schemes

68

In Part 2 of Schedule 4 (general requirements for approval) in paragraph 6 (limit on value of shares subject to options) after sub-paragraph (3) insert—

(4) For the purposes of this paragraph the market value of shares subject to a restriction is to be determined as if they were not subject to the restriction.

69

Part 4 of Schedule 4 (shares to which schemes can apply) is amended as follows.

70

In paragraph 15 (introduction)—

• (a) after the entry for paragraph 18 insert “ and ”, and

• (b) omit the entry relating to paragraph 19 and the “and” after it.

71

Omit paragraph 19 (only certain kinds of restrictions allowed).

72

In Part 5 of Schedule 4 (requirements etc relating to share options) in paragraph 22 after sub-paragraph (4) insert—

(5) At the time a share option is granted— (a) it must be stated whether or not the shares which may be acquired by the exercise of the option may be subject to any restriction, and (b) if so, the details of the restriction must also be stated. (6) For the purposes of this paragraph the market value of shares subject to a restriction is to be determined as if they were not subject to the restriction.

73

In Part 6 of Schedule 4 (exchange of share options) in paragraph 27 (requirements about share options granted in exchange) after sub-paragraph (6) insert—

(7) For the purposes of this paragraph the market value of shares subject to a restriction is to be determined as if they were not subject to the restriction.

74

Part 8 of Schedule 4 (supplementary provisions) is amended as follows.

75

In paragraph 36 (minor definitions) after sub-paragraph (2) insert—

(3) For the purposes of the CSOP code— (a) shares are subject to a “restriction” if there is any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) of section 423 (restricted securities) would apply if the references in those subsections to the employment-related securities were to the shares, and (b) the “restriction” is that provision.

76

In paragraph 37 (index of defined expressions) at the appropriate place insert—

restriction (in relation to shares)	paragraph 36(3)

.

77

• (1) The amendment made by paragraph 68 above has effect for the purpose of determining whether options may be granted to an individual on or after the day on which this Act is passed; but the amendment is to be ignored in determining the market value of any shares to which an option granted before that day relates.

• (2) The amendments made by paragraphs 69 to 72 above have effect in relation to options granted on or after that day.

• (3) The amendment made by paragraph 73 above has effect for cases where the old options are granted on or after that day.

• (4) A CSOP scheme approved before that day has effect with any modifications needed to reflect the amendments made by paragraphs 68 to 76 above.

• (5) In particular, in relation to options granted on or after that day, such a CSOP scheme has effect with the omission of any provision falling within a provision of Schedule 4 to ITEPA 2003 omitted by paragraph 71 above.

PART 5 — Share incentive plans: partnership shares

78

Schedule 2 to ITEPA 2003 is amended as follows.

79

• (1) In Part 6 (partnership shares) paragraph 52 (application of money deducted in accumulation period) is amended as follows.

• (2) After sub-paragraph (2) insert—

(2A) The number of shares awarded to the employee must be determined in accordance with one of sub-paragraphs (3), (3A) and (3B) and the partnership share agreement must specify which one of those sub-paragraphs is to apply for the purposes of the agreement.

• (3) In sub-paragraph (3) for “The number of shares awarded to each” substitute “ If the agreement specifies that this sub-paragraph is to apply, the number of shares awarded to the ”.

• (4) After sub-paragraph (3) insert—

(3A) If the agreement specifies that this sub-paragraph is to apply, the number of shares awarded to the employee must be determined in accordance with the market value of the shares at the beginning of the accumulation period. (3B) If the agreement specifies that this sub-paragraph is to apply, the number of shares awarded to the employee must be determined in accordance with the market value of the shares on the acquisition date.

• (5) In sub-paragraphs (4) and (5) for “and (3)” substitute “ to (3B) ”.

80

In Part 9 (trustees) in paragraph 75 (duty to give notice of award of shares etc) in sub-paragraph (3) for paragraph (c) substitute—

(c) stating the market value in accordance with which the number of shares awarded to the employee was determined.

81

• (1) The amendments made by paragraphs 79 and 80 above have effect in relation to partnership share agreements made on or after the day on which this Act is passed.

• (2) A trust instrument made before that day has effect with any modifications needed to reflect the amendment made by paragraph 80 above.

PART 6 — Share incentive plans: dividend shares

Introduction

82

Part 8 of Schedule 2 to ITEPA 2003 (cash dividends and dividend shares) is amended as follows.

Company’s power to direct reinvestment of cash dividends

83

• (1) Paragraph 62 (reinvestment of dividends) is amended as follows.

• (2) In sub-paragraph (1) for the first “all” substitute “ some or all of the ”.

• (3) After sub-paragraph (1) insert—

(1A) The company's direction must set out— (a) the amount of the cash dividends to be applied as mentioned in sub-paragraph (1), or (b) how that amount is to be determined.

• (4) In sub-paragraph (4) after “may” insert “ modify or ”.

84

In paragraph 68 (reinvestment: amounts to be carried forward) for sub-paragraph (1) substitute—

(1) This paragraph applies where an amount is not reinvested because it is not sufficient to acquire a share.

85

In paragraph 69 (cash dividends with no requirement to reinvest) in sub-paragraph (2) for “which” substitute “ so far as they ”.

86

• (1) A SIP approved before the day on which this Act is passed which contains provision under paragraph 62(1) of Schedule 2 to ITEPA 2003 has effect with any modifications needed to reflect the amendments made by paragraphs 83 to 85 above.

• (2) Sub-paragraph (3) applies to a direction requiring the reinvestment of cash dividends which is given before that day.

• (3) For the purposes of paragraph 62(1A) of Schedule 2 to ITEPA 2003 the direction is to be treated as requiring the reinvestment of all the cash dividends, subject to any modification of the direction which is made on or after that day under paragraph 62(4) of that Schedule.

Removal of limit on amount reinvested

87

In paragraph 63 (requirements to be met as regards cash dividends) in sub-paragraph (1) omit the entry for paragraph 64.

88

Omit paragraph 64 (limit on amount reinvested).

89

• (1) The amendments made by paragraphs 87 and 88 above have effect in relation to the tax year 2013-14 and subsequent tax years.

