Finance Act 2015

(30B) (1) The Commissioners may by regulations make provision of the kind described in section 30(2) (entitlement to tax credit) in relation to cases within subsection (3) below. (2) Tax credit to which a person is entitled under the regulations is referred to in this section as “special tax credit”. (3) The cases are where— (a) a person has been charged with, and has fully accounted for, aggregates levy in respect of the commercial exploitation of a quantity of aggregate, and (b) the exploitation was of imported aggregate and occurred in Northern Ireland in the period defined in subsection (5). (4) For this purpose aggregate is “imported” if it was won from a site in a member State other than the United Kingdom. (5) The period mentioned in subsection (3)(b)— (a) begins with 1 April 2004, and (b) ends with 30 November 2010. (6) Regulations may in particular— (a) provide that a person is not entitled to special tax credit unless the Department of the Environment in Northern Ireland (“the Department”) has certified under section 30D(4) that it is satisfied that specified requirements were met in relation to the site from which the aggregate originates during a period which includes the time when the aggregate was won from the site (and the certification has not been revoked); (b) specify further conditions for entitlement to special tax credit; (c) make provision about the rate at which special tax credit is to be given (including provision restricting the amount of special tax credit in cases where entitlement to a tax credit has already arisen); (d) provide for compound interest at the applicable rate (see section 30C) to be treated as added, for such period and for such purposes as may be prescribed, to the amount of any special tax credit; (e) authorise the Commissioners to adjust a person's claim for special tax credit in specified circumstances. (7) Regulations under subsection (6)(a) may specify the requirements in question by reference to any provisions of a notice published by the Department in pursuance of the regulations and not withdrawn by a further notice. (8) Subsection (3) of section 30 (except paragraph (f) of that subsection) applies to regulations under this section as it applies to regulations under that section. (9) Section 32(1) (time limit for claims) does not apply to a claim for repayment of aggregates levy made under regulations under this section. (30C) (1) The reference in section 30B(6)(d) to the applicable rate is to a rate provided for in regulations made by the Treasury. (2) Regulations under this section may— (a) provide for the rate to be determined, and to change from time to time, by reference to a rate referred to in the regulations; (b) include provision for different rates to apply at different times in a period for which interest is due to a person. (3) Regulations under this section are to be made by statutory instrument. (4) A statutory instrument containing regulations under this section is subject to annulment in pursuance of a resolution of the House of Commons. (30D) (1) A person may, for the purpose of making a claim for special tax credit, apply to the Department for a certification under subsection (4)(a). (2) The application must specify— (a) a site, and (b) a time (“the relevant time”). (3) Where a certification relating to a site has been wholly or partly revoked by virtue of subsection (7)(b), an application specifying that site may not specify a time falling within the period with respect to which the revocation has effect. (4) Where an application is made and the Department has not previously made a certification under paragraph (a) relating to both the specified site and a period that includes the relevant time, the Department must either— (a) certify that it is satisfied that any requirements specified by virtue of section 30B(6)(a) were met in relation to the site during a period (specified in the certification) that includes the relevant time, or (b) refuse the application. (5) If the Department makes a certification under subsection (4)(a) (a “special tax credit certification”) it must give a written notice of the certification to— (a) the applicant, and (b) HMRC. (6) Where an application is made and the Department has previously made a special tax credit certification relating to both the specified site and a period that includes the relevant time, the Department must give the applicant a written notice of that certification. (7) The Commissioners may by regulations— (a) make provision about the time within which an application under subsection (1) must be made and the form and content of such an application; (b) authorise the Department to revoke a special tax credit certification with respect to the whole or part of the period to which the certification relates if the Department is satisfied that its decision as regards the meeting of the relevant requirements (or that decision, so far as relating to the relevant part of that period) was not correct; (c) make any other provision that is necessary in connection with paragraph (b) and subsection (8); (d) provide that a revocation by virtue of paragraph (b) may not be made after a specified date. (8) A special tax credit certification is to be treated as never having had effect in relation to any period with respect to which it is revoked by virtue of subsection (7)(b). (9) Regulations under this section which make provision such as is mentioned in subsection (7)(b) must require the Department to inform the Commissioners, and any other person to whom the Department has given a written notice of the certification, if the Department revokes a special tax credit certification. (10) Any expenses of the Department under or by virtue of this section or section 30B are to be appropriated from the Consolidated Fund of Northern Ireland by Act of the Northern Ireland Assembly. (11) In this section “the Department” and “special tax credit” have the same meaning as in section 30B.

• (3) In section 17 (meaning of “aggregate” and “taxable aggregate”), in subsection (6)(a), for “or 30A” substitute “ , 30A or 30B ”.

• (4) In section 48(1) (interpretation of Part), in the definition of “tax credit regulations”, for “or 30A” substitute “ , 30A or 30B ”.

• (5) In paragraph 9A of Schedule 6 (incorrect records etc evidencing claim for tax credit), in sub-paragraph (1)(a)—

• (a) omit the “or” at the end of sub-paragraph (i), and

• (b) after sub-paragraph (ii) insert

, or (iii) section 30B(3) of this Act (special tax credit in Northern Ireland);

.

• (6) In paragraph 2 of Schedule 8 (interest payable by the Commissioners), in sub-paragraph (3)—

• (a) in paragraph (b), for “of this Act; but” substitute “ or 30B(6)(d); ”, and

• (b) after paragraph (b) insert—

(ba) do not include the amount of any tax credit to which a person is entitled by virtue of section 30B(1); but

.

Climate change levy

Climate change levy: main rates from 1 April 2016

62

• (1) In paragraph 42(1) of Schedule 6 to FA 2000 (climate change levy: amount payable by way of levy) for the table substitute—

Taxable commodity supplied	Rate at which levy payable if supply is not a reduced-rate supply
Electricity	£0.00559 per kilowatt hour
Gas supplied by a gas utility or any gas supplied in a gaseous state that is of a kind supplied by a gas utility	£0.00195 per kilowatt hour
Any petroleum gas, or other gaseous hydrocarbon, supplied in a liquid state	£0.01251 per kilogram
Any other taxable commodity	£0.01526 per kilogram

• (2) The amendment made by this section has effect in relation to supplies treated as taking place on or after 1 April 2016.

Combined heat and power stations

63

• (1) Schedule 6 to FA 2000 (climate change levy) is amended as follows.

• (2) In paragraph 24B (deemed taxable supply: commodities to be used in combined heat and power station)—

• (a) in sub-paragraph (2), at the end insert “ to which sub-paragraph (2A) does not apply ”,

• (b) after that sub-paragraph insert—

(2A) This sub-paragraph applies to electricity so far as— (a) it is included in the CHP Qualifying Power Output of the combined heat and power station's CHPQA scheme, and (b) either condition A or B is met. (2B) Condition A is that the producer of the electricity makes no supply of it to another person, but causes it to be consumed in the United Kingdom. (2C) Condition B is that the electricity is supplied (within the meaning of Part 1 of the Electricity Act 1989 (see section 64 of that Act)) by a person who is an exempt unlicensed electricity supplier.

,

• (c) in sub-paragraph (3), after “electricity” insert “ to which sub-paragraph (2A) does not apply ”, and

• (d) for sub-paragraph (7) substitute—

(7) For the purposes of this paragraph— - “CHP Qualifying Power Output” has the meaning given by section 4 of the Combined Heat and Power Quality Assurance Standard, Issue 5 (November 2013), prepared by the Department of Energy and Climate Change or, if that issue of the Standard has been replaced by another issue, by the current issue of the Standard (taking account, in either case, of any amendment which has been made to the issue); - “CHPQA scheme”, in relation to a combined heat and power station, means the scheme in relation to which the station's CHPQA certificate was issued; - “CHPQA site”, in relation to a fully exempt combined heat and power station or a partly exempt combined heat and power station, means the site of the CHPQA scheme.

• (3) In paragraph 24C (initial determination under paragraph 24B(3) superseded by later determination), in sub-paragraph (1)—

• (a) in paragraph (a), at the end insert “ to which paragraph 24B(2A) does not apply ”, and

• (b) in paragraph (c)(i), after “electricity” insert “ to which paragraph 24B(2A) does not apply ”.

• (4) In paragraph 62 (tax credits), in sub-paragraph (1)(bb), after “electricity”, in both places, insert “ to which paragraph 24B(2A) does not apply ”.

• (5) The amendments made by this section have effect in relation to carbon price support rate commodities brought onto, or arriving at, a CHPQA site of a combined heat and power station in Great Britain on or after 1 April 2015.

Landfill tax

Landfill tax: rates from 1 April 2016

64

• (1) Section 42 of FA 1996 (amount of landfill tax) is amended as follows.

• (2) In subsection (1) (standard rate), for paragraph (a) (but not the “or” following it) substitute—

(a) £84.40 for each whole tonne disposed of and a proportionately reduced sum for any additional part of a tonne,

.

• (3) In subsection (2) (reduced rate for certain disposals), for the words from “reference” to the end substitute “ reference to £84.40 were to £2.65. ”

• (4) The amendments made by this section have effect in relation to disposals made (or treated as made) on or after 1 April 2016.

Landfill tax: material consisting of fines

65

Schedule 15 makes provision about the treatment of fines for the purposes of landfill tax.

Value added tax

VAT: refunds to certain charities

66

• (1) In Part 2 of VATA 1994 (reliefs, exemptions and repayments), after section 33B insert—

(33C) (1) This section applies to a charity that falls within any of the descriptions in section 33D. A charity to which this section applies is referred to in this section as a “qualifying charity”. (2) This section applies where— (a) VAT is chargeable on— (i) the supply of goods or services to a qualifying charity, (ii) the acquisition of any goods from another member State by a qualifying charity, or (iii) the importation of any goods from a place outside the member States by a qualifying charity, and (b) the supply, acquisition or importation is not for the purpose of any business carried on by the qualifying charity. (3) The Commissioners shall, on a claim made by the qualifying charity at such time and in such form and manner as the Commissioners may determine, refund to the qualifying charity the amount of the VAT so chargeable. (4) A claim under subsection (3) above in respect of a supply, acquisition or importation must be made before the end of the period of 4 years beginning with the day on which the supply is made or the acquisition or importation takes place. (5) Subsection (6) applies where goods or services supplied to, or acquired or imported by, a qualifying charity otherwise than for the purpose of any business carried on by the qualifying charity cannot be conveniently distinguished from goods or services supplied to, or acquired or imported by, the qualifying charity for the purpose of such a business. (6) The amount to be refunded under this section is such amount as remains after deducting from the whole of the VAT chargeable on any supply to, or acquisition or importation by, the qualifying charity such proportion of that VAT as appears to the Commissioners to be attributable to the carrying on of the business. (7) References in this section to VAT do not include any VAT which, by virtue of an order under section 25(7), is excluded from credit under section 25. (33D) (1) “Palliative care charity” means a charity the main purpose of which is the provision of palliative care at the direction of, or under the supervision of, a medical professional to persons who are in need of such care as a result of having a terminal illness. (2) In subsection (1) “medical professional” means— (a) a registered medical practitioner, or (b) a registered nurse. (3) “Air ambulance charity” means a charity the main purpose of which is to provide an air ambulance service in pursuance of arrangements made by, or at the request of, a relevant NHS body. (4) In subsection (3) “relevant NHS body” means a body the main purpose of which is to provide ambulance services and which is— (a) an NHS foundation trust in England, (b) an NHS trust in Wales, (c) a Special Health Board constituted under section 2 of the National Health Service (Scotland) Act 1978, or (d) a Health and Social Care trust established under the Health and Personal Social Services (Northern Ireland) Order 1991. (5) “Search and rescue charity” means a charity that meets condition A or B. (6) Condition A is that— (a) the main purpose of the charity is to carry out search and rescue activities in the United Kingdom or the UK marine area, and (b) the search and rescue activities carried out by the charity are co-ordinated by a relevant authority. (7) Condition B is that the main purpose of the charity is to support, develop and promote the activities of a charity which meets condition A. (8) For the purposes of subsection (6)— - “search and rescue activities” means searching for, and rescuing, persons who are, or may be, at risk of death or serious injury; - “relevant authority” means— 1. the Secretary of State; 2. a police force; 3. the Scottish Fire and Rescue Service; 4. any other person or body specified for the purposes of subsection (6) by an order made by the Treasury; - “police force” means— 1. a police force within the meaning of the Police Act 1996; 2. the Police Service of Scotland; 3. the Police Service of Northern Ireland; 4. the Police Service of Northern Ireland Reserve; 5. the British Transport Police Force; 6. the Civil Nuclear Constabulary; 7. the Ministry of Defence Police; - “UK marine area” has the meaning given by section 42(1) of the Marine and Coastal Access Act 2009. (9) “Medical courier charity” means a charity that meets condition A or B. (10) Condition A is that the main purpose of the charity is to provide services for the transportation of items intended for use for medical purposes, including in particular— (a) blood; (b) medicines and other medical supplies; (c) items relating to people who are undergoing medical treatment. (11) Condition B is that the main purpose of the charity is to support, develop and promote the activities of a charity which meets condition A. (12) In subsection (10) “item” includes any substance.

• (2) In section 79 of VATA 1994 (repayment supplement in respect of certain delayed payments or refunds)—

• (a) in subsection (1), after paragraph (d) insert

or (e) a charity which is registered is entitled to a refund under section 33C,

;

• (b) in subsection (5), after paragraph (d) insert

, and (e) a supplement paid to a charity under subsection (1)(e) shall be treated as an amount due to the charity by way of refund under section 33C.

;

• (c) in subsection (6)(b), for “or 33B” substitute “ , 33B or 33C ”.

• (3) In section 90 of VATA 1994 (failure of resolution under Provisional Collection of Taxes Act 1968), in subsection (3), after “33B,” insert “ 33C, ”.

• (4) In Schedule 9 to VATA 1994 (exemptions), in Group 14 (supplies of goods where input tax cannot be recovered), in Note (9), after “33B,” insert “ 33C, ”.