• (2) A SIP approved before 6 April 2013 has effect accordingly with the omission of any provision falling within a provision of Schedule 2 to ITEPA 2003 omitted by paragraph 88 above.

Amounts to be carried forward

90

• (1) Paragraph 68 (reinvestment: amounts to be carried forward) is amended as follows.

• (2) In sub-paragraph (4)—

• (a) omit paragraph (a) and the “or” after it, and

• (b) in paragraphs (b) and (c) omit “during that period”.

• (3) Omit sub-paragraph (6).

• (4) The amendments made by this paragraph have effect in relation to amounts held by trustees on or after 6 April 2013 (including amounts originally retained before that date in relation to which an event falling within paragraph 68(4)(a) to (c) of Schedule 2 to ITEPA 2003 did not occur before that date).

• (5) A SIP approved before 6 April 2013 has effect accordingly with the omission of any provision falling within a provision of Schedule 2 to ITEPA 2003 omitted by this paragraph.

PART 7 — Share incentive plans: employee share ownership trusts

91

Part 9 of Schedule 2 to ITEPA 2003 (trustees) is amended as follows.

92

In paragraph 70 (introduction) in sub-paragraph (2)—

• (a) after the entry for paragraph 77 insert “ and ”, and

• (b) omit the entry for paragraph 78.

93

• (1) Omit paragraph 78 (acquisition of shares from employee share ownership trusts).

• (2) A trust instrument made before the day on which this Act is passed has effect with the omission of any provision falling within a provision of Schedule 2 to ITEPA 2003 omitted by this paragraph.

PART 8 — Enterprise management incentives: consequences of disqualifying events

94

• (1) In section 532 of ITEPA 2003 (modified tax consequences following disqualifying events) in subsection (1)(b) for “40” substitute “ 90 ”.

• (2) The amendment made by this paragraph has effect in relation to disqualifying events occurring on or after the day on which this Act is passed.

SCHEDULE 3

The limit

1

In Chapter 3 of Part 2 of ITA 2007 (calculation of income tax liability) after section 24 insert—

(24A) (1) If the taxpayer is an individual, there is a limit on certain deductions which may be made for the tax year at Step 2. (2) The limit is determined as follows. (3) Amount A must not exceed amount B. (4) Amount A is— (a) the deductions for the tax year at Step 2 for the reliefs listed in subsection (6) taken together, less (b) so much of those deductions as fall within subsection (7). (5) Amount B is— (a) £50,000, or (b) if more, 25% of the taxpayer's adjusted total income for the tax year (see subsection (8)). (6) The reliefs are— (a) relief under section 64 (trade loss relief against general income); (b) relief under section 72 (early trade losses relief); (c) relief under section 96 (post-cessation trade relief); (d) relief under section 120 (property loss relief against general income); (e) relief under section 125 (post-cessation property relief); (f) relief under section 128 (employment loss relief against general income); (g) relief under Chapter 6 of Part 4 (share loss relief); (h) relief under Chapter 1 of Part 8 (interest payments); (i) relief under section 555 of ITEPA 2003 (deduction for liabilities relating to former employment); (j) relief under section 446 of ITTOIA 2005 (strips of government securities: relief for losses); (k) relief under section 454(4) of ITTOIA 2005 (listed securities held since 26 March 2003: relief for losses: persons other than trustees). (7) The deductions falling within this subsection are— (a) deductions for amounts of relief so far as attributable to allowances under Part 3A of CAA 2001 (business premises renovation allowances); (b) deductions for amounts of relief under a provision mentioned in subsection (6)(a) to (e) so far as made from profits of the trade or business to which the relief in question relates; (c) deductions for amounts of relief under the provision mentioned in subsection (6)(a) or (b) so far as attributable to a deduction allowed under section 205 or 220 of ITTOIA 2005 (deduction for overlap profit in final tax year or on change of accounting date); (d) deductions for amounts of relief under the provision mentioned in subsection (6)(g)— (i) where the shares in question fall within section 131(2)(a) (qualifying shares to which EIS relief is attributable), or (ii) where SEIS relief is attributable to the shares in question as determined in accordance with Part 5A (seed enterprise investment scheme). (8) The taxpayer's “adjusted total income” for the tax year is calculated as follows. - Step 1 Take the amount of the taxpayer's total income for the tax year. - Step 2 Add back the amounts of any deductions allowed under Part 12 of ITEPA 2003 (payroll giving) in calculating the taxpayer's income which is charged to tax for the tax year. - Step 3 If the taxpayer is given relief in accordance with section 192 of FA 2004 (pension schemes: relief at source) in respect of any contribution paid in the tax year under a pension scheme, deduct the gross amount of the contribution. The “gross” amount of a contribution is the amount of the contribution before deduction of tax under section 192(1) of FA 2004. - Step 4 If the taxpayer is entitled to a deduction for relief under section 193(4) or 194(1) of FA 2004 (pension schemes: excess relief under net payment arrangements or relief on making a claim) for the tax year, deduct the amount of the excess or contribution (as the case may be). The result is the taxpayer's adjusted total income for the tax year.

Consequential amendments

2

• (1) ITA 2007 is amended as follows.

• (2) In section 23 (calculation of income tax liability) at step 2 for “section 25” substitute “ sections 24A and 25 ”.

• (3) In the following provisions (which explain how certain reliefs work) for “section 25(4) and (5)” substitute “ sections 24A and 25(4) and (5) ”

• (a) section 65(1),

• (b) section 73,

• (c) section 121(1),

• (d) section 129(1), and

• (e) section 133(1).

• (4) In section 148 (share loss relief: disposal of shares forming part of mixed holding) in subsection (3)(b) before sub-paragraph (i) insert—

(ai) shares to which SEIS relief is attributable (as determined in accordance with Part 5A),

.

Commencement and transitional provision

3

The amendments made by paragraphs 1 and 2 above have effect for the tax year 2013-14 and subsequent tax years.

4

• (1) Sub-paragraph (2) applies to a claim which relates to the tax year 2013-14 or a subsequent tax year by virtue of paragraph 2 of Schedule 1B to TMA 1970 where the earlier year is a tax year before the tax year 2013-14.

• (2) The amount of the claim is to be determined as if the amendments made by paragraphs 1 and 2 above also have effect for tax years before the tax year 2013-14.

• (3) For this purpose, section 24A(6) of ITA 2007 (as inserted by paragraph 1 above) is treated as having effect for tax years before the tax year 2013-14 as if—

• (a) in paragraphs (a), (b), (f) and (g) the references to relief were limited to relief in respect of a loss made in the tax year 2013-14 or a subsequent tax year, and

• (b) all the other paragraphs were omitted.

5

In section 24A(6)(d) of ITA 2007 (as inserted by paragraph 1 above) the reference to relief does not include relief in respect of a loss made in the tax year 2012-13.

SCHEDULE 4

PART 1 — Main provisions

Introductory

1

Part 2 of ITTOIA 2005 (trading income) is amended as follows.

Eligibility to calculate profits on cash basis

2

Chapter 3 (trade profits: basic rules) is amended as follows.

3

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

4

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

5

After Chapter 3 insert—

(31A) (1) A person may make an election under section 25A for a tax year if conditions A to C are met. (2) Condition A is that the aggregate of the cash basis receipts of each trade, profession or vocation carried on by the person during that tax year does not exceed any relevant maximum applicable for that tax year (see section 31B). (3) Condition B is that, in a case where the person is either an individual who controls a firm or a firm controlled by an individual— (a) the aggregate of the cash basis receipts of each trade, profession or vocation carried on by the individual or the firm during that tax year does not exceed any relevant maximum applicable for that tax year, and (b) the firm or the individual (as the case may be) has also made an election under section 25A for that tax year. (4) Condition C is that the person is not an excluded person in relation to the tax year (see section 31C). (5) For the purposes of this section, the “cash basis receipts” of a trade, profession or vocation, in relation to a tax year, are any receipts that— (a) are received during the basis period for the tax year, and (b) would be brought into account in calculating the profits of the trade, profession or vocation for that tax year on the cash basis. (31B) (1) For the purposes of section 31A there is a “relevant maximum” applicable for a tax year in relation to a trade, profession or vocation carried on by a person if any of conditions A to C is met. (2) Condition A is that an election under section 25A did not have effect in relation to the trade, profession or vocation for the previous tax year. (3) Condition B is that the aggregate of the cash basis receipts of each trade, profession or vocation carried on by the person during the previous tax year is greater than an amount equal to twice the VAT threshold for that previous tax year. (4) Condition C is that, in a case where the person is either an individual who controls a firm or a firm controlled by an individual, the aggregate of the cash basis receipts of each trade, profession or vocation carried on by the individual or the firm during the previous tax year is greater than an amount equal to twice the VAT threshold for that previous tax year. (5) If there is a relevant maximum applicable for a tax year, the amount of the relevant maximum is— (a) the VAT threshold, or (b) in the case where the person is an individual who is a universal credit claimant in the tax year, an amount equal to twice the VAT threshold. (6) For the purposes of this section, where the basis period for a tax year is less than 12 months, the VAT threshold is proportionately reduced. (7) In this section— - “universal credit claimant”, in relation to a tax year, means a person who is entitled to universal credit under the relevant legislation for an assessment period (within the meaning of the relevant legislation) that falls within the basis period for the tax year, - “the relevant legislation” means— 1. Part 1 of the Welfare Reform Act 2012, or 2. any provision made for Northern Ireland which corresponds to that Part of that Act, and - “the VAT threshold”, in relation to a tax year, means the amount specified at the end of that tax year in paragraph 1(1)(a) of Schedule 1 to VATA 1994. (8) The Treasury may by order amend this section. (9) A statutory instrument containing an order under subsection (8) that restricts the circumstances in which an election may be made under section 25A may not be made unless a draft of the instrument containing the order has been laid before, and approved by a resolution of, the House of Commons. (31C) (1) A person is an excluded person in relation to a tax year if the person meets any of conditions A to H. (2) Condition A is that— (a) the person is a firm, and (b) one or more of the persons who have been partners in the firm at any time during the basis period for the tax year was not an individual at that time. (3) Condition B is that the person was a limited liability partnership at any time during the basis period for the tax year. (4) Condition C is that the person is an individual who has been a Lloyd's underwriter at any time during the basis period for the tax year. (5) Condition D is that the person has made an election under Chapter 8 (trade profits: herd basis rules) that has effect in relation to the tax year. (6) Condition E is that the person has made a claim under section 221 (claim for averaging of fluctuating profits) in relation to the tax year. (7) Condition F is that, at any time within the period of 7 years ending immediately before the basis period for the tax year, the person obtained an allowance under Part 3A of CAA 2001 (business premises renovation allowances). (8) Condition G is that the person has carried on a mineral extraction trade at any time during the basis period for the tax year. In this subsection “mineral extraction trade” has the same meaning as in Part 5 of CAA 2001 (see section 394(2) of that Act). (9) Condition H is that— (a) at any time before the beginning of the basis period for the tax year the person obtained an allowance under Part 6 of CAA 2001 (research and development allowances) in respect of qualifying expenditure incurred by the person, and (b) the person owns an asset representing the expenditure. In this subsection “qualifying expenditure” has the same meaning as in Part 6 of CAA 2001. (10) The Treasury may by order amend this section. (11) A statutory instrument containing an order under subsection (10) that restricts the circumstances in which an election may be made under section 25A may not be made unless a draft of the instrument containing the order has been laid before, and approved by a resolution of, the House of Commons. (31D) (1) An election made by a person under section 25A has effect— (a) for the tax year for which it is made, and (b) for every subsequent tax year. This is subject to subsections (2) and (3). (2) An election made by a person under section 25A ceases to have effect if any of conditions A to C in section 31A is not met for a subsequent tax year. (3) An election made by a person under section 25A ceases to have effect if— (a) there is a change of circumstances relating to any trade, profession or vocation carried on by the person which makes it more appropriate for its profits for a subsequent tax year to be calculated in accordance with generally accepted accounting practice, and (b) the person elects to calculate those profits in that way. (4) Neither subsection (2) nor subsection (3) prevents the person making an election under section 25A for any subsequent tax year. (5) An election that— (a) is made by a person under section 25A, and (b) has effect for a tax year, has effect in relation to every trade, profession or vocation carried on by the person during the tax year. (6) For provision prohibiting a person who has made an election under section 25A from claiming any capital allowances (other than in respect of expenditure incurred on the provision of a car), see section 1(4) of CAA 2001. (31E) (1) This section applies to professions and vocations as it applies to trades. (2) To determine the profits of a trade for a tax year on the cash basis— - Step 1 Calculate the total amount of receipts of the trade received during the basis period for the tax year. - Step 2 Deduct from that amount the total amount of expenses of the trade paid during the basis period for the tax year. (3) Subsection (2) is subject to any adjustment required or authorised by law in calculating profits for income tax purposes. (31F) (1) For provision about the application of Chapters 4 to 6 (rules about deductions and receipts) in relation to the cash basis, see sections 32A, 56A and 95A. (2) For provision about the application of Chapter 11 (trade profits: other specific trades) in relation to the cash basis, see section 148K. (3) The following Chapters apply only where profits are calculated on the cash basis— - Chapter 6A (trade profits: amounts not reflecting commercial transactions), - Chapter 17A (cash basis: adjustments for capital allowances). (4) The following Chapters do not apply in relation to the cash basis— - Chapter 8 (trade profits: herd basis rules), - Chapter 9 (trade profits: sound recordings), - Chapter 10 (trade profits: certain telecommunication rights), - Chapter 10A (leases of plant or machinery: special rules for long funding leases), - Chapter 11A (trade profits: changes in trading stock), - Chapter 13 (deductions from profits: unremittable amounts), - Chapter 14 (disposal and acquisition of know-how), - Chapter 16 (averaging profits of farmers and creative artists), - Chapter 16ZA (compensation for compulsory slaughter of animal), - Chapter 16A (oil activities).