• (5) The amendments made by this section have effect in relation to supplies made, and acquisitions and importations taking place, on or after 1 April 2015.

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

VAT: refunds to strategic highways companies

67

• (1) In section 41 of VATA 1994 (application of Act to the Crown), in subsection (7)—

• (a) after “subsection (6)” insert “ each of the following is to be regarded as a body of persons exercising functions on behalf of a Minister of the Crown ”,

• (b) omit the “and” after paragraph (j), and

• (c) for the words after paragraph (k) substitute—

(l) a strategic highways company appointed under section 1 of the Infrastructure Act 2015.

• (2) The amendments made by this section come into force on 1 April 2015.

Stamp duty land tax

SDLT: alternative property finance relief

68

• (1) FA 2003 is amended as follows.

• (2) In section 73BA (meaning of “financial institution”), after subsection (2) insert—

(3) In sections 71A, 73AB and 73B, “financial institution” also includes a person with permission under Part 4A of the Financial Services and Markets Act 2000 to carry on the regulated activity specified in Article 63F(1) of the Financial Services and Markets Act (Regulated Activities) Order 2001 (S.I. 2001/544) (entering into regulated home purchase plans as home purchase provider).

• (3) In paragraph 9 of Schedule 4A (higher rate for certain SDLT transactions: interpretation), for the definition of “financial institution” substitute—

“financial institution” is to be read in accordance with subsections (1) and (2) of section 73BA and, in paragraphs 6A to 6H, also in accordance with subsection (3) of that section;

.

• (4) The amendment made by subsection (2) has effect where the effective date of the first transaction is, or is after, the day on which this Act is passed.

• (5) In subsection (4) “first transaction” means the first transaction within the meaning of section 71A(1)(a) of FA 2003.

SDLT: multiple dwellings relief

69

• (1) After paragraph 2(6) of Schedule 6B to FA 2003 (stamp duty land tax: superior interest in dwellings subject to a long lease excluded from multiple dwellings relief) insert—

(7) Sub-paragraph (6) does not apply where— (a) the vendor is a qualifying body within the meaning of paragraph 5 of Schedule 9, (b) the transaction is a sale under a sale and leaseback arrangement within the meaning of section 57A(2), (c) that sale is the grant of a leasehold interest, and (d) the leaseback element of that arrangement is exempt from charge under section 57A.

• (2) The amendment made by this section has effect in relation to any land transaction of which the effective date is, or is after, the day on which this Act is passed.

Annual tax on enveloped dwellings

ATED: annual chargeable amount

70

• (1) In section 99 of FA 2013 (amount of tax chargeable), in the table in subsection (4), for the last four entries substitute—

£23,350	More than £2 million but not more than £5 million.
£54,450	More than £5 million but not more than £10 million.
£109,050	More than £10 million but not more than £20 million.
£218,200	More than £20 million.

• (2) The amendment made by subsection (1) has effect for the chargeable period beginning on 1 April 2015 and, subject to section 101 of FA 2013, for subsequent chargeable periods.

• (3) Section 101(1) of FA 2013 does not apply in relation to the chargeable period beginning on 1 April 2015.

• (4) Accordingly, the Treasury is not required to make an order under section 101(5) of FA 2013 in respect of that period.

ATED: taxable value

71

In section 102 of FA 2013 (annual tax on enveloped dwellings: taxable value), after subsection (2) insert—

(2A) But a day that is a valuation date only because of subsection (2)(b) (a “5-yearly valuation date”) is to be treated as if it were not a valuation date for the purpose of determining the taxable value of a single-dwelling interest on any day in the chargeable period beginning with that 5-yearly valuation date.

ATED: interests held by connected persons

72

• (1) Section 110 of FA 2013 (interests held by connected persons) is amended as follows.

• (2) In subsection (1), after “If on any day” insert “ (“the relevant day”) ”.

• (3) In subsection (2)—

• (a) omit “on the day in question”;

• (b) after “P's single dwelling interest” insert “ on the relevant day ”;

• (c) for “£500,000” substitute “ £250,000 ”.

• (4) After subsection (2) insert—

(2A) Subsection (2B) applies in any case where— (a) C would (without subsection (2B)) be treated, as a result of subsection (1) (read with section 109), as entitled to a single-dwelling interest with a taxable value (on the relevant day) of more than £2 million, but (b) C would not be so treated if the value specified in subsection (2) were £500,000 (instead of £250,000). (2B) Subsection (2) has effect as if the value specified in it were £500,000 (instead of £250,000).

• (5) The amendments made by this section have effect in relation to chargeable periods beginning on or after 1 April 2015.

ATED: returns

73

• (1) Part 3 of FA 2013 (annual tax on enveloped dwellings) is amended as follows.

• (2) In section 159 (annual tax on enveloped dwellings return), after subsection (3) insert—

(3A) Where a person— (a) would (apart from this subsection) be required in accordance with subsection (2) to deliver a return for a chargeable period (“the later period”) by 30 April in that period, and (b) is also required in accordance with subsection (3) to deliver a return for the previous chargeable period by a date (“the later date”) which is later than 30 April in the later period, subsection (2) has effect as if it required the return mentioned in paragraph (a) to be delivered by the later date.

• (3) After section 159 insert—

(159A) (1) “Relief declaration return” means an annual tax on enveloped dwellings return which— (a) states that it is a relief declaration return, (b) relates to one (and only one) of the types of relief listed in the table in subsection (9), and (c) specifies which type of relief it relates to. (2) A relief declaration return may be made in respect of one or more single-dwelling interests. (3) A relief declaration return delivered to an officer of Revenue and Customs on a particular day (“the day of the claim”) is treated as made in respect of any single-dwelling interest in relation to which the conditions in subsection (4) are met (but need not contain information which identifies the particular single-dwelling interest or interests concerned). (4) The conditions are that— (a) the person making the return is within the charge with respect to the single-dwelling interest on the day of the claim; (b) the day of the claim is relievable in relation to the single-dwelling interest by virtue of a provision which relates to the type of relief specified in the return (see subsection (9)); (c) none of the days in the pre-claim period is a taxable day. (5) The statement under subsection (1)(a) in a relief declaration return is treated as a claim for interim relief (see section 100) with respect to the single-dwelling interest (or interests) in respect of which the return is made. (6) Subsection (7) applies where— (a) a person has delivered to an officer of Revenue and Customs on any day a relief declaration return for a chargeable period with respect to one or more single-dwelling interests (“the existing return”), and (b) there is a subsequent day (“day S”) in the same chargeable period on which the relevant conditions are met in relation to another single-dwelling interest. (7) The existing return is treated as also made with respect to that other single-dwelling interest. (8) For the purposes of subsection (6)(b), the “relevant conditions” are the same as the conditions in subsection (4), except that for this purpose references in subsection (4) to the day of the claim are to be read as references to day S. (9) This table sets out the numbered types of relief to which the provisions specified in the left hand column relate—

Provision	Type of relief to which it relates
Section 133 or 134 (property rental business)	1
Section 137 (dwellings opened to the public)	2
Section 138 or 139 (property developers)	3
Section 141 (property traders)	4
Section 143 (financial institutions acquiring dwellings)	5
Section 145 (dwellings used for trade purposes: occupation by certain employees or partners)	6
Section 148 (farmhouses)	7
Section 150 (providers of social housing)	8

(10) Where a person— (a) has failed to make annual tax on enveloped dwellings returns in respect of two or more single-dwelling interests, and (b) could have discharged the duties in question by making a single relief declaration return in respect of all the interests, the failure may be taken, for the purposes of Schedule 55 to FA 2009, to be a failure to make a single annual tax on enveloped dwellings return. (11) In this section— - “pre-claim period” has the same meaning as in section 100; - “taxable day”, in relation to a person and a single-dwelling interest, means a day on which the person is within the charge with respect to the interest, other than a day which is relievable in relation to the interest.