Rules restricting deductions

6

Chapter 4 (trade profits: rules restricting deductions) is amended as follows.

7

After section 32 insert—

(32A) (1) The following sections do not apply in calculating the profits of a trade on the cash basis— - section 33 (capital expenditure), - section 35 (bad and doubtful debts), - sections 36 and 37 (unpaid remuneration), - section 43 (employee benefit contributions: profits calculated before end of 9 month period), - sections 48 to 50B (car hire). (2) For rules restricting deductions that apply only where profits are calculated on the cash basis, see the following— - section 33A (cash basis: capital expenditure), - section 51A (cash basis: interest payments on loans).

8

After section 33 insert—

(33A) (1) In calculating the profits of a trade on the cash basis, no deduction is allowed for items of a capital nature, other than expenditure that— (a) if it were not allowable as a deduction in calculating the profits of the trade, would be qualifying expenditure within the meaning of Part 2 of CAA 2001 (plant and machinery allowances), and (b) is not expenditure incurred on the provision of a car. (2) In this section “car” has the same meaning as in Part 2 of CAA 2001 (see section 268A of that Act).

9

In section 38 (restriction of deductions in respect of employee benefit contributions), after subsection (2) insert—

(2A) In calculating for income tax purposes the profits of a trade on the cash basis, this section has effect as if— (a) in subsection (1), the words “or to be made” were omitted, and (b) in subsection (2), the words “or within 9 months from the end of it” were omitted (in both places).

10

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

11

• (1) Section 55A (expenditure on integral features) is amended as follows.

• (2) The existing provision becomes subsection (1).

• (3) After that subsection insert—

(2) But section 33A(3) of CAA 2001 does not apply in calculating the profits of a trade on the cash basis.

Rules allowing deductions

12

Chapter 5 (trade profits: rules allowing deductions) is amended as follows.

13

After section 56 insert—

(56A) (1) The following sections do not apply in calculating the profits of a trade on the cash basis— - sections 60 to 67 (tenants under taxed leases), - section 68 (replacement and alteration of trade tools). (2) For rules allowing deductions that apply only where profits are calculated on the cash basis, see the following— section 57B (cash basis: interest payments on loans). (3) In calculating the profits of a trade on the cash basis, any reference in this Chapter to the incurring of expenses is to be read as a reference to the paying of expenses.

14

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

15

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

16

In section 72 (payroll deduction schemes: contributions to agents' expenses), after subsection (2) insert—

(2A) In calculating the profits of the employer's trade on the cash basis, subsection (2) has effect as if paragraph (b) were omitted.

17

In section 94A (costs of setting up SAYE option scheme or CSOP scheme), after subsection (4) insert—

(5) But subsection (4) does not apply in calculating the profits of a trade on the cash basis.

Receipts

18

Chapter 6 (trade profits: receipts) is amended as follows.

19

After section 95 insert—

(95A) For rules about receipts that apply only for the purpose of calculating profits on the cash basis, see the following— - section 96A (cash basis: capital receipts), - section 97A (cash basis: value of trading stock on cessation of trade), - section 97B (cash basis: value of work in progress on cessation of profession or vocation).

20

After section 96 insert—

(96A) (1) This section applies if— (a) the whole or part of any expenditure incurred in acquiring, creating or improving an asset has been brought into account in calculating the profits of a trade of a person on the cash basis, or (b) the whole or part of any such expenditure would have been so brought into account if an election under section 25A had had effect in relation to the trade at the time the expenditure was paid. (2) The following amounts are to be brought into account as a receipt in calculating the profits of the trade on the cash basis— (a) any proceeds arising from the disposal of the asset or any part of it; (b) any proceeds arising from the grant of any right in respect of, or any interest in, the asset; (c) any amount of damages, proceeds of insurance or other compensation received in respect of the asset. (3) In a case where only part of the expenditure incurred in acquiring, creating or improving an asset has been, or would have been, brought into account as mentioned in subsection (1), the amount brought into account under subsection (2) is proportionately reduced. (4) If— (a) at any time the person ceases to use the asset or any part of it for the purposes of the trade, but (b) the person does not dispose of the asset (or that part) at that time, the person is to be regarded for the purposes of this section as disposing of the asset (or that part) at that time for an amount equal to the market value amount. (5) If at any time there is a material increase in the person's non-business use of the asset or any part of it, the person is to be regarded for the purposes of this section as disposing of the asset (or that part) at that time for an amount equal to the relevant proportion of the market value amount. (6) For the purposes of subsection (5)— (a) there is an increase in a person's non-business use of an asset (or part of an asset) if— (i) the proportion of the person's use of the asset (or that part) that is for the purposes of the trade decreases, and (ii) the proportion of the person's use of the asset (or that part) that is for other purposes (the “non-business use”) increases; (b) “the relevant proportion” is the difference between— (i) the proportion of the person's use of the asset (or part of the asset) that is non-business use, and (ii) the proportion of the person's use of the asset (or that part) that was non-business use before the increase mentioned in subsection (5). (7) In this section “the market value amount” means the amount that would be regarded as normal and reasonable— (a) in the market conditions then prevailing, and (b) between persons dealing with each other at arm's length in the open market.

21

After section 97 insert—

(97A) (1) This section applies if— (a) a person permanently ceases to carry on a trade in a tax year, and (b) an election under section 25A (cash basis for small businesses) has effect in relation to the trade for the tax year. (2) The value of any trading stock belonging to the trade at the time of the cessation is brought into account as a receipt in calculating the profits of the trade for the tax year. (3) The value is to be determined on a basis that is just and reasonable in all the circumstances. (4) If there is a change in the persons carrying on a trade, subsection (2) does not apply in relation to the trade so long as a person carrying on the trade immediately before the change continues to carry it on after the change. (5) In this section “trading stock” has the same meaning as in Chapter 12 (see section 174). (6) This section does not apply to professions or vocations. (97B) (1) This section applies if— (a) a person permanently ceases to carry on a profession or vocation in a tax year, and (b) an election under section 25A (cash basis for small businesses) has effect in relation to the profession or vocation for the tax year. (2) The value of any work in progress at the time of the cessation is brought into account as a receipt in calculating the profits of the profession or vocation for the tax year. (3) The value is to be determined on a basis that is just and reasonable in all the circumstances. (4) If there is a change in the persons carrying on a profession, subsection (2) does not apply in relation to the profession so long as a person carrying on the profession immediately before the change continues to carry it on after the change. (5) In this section “work in progress” has the same meaning as in Chapter 12 (see section 183).

22

• (1) Section 105 (industrial development grants) is amended as follows.

• (2) In subsection (2), at the end of paragraph (a) insert “ (but see subsection (2A)) ”.

• (3) After that subsection insert—

(2A) Subsection (2)(a) is to be disregarded in calculating the profits of a trade on the cash basis.

Amounts not reflecting commercial transactions

23

After Chapter 6 insert—

(106A) The provisions of this Chapter apply to professions and vocations as they apply to trades. (106B) This Chapter applies in calculating the profits of a person's trade for a period on the cash basis. (106C) (1) This section applies if— (a) the person does anything in relation to the trade (“the relevant act”), (b) there is a difference between— (i) the amount (if any) that, as a result of the relevant act, would (apart from this section) be brought into account in calculating the profits of the trade for the period, and (ii) the amount (if any) that would have been so brought into account had the relevant act consisted of a transaction between the person and another person dealing with each other at arm's length in the open market (“the arm's length amount”), and (c) the profits of the trade for the period are less than they would have been if the arm's length amount had been so brought into account. (2) The amount to be brought into account in calculating the profits of the trade for the period is an amount that is just and reasonable in all the circumstances. (106D) Section 106C does not apply in relation to the relevant act if subsection (4) or (5) of section 96A (cash basis: capital receipts) applies in relation to that act. (106E) Section 106C does not apply in relation to the relevant act if any of the provisions of Chapter 7 (trade profits: gifts to charities etc) applies in relation to that act.

Herd basis rules

24

In Chapter 8 (trade profits: herd basis rules), after section 111 insert—

(111A) Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

Sound recordings

25

In Chapter 9 (trade profits: sound recordings), after section 130 insert—

(130A) Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

Telecommunication rights

26

In Chapter 10 (trade profits: certain telecommunication rights), before section 145 insert—

(144A) Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

Long funding leases

27

In Chapter 10A (leases of plant or machinery: special rules for long funding leases), before section 148A (and the italic heading preceding it) insert—

(148ZA) Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

Specific trades

28

In Chapter 11 (trade profits: other specific trades), before section 149 (and the italic heading preceding it) insert—

(148K) The following sections do not apply in calculating the profits of a trade, profession or vocation on the cash basis— - sections 149 to 154A (dealers in securities etc), - section 157 (relief in respect of mineral royalties), - section 158 (lease premiums etc: reduction of receipts), - section 159 (ministers of religion), - section 161 (mineral exploration and access), - section 162 (payments by persons liable to pool betting duty), - sections 163 and 164 (intermediaries treated as making employment payments), - section 164A (managed service companies), - sections 165 to 168 (waste disposal), - sections 169 to 172ZE (cemeteries and crematoria).

Changes in trading stock

29

In Chapter 11A (trade profits: changes in trading stock), after section 172A insert—

(172AA) Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

Unremittable amounts

30

In Chapter 13 (deductions from profits: unremittable amounts), after section 188 insert—

(188A) Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

Disposal and acquisition of know-how

31

In Chapter 14 (disposal and acquisition of know-how), before section 192 insert—

(191A) Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

Averaging profits of farmers and creative artists

32

In Chapter 16 (averaging profits of farmers and creative artists), after section 221 insert—

(221A) Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

Compensation for compulsory slaughter of animal

33

In Chapter 16ZA (compensation for compulsory slaughter of animal), after section 225ZA insert—

(225ZAA) Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

Oil activities

34

In Chapter 16A (oil activities), before section 225A (and the italic heading preceding it) insert—

(225ZH) Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

Adjustment income

35

Chapter 17 (adjustment income) is amended as follows.

36

After section 227 insert—

(227A) (1) This Chapter applies if— (a) an election under section 25A (cash basis for small businesses) has effect in relation to a trade for a tax year but no such election has effect in relation to the trade for the following tax year, or (b) no such election has effect in relation to a trade for a tax year but such an election has effect in relation to the trade for the following tax year. (2) But this Chapter does not apply to income which is charged in accordance with section 832.