• (4) In section 161 (return to include self-assessment), for subsection (2) substitute—

(2) In subsection (1) “return” means— (a) an annual tax on enveloped dwellings return, or (b) a return of the adjusted chargeable amount. (2A) The reference in subsection (2)(a) to an annual tax on enveloped dwellings return does not include a relief declaration return.

• (5) In Schedule 33 (annual tax on enveloped dwellings: returns etc)—

• (a) in paragraph 2(a), after “159” insert “ , 159A ”;

• (b) in paragraph 20(1), for “in question, the self assessment included in that return” substitute “ in question containing a self assessment, that self assessment ”.

• (6) The amendments made by subsections (1) to (5) have effect for chargeable periods beginning on or after 1 April 2015.

• (7) In a case (not falling within section 109(5) of FA 2014) which falls within subsection (8), section 159 of FA 2013 (annual tax on enveloped dwellings return) has effect with the same modifications as are set out in section 109(6) of FA 2014 (which provides for extended filing periods in certain cases).

• (8) The case is where—

• (a) a person has a duty to deliver to an officer of Revenue and Customs an annual tax on enveloped dwellings return with respect to a single-dwelling interest for the chargeable period beginning with 1 April 2015, and

• (b) the circumstances on the first day in that chargeable period on which that person is within the charge with respect to that single-dwelling interest are such that that duty could be discharged by the delivery to an officer of Revenue and Customs on that day of a relief declaration return.

Inheritance tax

Inheritance tax: exemption for decorations and other awards

74

• (1) In section 6 of IHTA 1984 (excluded property), for subsection (1B) substitute—

(1B) A relevant decoration or award is excluded property if it has never been the subject of a disposition for a consideration in money or money's worth. (1BA) In subsection (1B) “relevant decoration or award” means a decoration or other similar award— (a) that is designed to be worn to denote membership of— (i) an Order that is, or has been, specified in the Order of Wear published in the London Gazette (“the Order of Wear”), or (ii) an Order of a country or territory outside the United Kingdom, (b) that is, or has been, specified in the Order of Wear, (c) that was awarded for valour or gallant conduct, (d) that was awarded for, or in connection with, a person being, or having been, a member of, or employed or engaged in connection with, the armed forces of any country or territory, (e) that was awarded for, or in connection with, a person being, or having been, an emergency responder within the meaning of section 153A (death of emergency service personnel etc), or (f) that was awarded by the Crown or a country or territory outside the United Kingdom for, or in connection with, public service or achievement in public life.

• (2) The amendment made by subsection (1) has effect in relation to transfers of value made, or treated as made, on or after 3 December 2014.

Inheritance tax: exemption for emergency service personnel etc

75

• (1) IHTA 1984 is amended as follows.

• (2) After section 153 insert—

(153A) (1) The reliefs in subsection (2) apply where a person— (a) dies from an injury sustained, accident occurring or disease contracted at a time when that person was responding to emergency circumstances in that person's capacity as an emergency responder, or (b) dies from a disease contracted at some previous time, the death being due to, or hastened by, the aggravation of the disease during a period when that person was responding to emergency circumstances in that person's capacity as an emergency responder. (2) The reliefs are— (a) that no potentially exempt transfer made by the person becomes a chargeable transfer under section 3A(4) because of the death, (b) that section 4 (transfers on death) does not apply in relation to the death, and (c) that no additional tax becomes due under section 7(4) because of a transfer made by the person within 7 years of the death. (3) “Emergency circumstances” means circumstances which are present or imminent and are causing or likely to cause— (a) the death of a person, (b) serious injury to, or the serious illness of, a person, (c) the death of an animal, (d) serious injury to, or the serious illness of, an animal, (e) serious harm to the environment (including the life and health of plants and animals), (f) serious harm to any building or other property, or (g) a worsening of any such injury, illness or harm. (4) A person is “responding to emergency circumstances” if the person— (a) is going anywhere for the purpose of dealing with emergency circumstances occurring there, or (b) is dealing with emergency circumstances, preparing to do so imminently or dealing with the immediate aftermath of emergency circumstances. (5) For the purposes of this section, circumstances to which a person is responding are to be taken to be emergency circumstances if the person believes and has reasonable grounds for believing they are or may be emergency circumstances. (6) “Emergency responder” means— (a) a person employed, or engaged, in connection with the provision of fire services or fire and rescue services, (b) a person employed for the purposes of providing, or engaged to provide, search services or rescue services (or both), (c) a person employed for the purposes of providing, or engaged to provide, medical, ambulance or paramedic services, (d) a constable or a person employed for police purposes or engaged to provide services for police purposes, (e) a person employed for the purposes of providing, or engaged to provide, services for the transportation of organs, blood, medical equipment or medical personnel, or (f) a person employed, or engaged, by the government of a state or territory, an international organisation or a charity in connection with the provision of humanitarian assistance. (7) For the purposes of subsection (6)— (a) it is immaterial whether the employment or engagement is paid or unpaid, and (b) “international organisation” means an organisation of which— (i) two or more sovereign powers are members, or (ii) the governments of two or more sovereign powers are members. (8) The Treasury may, by regulations made by statutory instrument, extend the definition of “emergency responder” in subsection (6). (9) Regulations under this section are subject to annulment in pursuance of a resolution of the House of Commons.

• (3) In section 154 (death on active service)—

• (a) in subsection (1), for “Section 4 shall not apply” substitute “ The reliefs in subsection (1A) apply ”,

• (b) after that subsection insert—

(1A) The reliefs are— (a) that no potentially exempt transfer made by the deceased becomes a chargeable transfer under section 3A(4) because of the death, (b) that section 4 (transfers on death) does not apply in relation to the death, and (c) that no additional tax becomes due under section 7(4) because of a transfer made by the deceased within 7 years of the death.

,

• (c) in subsection (2) omit “either” and after paragraph (b) insert

or (c) responding to emergency circumstances in the course of the person's duties as a member of any of those armed forces or as a civilian subject to service discipline.

, and

• (d) after that subsection insert—

(2A) Section 153A(3) to (5) applies for the purposes of this section.