37

After section 239 insert—

(239A) (1) This section applies if— (a) an election under section 25A (cash basis for small businesses) has effect in relation to a trade for a tax year, and (b) no such election has effect in relation to the trade for the following tax year. (2) Any adjustment income is spread over 6 tax years as follows. (3) In each of the 6 tax years beginning with that in which the whole amount of the adjustment income would otherwise be chargeable to tax, an amount equal to one-sixth of the amount of the adjustment income is treated as arising and is charged to tax. (4) This section is subject to any election under section 239B (election to accelerate charge). (239B) (1) A person who under section 239A is liable to tax for a tax year on an amount of adjustment income may elect for an additional amount to be treated as arising in the tax year. (2) The election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year. (3) The election must specify the amount to be treated as income arising in the tax year (which may be any amount of the adjustment income not previously charged to tax). (4) If an election is made, section 239A applies in relation to any subsequent tax year as if the amount of adjustment income (as reduced by any previous application of this section) were reduced by the amount given by the following formula— $$A × 6 T$where—A is the additional amount treated as arising in the tax year for which the election is made, andT is the number of tax years remaining after that tax year in the period of 6 tax years referred to in section 239A.$

Adjustments for capital allowances

38

After Chapter 17 insert—

(240A) The provisions of this Chapter apply to professions and vocations as they apply to trades. (240B) For the purposes of this Chapter a person carrying on a trade enters the cash basis for a tax year if— (a) an election under section 25A has effect in relation to the trade for the tax year, and (b) immediately before the beginning of the basis period for the tax year, such an election does not have effect in relation to the trade. (240C) (1) This section applies if— (a) a person carrying on a trade enters the cash basis for a tax year (“the current tax year”), and (b) at the end of the basis period for the previous tax year, the person has unrelieved qualifying expenditure to carry forward from the chargeable period ending with that basis period. (2) But this section does not apply if section 240D (assets not fully paid for) applies. (3) In calculating the profits of the trade for the current tax year, a deduction is allowed for the relevant portion of the expenditure. (4) The “relevant portion” of the expenditure means the amount of the expenditure for which a deduction would be allowed in calculating the profits of the trade on the cash basis for a period if the expenditure was paid during that period. (5) The relevant portion of the expenditure is to be determined on such basis as is just and reasonable in all the circumstances. (6) Section 59(1) and (2) of CAA 2001 (unrelieved qualifying expenditure) has effect for the purposes of this section. (240D) (1) This section applies if— (a) a person carrying on a trade enters the cash basis for a tax year, (b) at any time before the beginning of the basis period for that tax year the person has obtained capital allowances in respect of expenditure on the provision of plant or machinery (“the relevant expenditure”), and (c) not all of the relevant expenditure has actually been paid by the person. (2) If the amount of the relevant expenditure that the person has actually paid exceeds the amount of capital allowances given in respect of the relevant expenditure, the difference is to be deducted in calculating the profits of the trade for the tax year. (3) If the amount of the relevant expenditure that the person has actually paid is less than the amount of capital allowances given in respect of the relevant expenditure, the difference is to be treated as a receipt in calculating the profits of the trade for the tax year. (4) The amount of any capital allowance obtained in respect of expenditure on the provision of any plant or machinery is to be determined on such basis as is just and reasonable in all the circumstances. (5) If the amount of capital allowances given in respect of the relevant expenditure has been reduced under section 205 or 207 of CAA 2001 (reduction where asset provided or used only partly for qualifying activity), the amount of the relevant expenditure that the person has actually paid is to be proportionately reduced for the purposes of this section. (6) This section does not apply where the relevant expenditure was incurred on the provision of a car. In this subsection “car” has the same meaning as in Part 2 of CAA 2001 (see section 268A of that Act). (240E) (1) This section applies if— (a) a person carrying on a trade enters the cash basis for a tax year, (b) the person is the successor for the purposes of section 266 of CAA 2001, and (c) as a result of an election under section 267 of that Act, relevant plant or machinery is treated as sold by the predecessor to the successor at any time during the basis period for the tax year. (2) The provisions of this Chapter have effect in relation to the successor as if everything done to or by the predecessor had been done to or by the successor. (3) Any expenditure actually incurred by the successor on acquiring the relevant plant or machinery is to be ignored for the purposes of calculating the profits of the trade for the tax year. (4) In this section “the predecessor” and “relevant plant or machinery” have the same meaning as in section 267 of CAA 2001.

Post-cessation receipts

39

• (1) Chapter 18 (post-cessation receipts) is amended as follows.

• (2) In section 246 (basic meaning of “post-cessation receipt”), after subsection (2) insert—

(2A) If, immediately before a person permanently ceases to carry on a trade, an election under section 25A (cash basis for small businesses) has effect in relation to the trade, a sum is to be treated as a post-cessation receipt only if it would have been brought into account in calculating the profits of the trade on the cash basis had it been received at that time.

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

Rent-a-room relief

40

In Chapter 1 of Part 7 of ITTOIA 2005 (rent-a-room relief), in section 786 (meaning of “rent-a-room receipts”), after subsection (4) insert—

(5) Subsections (6) and (7) apply if— (a) the receipts would otherwise be brought into account in calculating the profits of a trade, and (b) an election under section 25A (cash basis for small businesses) has effect in relation to the trade. (6) Any amounts brought into account under section 96A (capital receipts) as a receipt in calculating the profits of the trade are to be treated as receipts within paragraph (a) of subsection (1) above. (7) The reference in subsection (1)(b) to receipts that accrue to an individual during the income period for those receipts is to be read as a reference to receipts that are received by the individual during that period.

Qualifying care relief

41

Chapter 2 of Part 7 of ITTOIA 2005 (qualifying care relief) is amended as follows.

42

In section 805 (meaning of “qualifying care receipts”), after subsection (3) insert—

(4) Subsections (5) and (6) apply if— (a) the receipts would otherwise be brought into account in calculating the profits of a trade, and (b) an election under section 25A (cash basis for small businesses) has effect in relation to the trade. (5) Any amounts brought into account under section 96A (capital receipts) as a receipt in calculating the profits of the trade are to be treated as receipts within paragraph (a) of subsection (1) above. (6) The reference in subsection (1)(b) to receipts that accrue to an individual during the income period for those receipts is to be read as a reference to receipts that are received by the individual during that period.