• (4) After section 155 insert—

(155A) (1) The reliefs in subsection (3) apply where a person— (a) dies from an injury sustained or disease contracted in circumstances where the person was deliberately targeted by reason of his or her status as a constable or former constable, or (b) dies from a disease contracted at some previous time, the death being due to, or hastened by, the aggravation of the disease by an injury sustained or disease contracted in circumstances mentioned in paragraph (a). (2) The reliefs in subsection (3) apply where it is certified by the Defence Council or the Secretary of State that a person— (a) died from an injury sustained or disease contracted in circumstances where the person was deliberately targeted by reason of his or her status as a service person or former service person, or (b) died from a disease contracted at some previous time, the death being due to, or hastened by, the aggravation of the disease by an injury sustained or disease contracted in circumstances mentioned in paragraph (a). (3) The reliefs are— (a) that no potentially exempt transfer made by the person becomes a chargeable transfer under section 3A(4) because of the death, (b) that section 4 (transfers on death) does not apply in relation to the death, and (c) that no additional tax becomes due under section 7(4) because of a transfer made by the person within 7 years of the death. (4) For the purposes of this section, it is immaterial whether a person who was a constable or service person at the time the injury was sustained or the disease was contracted was acting in the course of his or her duties as such at that time (and for this purpose ignore the references in subsections (1)(b) and (2)(b) to a disease contracted at some previous time). (5) “Service person” means a person who is a member of the armed forces of the Crown or a civilian subject to service discipline (within the meaning of the Armed Forces Act 2006). (6) This section does not apply where section 153A or 154 applies in relation to a person's death.

• (5) The amendments made by this section have effect in relation to deaths occurring on or after 19 March 2014.

The bank levy

The bank levy: rates from 1 April 2015

76

• (1) Schedule 19 to FA 2011 (bank levy) is amended as follows.

• (2) In paragraph 6 (steps for determining the amount of the bank levy), in sub-paragraph (2)—

• (a) for “0.078%” substitute “ 0.105% ”, and

• (b) for “0.156%” substitute “ 0.21% ”.

• (3) In paragraph 7 (special provision for chargeable periods falling wholly or partly before 1 January 2014)—

• (a) in sub-paragraph (1) for “1 January 2014” substitute “ 1 April 2015 ”;

• (b) in sub-paragraph (2), in the first column of the table in the substituted Step 7, for “ Any time on or after 1 January 2014 ” substitute “1 January 2014 to 31 March 2015”;

• (c) at the end of that table add—

Any time on or after 1 April 2015	0.105%	0.21%

;

• (d) in the italic heading before paragraph 7, for “1 January 2014” substitute “ 1 April 2015 ”.

• (4) The amendments made by subsections (2) and (3) come into force on 1 April 2015.

• (5) Subsections (6) to (12) apply where—

• (a) an amount of the bank levy is treated as if it were an amount of corporation tax chargeable on an entity (“E”) for an accounting period of E,

• (b) the chargeable period in respect of which the amount of the bank levy is charged begins before but ends on or after 1 April 2015, and

• (c) under the Instalment Payment Regulations, one or more instalment payments, in respect of the total liability of E for the accounting period, were treated as becoming due and payable before 1 April 2015 (“pre-commencement instalment payments”).

• (6) Subsections (1) to (4) are to be ignored for the purpose of determining the amount of any pre-commencement instalment payment.

• (7) If there is at least one instalment payment, in respect of the total liability of E for the accounting period, which under the Instalment Payment Regulations is treated as becoming due and payable on or after 1 April 2015 (“post-commencement instalment payments”), the amount of that instalment payment, or the first of them, is to be increased by the adjustment amount.

• (8) If there are no post-commencement instalment payments, a further instalment payment, in respect of the total liability of E for the accounting period, of an amount equal to the adjustment amount is to be treated as becoming due and payable on 30 April 2015.

• (9) “The adjustment amount” is the difference between—

• (a) the aggregate amount of the pre-commencement instalment payments determined in accordance with subsection (6), and

• (b) the aggregate amount of those instalment payments determined ignoring subsection (6) (and so taking account of subsections (1) to (4)).

• (10) In the Instalment Payment Regulations—

• (a) in regulations 6(1)(a), 7(2), 8(1)(a) and (2)(a), 9(5), 10(1), 11(1) and 13, references to regulation 4A, 4B, 4C, 4D, 5, 5A or 5B of those Regulations are to be read as including a reference to subsections (5) to (9) (and in regulation 7(2) “the regulation in question”, and in regulation 8(2) “that regulation”, are to be read accordingly), and

• (b) in regulation 9(3), the reference to those Regulations is to be read as including a reference to subsections (5) to (9).

• (11) In section 59D of TMA 1970 (general rule as to when corporation tax is due and payable), in subsection (5), the reference to section 59E is to be read as including a reference to subsections (5) to (10).

• (12) In this section—

• “the chargeable period” is to be construed in accordance with paragraph 4 or (as the case may be) 5 of Schedule 19 to FA 2011;

• “the Instalment Payment Regulations” means the Corporation Tax (Instalment Payments) Regulations 1998 (S.I. 1998/3175);

and references to the total liability of E for an accounting period are to be construed in accordance with regulation 2(3) of the Instalment Payment Regulations.

PART 3 — Diverted profits tax

Introduction and overview

Introduction to the tax

77

• (1) A tax (to be known as “diverted profits tax”) is charged in accordance with this Part on taxable diverted profits arising to a company in an accounting period.

• (2) Taxable diverted profits arise to a company in an accounting period only if one or more of sections 80, 81 and 86 applies or apply in relation to the company for that period.

Overview of Part 3

78

• (1) Sections 80 and 81 relate to cases involving entities or transactions which lack economic substance.

• (2) In these cases—

• (a) sections 82 to 85 deal with the calculation of taxable diverted profits (and ensure appropriate account is taken of any transfer pricing adjustments already made), and

• (b) section 96 deals with the estimation of those profits when initially imposing a charge.

• (3) Section 86 relates to cases where, despite activity being carried on in the United Kingdom, a company avoids carrying on its trade in the United Kingdom in circumstances where—

• (a) provision is made or imposed which involves entities or transactions lacking economic substance, or

• (b) there are tax avoidance arrangements.

• (4) In these cases—

• (a) sections 88 to 91 deal with the calculation of taxable diverted profits, and

• (b) section 97 deals with the estimation of those profits when initially imposing a charge.

• (5) There is an exception from section 86 for cases involving limited UK-related sales or expenses (see section 87).

• (6) Key terms used in this Part are defined in sections 106 to 114.

• (7) Other provisions in this Part—

• ensure HMRC are notified of companies potentially within the scope of the tax (see section 92);

• deal with the process for imposing a charge to diverted profits tax (see sections 93 to 97);

• deal with payment of the tax and make provision about credits given for other tax paid on the same profits (see sections 98 to 100); and

• provide for reviews of, and appeals against, decisions to impose a charge to diverted profits tax (see sections 101 and 102).

Charge to tax

Charge to tax

79

• (1) A charge to diverted profits tax is imposed for an accounting period by a designated HMRC officer issuing to the company a charging notice in accordance with section 95 or a supplementary charging notice in accordance with section 101(8).