43

In section 820 (periods of account not ending on 5th April)—

• (a) the existing provision becomes subsection (1), and

• (b) after that subsection insert—

(2) Where an election under section 25A (cash basis for small businesses) has effect in relation to the trade, any reference in this section or sections 821 to 823 to the period of account in which receipts accrue is to be read as a reference to the period of account in which receipts are received.

PART 2 — Consequential amendments

TMA 1970

44

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

TCGA 1992

45

After section 47 of TCGA 1992 insert—

(47A) (1) No chargeable gain shall accrue on the disposal of, or of an interest in, an asset if conditions A to D are met in relation to the asset. (2) Condition A is that the asset is— (a) tangible movable property, and (b) a wasting asset. (3) Condition B is that, at any time during the period of ownership of the person making the disposal, the asset has been used for the purposes of a trade, profession or vocation carried on by the person. (4) Condition C is that an election under section 25A of ITTOIA 2005 (cash basis for small businesses) has effect in relation to the trade, profession or vocation at the time of the disposal. (5) Condition D is that— (a) any expenditure attributable to the asset or interest under paragraph (a) or (b) of section 38(1) has been brought into account in calculating the profits of the trade, profession or vocation on the cash basis, or (b) any of that expenditure would have been so brought into account if an election under section 25A of ITTOIA 2005 had had effect in relation to the trade, profession or vocation at the time the expenditure was paid. (6) Subsection (7) applies in the case of the disposal of, or of an interest in, an asset which, in the period of ownership of the person making the disposal— (a) has been used partly for the purposes of the trade, profession or vocation and partly for other purposes, or (b) has been used for the purposes of the trade, profession or vocation for part of that period. (7) In such a case— (a) the consideration for the disposal, and any expenditure attributable to the asset or interest by virtue of section 38(1)(a) and (b), shall be apportioned by reference to the extent to which that expenditure was, or (as the case may be) would have been, brought into account as mentioned in subsection (5) above, (b) the computation of the gain shall be made separately in relation to the apportioned parts of the expenditure and consideration, and (c) subsection (1) above shall apply to any gain accruing by reference to the computation in relation to the part of the consideration apportioned to use for the purposes of the trade, profession or vocation. (47B) (1) This section applies where— (a) a person disposes of, or of an interest in, an asset that has been used for the purposes of a trade, profession or vocation carried on by the person, and (b) conditions A and B are met in relation to the trade, profession or vocation. (2) Condition A is that— (a) any expenditure attributable to the asset or interest under paragraph (a) or (b) of section 38(1) was incurred at a time when an election under section 25A of ITTOIA 2005 (cash basis for small businesses) had effect in relation to the trade, profession or vocation, and (b) that expenditure (“the relevant expenditure”) has been brought into account in calculating the profits of the trade, profession or vocation on the cash basis. (3) Condition B is that no such election has effect in relation to the trade, profession or vocation at the time of the disposal. (4) Section 39 (exclusion of expenditure by reference to tax on income) does not apply in relation to the relevant expenditure. (5) Section 41 (restriction of losses by reference to capital allowances and renewals allowances) has effect as if— (a) the election mentioned in subsection (2)(a) above had not had effect at the time the relevant expenditure was incurred, and (b) the reference in subsection (7) to qualifying expenditure included a reference to expenditure which, if that election had not had effect at that time, would have been qualifying expenditure. (6) Section 45 (exemption for certain wasting assets) and section 47 (wasting assets qualifying for capital allowances) have effect as if the election mentioned in subsection (2)(a) above had not had effect at the time the relevant expenditure was incurred. Accordingly, any reference in those sections to expenditure qualifying for capital allowances is to be read as a reference to expenditure that would, in the absence of the election, have qualified for such allowances.

CAA 2001

46

In section 1 of CAA 2001 (capital allowances), after subsection (3) insert—

(4) But a person is not entitled to any allowance or liable to any charge under this Act in calculating the profits of a trade, profession or vocation of the person in relation to which an election under section 25A of ITTOIA 2005 (cash basis for small businesses) has effect, other than an allowance in respect of expenditure incurred on the provision of a car (or a charge in connection with such an allowance). (5) In subsection (4) “car” has the same meaning as in Part 2 (see section 268A).

47

In section 59 of CAA 2001 (unrelieved qualifying expenditure), after subsection (3) insert—

(4) If a person carrying on a trade, profession or vocation enters the cash basis for a tax year, no amount may be carried forward as unrelieved qualifying expenditure from the chargeable period ending with the basis period for the previous tax year. (5) But subsection (4) does not apply to unrelieved qualifying expenditure incurred on the provision of a car. (6) Where a person has unrelieved qualifying expenditure to carry forward from a chargeable period that is not expenditure allocated to a single asset pool, the amount of unrelieved qualifying expenditure incurred on the provision of a car is to be determined on such basis as is just and reasonable in all the circumstances. (7) Section 240B of ITTOIA 2005 (meaning of “entering the cash basis”) applies for the purposes of this section as it applies for the purposes of Chapter 17A of Part 2 of that Act.

48

In Chapter 5 of Part 2 of CAA 2001 (plant and machinery allowances and charges), after section 66 insert—

(66A) (1) This section applies if— (a) a person carrying on a trade, profession or vocation leaves the cash basis in a chargeable period, and (b) the person has at any time incurred expenditure which, if an election under section 25A of ITTOIA 2005 (cash basis for small businesses) had not had effect at that time, would have been qualifying expenditure. (2) In this section— (a) the “relieved portion” of the expenditure is the amount of that expenditure for which— (i) a deduction was allowed in calculating the profits of the trade, profession or vocation, or (ii) a deduction would have been so allowed if the expenditure had been incurred wholly and exclusively for the purposes of the trade, profession or vocation; (b) the “unrelieved portion” of the expenditure is any remaining amount of the expenditure. (3) For the purposes of determining any entitlement of the person to an annual investment allowance or a first-year allowance, the person is to be treated as incurring the unrelieved portion of the expenditure in the chargeable period. (4) For the purposes of determining the person's available qualifying expenditure in a pool for the chargeable period (see section 58)— (a) the whole of the expenditure must be allocated to the appropriate pool (or pools) in that chargeable period, and (b) the available qualifying expenditure in a pool to which the expenditure (or some of it) is allocated is reduced by the relieved portion of that expenditure. (5) For the purposes of determining any disposal receipts (see section 60), the expenditure incurred by the person is to be regarded as qualifying expenditure. (6) For the purposes of this section a person carrying on a trade, profession or vocation leaves the cash basis in a chargeable period if— (a) immediately before the beginning of the chargeable period an election under section 25A had effect in relation to the trade, profession or vocation, and (b) such an election does not have effect in relation to the trade, profession or vocation for the chargeable period.