• (2) Subject to subsections (3) and (3A), the amount of tax charged by a notice is the sum of—

• (a) 31% of the amount of taxable diverted profits specified in the notice, and

• (b) the interest (if any) on the amount within paragraph (a) determined under subsection (4).

• (3) If, and to the extent that, the taxable diverted profits are adjusted ring fence profits or notional adjusted ring fence profits, and determined under section 84 or 85, subsection (2)(a) has effect in relation to those profits as if the rate specified were 55% rather than 31%.

• (3A) If, and to the extent that, the taxable diverted profits are banking surcharge profits or notional banking surcharge profits, subsection (2)(a) has effect in relation to those profits as if the rate specified were 33% rather than 31%.

• (4) The interest mentioned in subsection (2)(b) is interest at the rate applicable under section 178 of FA 1989 for the period (if any) which—

• (a) begins 6 months after the end of the accounting period to which the charge relates, and

• (b) ends with the day the notice imposing the charge to tax is issued.

• (5) In this section—

• “adjusted ring fence profits” has the same meaning as in section 330 of CTA 2010 (supplementary charge in respect of ring fence trades);

• “banking surcharge profits” means surcharge profits within the meaning of Chapter 4 of Part 7A of that Act (see section 269DA (2) of that Act);

• “notional adjusted ring fence profits”, in relation to the company, means the total of—profits within section 85(5)(a), to the extent that (assuming they were profits of the company chargeable to corporation tax) they would have been adjusted ring fence profits, andany amounts of relevant taxable income of a company (“CC”) within section 85(4)(b) or (5)(b), to the extent that (assuming those amounts were profits of CC chargeable to corporation tax) they would have been adjusted ring fence profits of CC.

• “notional banking surcharge profits”, in relation to the company, means the total of—profits within section 85(5)(a) or 91(5)(a), to the extent that (assuming they were profits of the company chargeable to corporation tax) they would have been banking surcharge profits, andany amounts of relevant taxable income of a company (“CC”) within section 85(4)(b) or (5)(b) or 91(4)(b) or (5)(b), to the extent that (assuming those amounts were profits of CC chargeable to corporation tax) they would have been banking surcharge profits of CC.

• (6) But banking surcharge profits and notional banking surcharge profits, to the extent that they are determined by reference to notional PE profits (or what would have been notional PE profits) for an accounting period, do not include any amount which is (or would have been) included in notional PE profits for that period by virtue of section 88(5)(b).

Involvement of entities or transactions lacking economic substance

UK company: involvement of entities or transactions lacking economic substance

80

• (1) This section applies in relation to a company (“C”) for an accounting period if—

• (a) C is UK resident in that period,

• (b) provision has been made or imposed as between C and another person (“P”) (whether or not P is UK resident) by means of a transaction or series of transactions (“the material provision”),

• (c) the participation condition is met in relation to C and P (see section 106),

• (d) the material provision results in an effective tax mismatch outcome, for the accounting period, as between C and P (see sections 107 and 108),

• (e) the effective tax mismatch outcome is not an excepted loan relationship outcome (see section 109),

• (f) the insufficient economic substance condition is met (see section 110), and

• (g) C and P are not both small or medium-sized enterprises for that period.

• (2) For the purposes of subsection (1)(b) provision made or imposed as between a partnership of which C is a member and another person is to be regarded as provision made or imposed as between C and that person.

Non-UK company: involvement of entities or transactions lacking economic substance

81

• (1) This section applies in relation to a company (“the foreign company”) for an accounting period if—

• (a) it is non-UK resident in that period,

• (b) by reason of the foreign company carrying on a trade in the United Kingdom through a permanent establishment in the United Kingdom (“UKPE”), Chapter 4 of Part 2 of CTA 2009 (non-UK resident companies: chargeable profits) applies to determine the chargeable profits of the foreign company for that period, and

• (c) section 80 would apply to UKPE for that period were it treated for the purposes of section 80 and sections 106 to 110—

• (i) as a distinct and separate person from the foreign company (whether or not it would otherwise be so treated),

• (ii) as a UK resident company under the same control as the foreign company, and

• (iii) as having entered into any transaction or series of transactions entered into by the foreign company to the extent that the transaction or series is relevant to UKPE.

• (2) For the purposes of subsection (1)(c)(iii) a transaction or series of transactions is “relevant” to UKPE only if, and to the extent that, it is relevant, for corporation tax purposes, when determining the chargeable profits of the foreign company attributable (in accordance with sections 20 to 32 of CTA 2009) to UKPE.

• (3) Where section 1313(2) of CTA 2009 (UK sector of the continental shelf: profits of foreign company deemed to be profits of trade carried on by the company in the UK through a permanent establishment in the UK) applies to treat profits arising to a company as profits of a trade carried on by the company in the United Kingdom through a permanent establishment in the United Kingdom, this Part applies as if the company actually carried on that trade in the United Kingdom through that permanent establishment.

• (4) In this section “control” is to be construed in accordance with section 1124 of CTA 2010.

Calculation of taxable diverted profits: section 80 or 81 cases

Calculation of taxable diverted profits in section 80 or 81 case: introduction

82

• (1) If section 80 or 81 applies in relation to a company (“the relevant company”) for an accounting period—

• (a) no taxable diverted profits arise, in relation to the material provision in question, if section 83 applies, and

• (b) in other cases, section 84 or 85 applies to determine the taxable diverted profits in relation to that material provision.

• (2) But see also section 96 for how a designated HMRC officer estimates those profits when issuing a preliminary notice under section 93 or a charging notice under section 95.

• (3) Subsections (4) to (10) define some key expressions used in sections 83 to 85 and this section.

• (4) “The material provision” has the same meaning as in section 80.

• (5) “The relevant alternative provision” means the alternative provision which it is just and reasonable to assume would have been made or imposed as between the relevant company and one or more companies connected with that company, instead of the material provision, had tax (including any non-UK tax) on income not been a relevant consideration for any person at any time.

• (6) For the purposes of subsection (5), making or imposing no provision is to be treated as making or imposing an alternative provision to the material provision.

• (7) “The actual provision condition” is met if—

• (a) the material provision results in expenses of the relevant company for which ... a deduction for allowable expenses would be allowed in computing—

• (i) in a case where section 80 applies, its liability for corporation tax for the accounting period, and

• (ii) in a case where section 81 applies, its chargeable profits attributable (in accordance with sections 20 to 32 of CTA 2009) to UKPE, and

• (b) the relevant alternative provision—

• (i) would also have resulted in allowable expenses of the relevant company of the same type and for the same purposes (whether or not payable to the same person) as so much of the expenses mentioned in paragraph (a) as results in the effective tax mismatch outcome mentioned in section 80(1)(d), but

• (ii) would not have resulted in relevant taxable income of a connected company for that company's corresponding accounting period.

• (7A) For the purposes of subsection (7)(a) ignore any adjustment that is required to be made to the results of the material provision under Part 4 of TIOPA 2010 (transfer pricing).

• (8) “Relevant taxable income” of a company for a period is—

• (a) income of the company, for the period, which would have resulted from the relevant alternative provision and in relation to which the company would have been within the charge to corporation tax had that period been an accounting period of the company, less

• (b) the total amount of expenses which it is just and reasonable to assume would have been incurred in earning that income and would have been allowable expenses of the company for that period.

• (9) “Connected company” means a company which is or, if the relevant alternative provision had been made, would have been connected with the relevant company.

• (10) “Diverted profits” of the relevant company for the accounting period means an amount—

• (a) in respect of which the company is chargeable to corporation tax for that period by reason of any adjustment required to be made to the results of the material provision under Part 4 of TIOPA 2010 (transfer pricing), and

• (b) which, in a case where section 81 applies, is attributable (in accordance with sections 20 to 32 of CTA 2009) to UKPE”.

Section 80 or 81 cases where no taxable diverted profits arise

83

• (1) Where section 80 or 81 applies in relation to a company for an accounting period, no taxable diverted profits arise to the company in that period in relation to the material provision in question if—

• (a) the actual provision condition is met, and

• (b) either—

• (i) there are no diverted profits of that company for the accounting period, or

• (ii) the full transfer pricing adjustment has been made.

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

• (3) “The full transfer pricing adjustment” is made if all of the company's diverted profits for the accounting period are taken into account in an assessment to corporation tax included, before the end of the review period, in the company's company tax return for the accounting period.

Section 80 or 81: calculation of profits by reference to the actual provision

84

• (1) This section applies where—

• (a) section 80 or 81 applies in relation to a company for an accounting period,

• (b) the actual provision condition is met, and

• (c) section 83 (cases where no taxable diverted profits arise) does not apply for that period.

• (2) In relation to the material provision in question, the taxable diverted profits that arise to the company in the accounting period are an amount equal to so much of the diverted profits of the company for the accounting period as are not taken into account in an assessment to corporation tax included before the end of the review period in the company’s company tax return for that accounting period.

Section 80 or 81: calculation of profits by reference to the relevant alternative provision

85

• (1) This section applies where—

• (a) section 80 or 81 applies in relation to a company (“the relevant company”) for an accounting period, and

• (b) the actual provision condition is not met.

• (2) The taxable diverted profits that arise to the relevant company in the accounting period in relation to the material provision in question are determined in accordance with subsections (3) to (5).

• (3) Subsection (4) applies if the actual provision condition would have been met but for the fact that the relevant alternative provision would have resulted in relevant taxable income of a company for that company's corresponding accounting period.

• (4) The taxable diverted profits that arise to the relevant company in the accounting period are an amount equal to the sum of—

• (a) so much of the diverted profits (if any) of the company for the accounting period as are not taken into account in an assessment to corporation tax included before the end of the review period in the company’s company tax return for that accounting period, and

• (b) the total amount of any relevant taxable income of a connected company, for that company's corresponding accounting period, which would have resulted from the relevant alternative provision.

• (5) If subsection (4) does not apply, the taxable diverted profits that arise to the relevant company in the accounting period are the sum of—

• (a) the notional additional amount (if any) arising from the relevant alternative provision, and

• (b) the total amount (if any) of any relevant taxable income of a connected company, for that company's corresponding accounting period, which would have resulted from the relevant alternative provision,

• (6) In subsection (5) “the notional additional amount” means ...—

• (a) the additional amount in respect of which the company would have been chargeable to corporation tax for that period had the relevant alternative provision been made or imposed instead of the material provision, less

• (b) the amount—

• (i) in respect of which the company is chargeable to corporation tax for that period by reason of any adjustment required to be made to the results of the material provision (whether under Part 4 of TIOPA 2010 (transfer pricing) or otherwise),

• (ii) which, in a case where section 81 applies, is attributable (in accordance with sections 20 to 32 of CTA 2009) to UKPE, and

• (iii) which is taken into account in an assessment to corporation tax which is included before the end of the review period in the company's company tax return for that accounting period.

• (7) In calculating the additional amount mentioned in paragraph (a) of subsection (6) no account is to be taken of any adjustment required to be made to the results of the material provision under Part 4 of TIOPA 2010 or otherwise.

Avoidance of a UK taxable presence

Non-UK company avoiding a UK taxable presence

86

• (1) This section applies in relation to a company (“the foreign company”) for an accounting period if—

• (a) the company is non-UK resident in that period,

• (b) it carries on a trade during that period (or part of it),

• (c) a person (“the avoided PE”), whether or not UK resident, is carrying on activity in the United Kingdom in that period in connection with supplies of services, goods or other property made by the foreign company in the course of that trade,

• (d) section 87 (exception for companies with limited UK-related sales or expenses) does not operate to prevent this section applying in relation to the foreign company for the accounting period,

• (e) it is reasonable to assume that any of the activity of the avoided PE or the foreign company (or both) is designed so as to ensure that the foreign company does not, as a result of the avoided PE's activity, carry on that trade in the United Kingdom for the purposes of corporation tax (whether or not it is also designed to secure any commercial or other objective),

• (f) the mismatch condition (see subsection (2)) or the tax avoidance condition (see subsection (3)) is met or both those conditions are met,

• (g) the avoided PE is not excepted by subsection (5), and

• (h) the avoided PE and the foreign company are not both small or medium-sized enterprises for that period.

• (2) “The mismatch condition” is that—

• (a) in connection with the supplies of services, goods or other property mentioned in subsection (1)(c) (or in connection with those supplies and other supplies), arrangements are in place as a result of which provision is made or imposed as between the foreign company and another person (“A”) by means of a transaction or series of transactions (“the material provision”),

• (b) the participation condition is met in relation to the foreign company and A (see section 106),

• (c) the material provision results in an effective tax mismatch outcome, for the accounting period, as between the foreign company and A (see sections 107 and 108),

• (d) the effective tax mismatch outcome is not an excepted loan relationship outcome (see section 109),

• (e) the insufficient economic substance condition is met (see section 110), and

• (f) the foreign company and A are not both small or medium-sized enterprises for the accounting period.

• (3) “The tax avoidance condition” is that, in connection with the supplies of services, goods or other property mentioned in subsection (1)(c) (or in connection with those supplies and other supplies), arrangements are in place the main purpose or one of the main purposes of which is to avoid or reduce a charge to corporation tax.

• (4) In subsection (1)(e) the reference to activity of the avoided PE or the foreign company includes any limitation which has been imposed or agreed in respect of that activity.

• (5) The avoided PE is “excepted” if—

• (a) activity of the avoided PE is such that, as a result of section 1142 or 1144 of CTA 2010, the foreign company would not be treated as carrying on a trade in the United Kingdom in the accounting period through a permanent establishment in the United Kingdom by reason of that activity, and

• (b) in a case where—

• (i) section 1142(1) of that Act applies, but

• (ii) the avoided PE is not regarded for the purposes of section 1142(1) of that Act as an agent of independent status by virtue of section 1145, 1146 or 1151 of that Act,

the foreign company and the avoided PE are not connected at any time in the accounting period.