ITTOIA 2005

49

In section 31 of ITTOIA 2005 (relationship between rules prohibiting and allowing deductions), in subsection (2), omit the “or” at the end of paragraph (b) and after paragraph (c) insert

or (d) Chapter 17A,

.

50

In section 56 of ITTOIA 2005 (rules allowing deductions: professions and vocations), after “marks)” insert “ and section 97A (cash basis: value of trading stock on cessation of trade) ”.

51

Omit section 160 of ITTOIA 2005 (cash basis of calculation for barristers and advocates in early years of practice).

52

• (1) Chapter 17 of Part 2 of ITTOIA 2005 (adjustment income) is amended as follows.

• (2) In section 229(2)(a), for “sections 237 to 239” substitute “ sections 237 to 239B ”.

• (3) Omit sections 238 and 239 (spreading of adjustment income: barristers and advocates).

53

In Part 2 of Schedule 4 to ITTOIA 2005 (index of defined expressions), at the appropriate place insert—

the cash basis (in Part 2)	section 25A”;
“entering the cash basis (in Chapter 17A of Part 2)	section 240B

.

ITA 2007

54

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

55

• (1) Chapter 1 of Part 8 of ITA 2007 (relief for interest payments) is amended as follows.

• (2) In section 383(5), after paragraph (a) insert—

(aa) section 384B (restriction on relief where cash basis applies),

.

• (3) After section 384A insert—

(384B) (1) Relief is not to be given under this Chapter for a tax year for interest paid by a person on a relevant loan if the partnership to which the loan relates has made an election under section 25A of ITTOIA 2005 (cash basis for small businesses) for the tax year. (2) A loan is a “relevant loan” if— (a) it is a loan to which section 388 applies (loan to buy plant or machinery for partnership use), or (b) it is a loan to which section 398 applies (loan to invest in partnership) and which is not used for purchasing a share in a partnership.

PART 3 — Commencement and transitional provision

56

Subject to paragraph 57, the amendments made by this Schedule have effect for the tax year 2013-14 and subsequent tax years.

57

• (1) In a case where—

• (a) the profits of a barrister or advocate in independent practice for a period of account ending in the tax year 2012-13 have been calculated in accordance with section 160 of ITTOIA 2005 (barristers and advocates: alternative basis of calculation in early years of practice), and

• (b) if that section had not been repealed by this Schedule, the profits of the barrister or advocate for any subsequent period of account could have been calculated in accordance with that section,

the profits of the barrister or advocate for that subsequent period of account may be calculated in accordance with that section.

• (2) The repeal of sections 238 and 239 of ITTOIA 2005 (spreading of adjustment income: barristers and advocates) does not have effect in relation to any individual whose profits for a period of account ending in or before the tax year 2012-13 have been calculated in accordance with section 160 of ITTOIA 2005.

SCHEDULE 5

1

Part 2 of ITTOIA 2005 (trading income) is amended as follows.

2

After Chapter 5 insert—

(94B) The provisions of this Chapter apply to professions and vocations as they apply to trades. (94C) The provisions of this Chapter do not apply in calculating the profits of a trade carried on by a firm for a period if one or more of the persons who have been partners in the firm at any time during the period was not an individual at that time. (94D) (1) This section applies if, in calculating the profits of a trade of a person for a period— (a) a deduction would otherwise be allowable for the period in respect of qualifying expenditure incurred in relation to a relevant vehicle (see subsection (2)), or (b) a deduction would be so allowable in respect of such expenditure but for the fact it is capital expenditure. (2) In this section “relevant vehicle” means a car, motor cycle or goods vehicle that— (a) is used for the purposes of the trade, and (b) is not an excluded vehicle (see section 94E). (3) The person may make a deduction under this section for the period in respect of the qualifying expenditure. (4) If a deduction for a period is made under this section— (a) no other deduction is allowed (for that or any other period) in respect of the qualifying expenditure, and (b) this section applies in relation to the relevant vehicle for every subsequent period for which the vehicle is used for the purposes of the trade. (5) The amount of the deduction is the appropriate mileage amount in relation to the relevant vehicle for the period (see section 94F). (6) In this section “qualifying expenditure”, in relation to a vehicle, means any expenditure incurred in respect of the acquisition, ownership, hire, leasing or use of the vehicle, other than incidental expenses incurred in connection with a particular journey. (7) For provision preventing capital allowances from being claimed in respect of qualifying expenditure incurred in relation to a relevant vehicle, see section 38ZA of CAA 2001. (94E) (1) A car, motor cycle or goods vehicle that is used for the purposes of a trade is an “excluded vehicle” for the purposes of section 94D if condition A or B is met in relation to the vehicle. (2) Condition A is that the person who is or has been carrying on the trade has at any time claimed any capital allowances under Part 2 of CAA 2001 in respect of any expenditure incurred on the provision of the vehicle. (3) Condition B is that— (a) the vehicle is a goods vehicle or a motor cycle, and (b) any of the expenditure incurred on acquiring the vehicle has been deducted in calculating the profits of the trade for a period on the cash basis (see section 25A). (94F) (1) In calculating the profits of a trade for a period, the appropriate mileage amount in relation to a relevant vehicle for the period is— $$M × R$where—M is the number of miles of business journeys made by a person (other than as a passenger) using that vehicle in the period, andR is the rate applicable to that kind of vehicle.$ (2) The rates applicable are as follows—

Kind of vehicle	Rate per mile
Car or goods vehicle	45p for the first 10,000 miles
Car or goods vehicle	25p after that
Motor cycle	24p