• (6) Where the foreign company is a member of a partnership—

• (a) for the purposes of subsection (1)—

• (i) a trade carried on by the partnership is to be regarded as a trade carried on by the foreign company, and

• (ii) supplies made by the partnership in the course of that trade are to be regarded as supplies made by the foreign company in the course of that trade, and

• (b) for the purposes of subsection (2)(a) provision made or imposed as between the partnership and another person is to be regarded as made between the foreign company and that person.

• (7) In this section “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

Exception for companies with limited UK-related sales or expenses

87

• (1) Section 86 does not apply to the foreign company for an accounting period if one or both of the following conditions is or are met.

• (2) The first condition is that, for the accounting period, the total of—

• (a) the UK-related sales revenues of the foreign company, and

• (b) the UK-related sales revenues of companies connected with the foreign company,

does not exceed £10,000,000.

• (3) The second condition is that the total of—

• (a) the UK-related expenses of the foreign company incurred in the accounting period, and

• (b) the UK-related expenses of companies connected with the foreign company incurred in that period,

does not exceed £1,000,000.

• (4) But if the accounting period is a period of less than 12 months, the amounts specified in subsections (2) and (3) are to be reduced proportionally.

• (5) In this section—

• “the foreign company” has the same meaning as in section 86;

• “UK activity” means activity carried on in the United Kingdom in connection with supplies of services, goods or other property made by the foreign company in the course of the trade mentioned in section 86(1)(b);

• “UK-related expenses”, of a company, means the expenses of that company which relate to UK activity;

• “UK-related sales revenues” means—in the case of the foreign company, the sales revenues of that company from UK-related supplies, andin the case of a company connected with the foreign company, the sales revenues of the first mentioned company to the extent that they—are from UK-related supplies, andare trading receipts which are not taken into account in calculating the profits of that company which are chargeable to corporation tax;

• “UK-related supplies” means supplies of services, goods or other property which are made—by the foreign company or a company connected with the foreign company, andrelate to UK activity.

• (6) For the purposes of this section “revenues” or “expenses” of a company, in the relevant accounting period, are amounts which, in accordance with generally accepted accounting practice (“GAAP”), are recognised as revenue or (as the case may be) expenses in the company's profit and loss account or income statement for that period.

• (7) Where a company does not draw up accounts for the relevant accounting period in accordance with GAAP, the reference in subsection (6) to any amounts which in accordance with GAAP are recognised as revenue or expenses in the company's profit and loss account or income statement for the relevant accounting period is to be read as a reference to any amounts which would be so recognised if the company had drawn up such accounts for the relevant accounting period.

• (8) “Generally accepted accounting practice” is to be construed in accordance with section 1127 of CTA 2010.

• (9) The Treasury may by regulations, made by statutory instrument, substitute a different figure for the figure for the time being specified in subsection (2) or (3).

• (10) Regulations under this section are subject to annulment in pursuance of a resolution of the House of Commons.

Calculation of taxable diverted profits: section 86 cases

Calculation of taxable diverted profits in section 86 case: introduction

88

• (1) If section 86 applies for an accounting period, section 89, 90 or 91 applies to determine the taxable diverted profits of the foreign company.

• (2) But see also section 97 for how a designated HMRC officer estimates those profits when issuing a preliminary notice under section 93 or a charging notice under section 95.

• (3) Subsections (4) to (12) define some key expressions used in sections 89 to 91 and this section.

• (4) “The foreign company” has the same meaning as in section 86.

• (5) “Notional PE profits”, in relation to an accounting period, means an amount equal to the sum of—

• (a) the amount of profits (if any) which would have been the chargeable profits of the foreign company for that period, attributable (in accordance with sections 20 to 32 of CTA 2009) to the avoided PE, had the avoided PE been a permanent establishment in the United Kingdom through which the foreign company carried on the trade mentioned in section 86(1)(b), and

• (b) an amount equal to the total of royalties or other sums which are paid by the foreign company during that period in connection with that trade in circumstances where the payment avoids the application of section 906 of ITA 2007 (duty to deduct tax).

• (5A) For the purposes of subsection (5)(b) a payment of a royalty or other sum avoids the application of section 906 of ITA 2007 if—

• (a) that section does not apply in relation to the payment, but

• (b) that section would have applied in relation to the payment had the avoided PE been a permanent establishment in the United Kingdom through which the foreign company carried on the trade mentioned in section 86(1)(b).

• (5B) In calculating the notional PE profits no account is to be taken of any adjustment within subsection (5C).

• (5C) An adjustment is within this subsection if—

• (a) it is an adjustment required to be made under Part 4 of TIOPA 2010 to the results of any provision made or imposed between the foreign company and the avoided PE,

• (b) it is taken into account in an assessment to corporation tax included in a company tax return of the avoided PE, and

• (c) the time when it is first taken into account as mentioned in paragraph (b) is after the end of the review period.

• (6) “The material provision” has the same meaning as in section 86.

• (7) “The relevant alternative provision” means the alternative provision which it is just and reasonable to assume would have been made or imposed as between the foreign company and one or more companies connected with that company, instead of the material provision, had tax (including any non-UK tax) on income not been a relevant consideration for any person at any time.

• (8) For the purposes of subsection (7), making or imposing no provision is to be treated as making or imposing an alternative provision to the material provision.

• (9) “The actual provision condition” is met if—

• (a) the material provision results in expenses of the foreign company for which ... a deduction for allowable expenses would be allowed in computing what would have been the notional PE profits for the accounting period, and

• (b) the relevant alternative provision—

• (i) would also have resulted in allowable expenses of the foreign company of the same type and for the same purposes (whether or not payable to the same person) as so much of the expenses mentioned in paragraph (a) as results in the effective tax mismatch outcome mentioned in section 86(2)(c), but

• (ii) would not have resulted in relevant taxable income of a connected company for that company's corresponding accounting period.

• (9A) For the purposes of subsection (9)(a) ignore any adjustment that would be required to be made to the results of the material provision under Part 4 of TIOPA 2010 in calculating what would have been the notional PE profits for the accounting period.

• (10) “Relevant taxable income” of a company for a period is—

• (a) income of the company, for the period, which would have resulted from the relevant alternative provision and in relation to which the company would have been within the charge to corporation tax had that period been an accounting period of the company, less

• (b) the total amount of expenses which it is just and reasonable to assume would have been incurred in earning that income and would have been allowable expenses of the company for that period.

• (11) “Connected company” means a company which is or, if the relevant alternative provision had been made, would have been connected with the foreign company.

• (12) “The mismatch condition” has the same meaning as in section 86.

Section 86: calculation of profits where only tax avoidance condition is met

89

• (1) This section applies where—

• (a) section 86 applies for an accounting period, and

• (b) the mismatch condition is not met.

• (2) The taxable diverted profits that arise to the foreign company in the accounting period by reason of that section applying are an amount equal to the notional PE profits for that period.

Section 86: mismatch condition is met: calculation of profits by reference to the actual provision

90

• (1) This section applies where—

• (a) section 86 applies for an accounting period,

• (b) the mismatch condition is met, and

• (c) the actual provision condition is met.