Finance Act 2017

• (2) In proceedings against a person (P) for an offence under subsection (1), it is a defence for P to prove that P had a reasonable excuse for the failure to comply.

• (3) For the purposes of subsection (2)—

• (a) where P relies on any other person to do anything, that is not a reasonable excuse unless P took reasonable care to avoid the failure;

• (b) where P had a reasonable excuse for the failure but the excuse has ceased, P is to be treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased.

• (4) A person guilty of an offence under this section is liable—

• (a) on summary conviction in England and Wales—

• (i) to imprisonment for a term not exceeding the general limit in a magistrates’ court, or

• (ii) to a fine not exceeding £20,000 or (if greater) 3 times the amount of the potential lost revenue, or

• (iii) to both;

• (b) on summary conviction in Scotland—

• (i) to imprisonment for a term not exceeding 12 months, or

• (ii) to a fine not exceeding the statutory maximum or (if greater) 3 times the amount of the potential lost revenue, or

• (iii) to both;

• (c) on summary conviction in Northern Ireland—

• (i) to imprisonment for a term not exceeding 6 months, or

• (ii) to a fine not exceeding the statutory maximum or (if greater) 3 times the amount of the potential lost revenue, or

• (iii) to both;

• (d) on conviction on indictment—

• (i) to imprisonment for a term not exceeding 3 years,

• (ii) to a fine, or

• (iii) to both.

• (5) For the purposes of subsection (4), the “potential lost revenue” is the amount of soft drinks industry levy (if any) for which the person who committed the offence is liable for the period—

• (a) beginning with the date with effect from which the person is liable to be registered under this Part, and

• (b) ending with the date on which the Commissioners received notification of, or otherwise were satisfied as to, the person's liability to be registered under this Part.

• (6) In calculating potential lost revenue for the purposes of subsection (4), no account is to be taken of the fact that a potential loss of revenue from the person is or may be balanced by a potential over-payment by another person.

• (7) In relation to an offence committed before 2 May 2022 the reference in subsection (4)(a)(i) to the general limit in a magistrates’ court is to be read as a reference to 6 months.

Administration and enforcement

Payment, collection and recovery

52

• (1) The Commissioners may by regulations make provision about the payment, collection and recovery of soft drinks industry levy.

• (2) Regulations under subsection (1) may—

• (a) require persons who are or are liable to be registered under this Part to keep accounts for the purposes of the levy in the specified form and manner;

• (b) require persons who are or are liable to be registered under this Part to make returns for the purposes of the levy;

• (c) make provision for determining the periods (“accounting periods”) by reference to which payments of the levy are to be made;

• (d) make provision about the times at which payments of the levy are to be made and methods of payment;

• (e) require the amounts payable by reference to accounting periods to be calculated by or under the regulations;

• (f) make provision for the correction of errors made in accounting for the levy.

• (3) Provision may be made by or under regulations under subsection (2)(b) about—

• (a) the periods by reference to which returns are to be made,

• (b) the information to be included in returns,

• (c) timing, and

• (d) the form of, and method of, making returns.

• (4) Schedule 8 contains provision about recovery and overpayments.

Records

53

• (1) The Commissioners may by regulations require persons—

• (a) to keep, for purposes connected with soft drinks industry levy, records of specified matters, and

• (b) to preserve records for a specified period.

• (2) A duty under regulations under this section to preserve records may be discharged—

• (a) by preserving them in any form and by any means, or

• (b) by preserving the information contained in them in any form and by any means, subject to any specified conditions or exceptions.

• (3) The Commissioners may direct a person who is, or is liable to be, registered under this Part—

• (a) to keep such records as are specified in the direction;

• (b) to preserve those records for a specified period.

• (4) The period specified in a direction under subsection (3)(b) may not exceed 6 years.

• (5) The Commissioners may not give a direction under subsection (3) unless they have reasonable grounds for believing that the records specified in the direction might assist in identifying chargeable soft drinks in respect of which soft drinks industry levy might not be paid.

• (6) A direction under subsection (3)—

• (a) must be given in writing,

• (b) must specify the consequences under Schedule 9 of failure to comply with a requirement imposed under subsection (3), and

• (c) may be revoked or replaced by a further direction.

• (7) Schedule 9 makes provision about penalties for failure to comply with requirements imposed by regulations or directions under this section.

Power to make further provision about enforcement

54

• (1) The Commissioners may by regulations make further provision about enforcement of soft drinks industry levy, including provision conferring powers of entry, search or seizure.

• (2) Regulations under this section may include provision—

• (a) conferring powers to enter and inspect premises that are used, or are reasonably believed to be used, in connection with the production, packaging, sale, import or export of chargeable soft drinks;

• (b) conferring powers to stop, board and search ships, aircraft and other vehicles entering, leaving or situated on premises referred to in paragraph (a);

• (c) conferring powers to inspect and take copies of business documents on premises referred to in paragraph (a);

• (d) conferring powers to examine and take samples of soft drinks found on premises referred to in paragraph (a);

• (e) for the detention and seizure of chargeable soft drinks in respect of which a specified requirement of this Part has been contravened;

• (f) requiring a person to provide such facilities as are reasonably necessary for an officer of Revenue and Customs to carry out an examination or search or exercise other powers conferred by the regulations;

• (g) about reviews of, and appeals against, decisions made for the purposes of the regulations.

• (3) Regulations under this section may, in particular, make provision by applying any provision of the Customs and Excise Management Act 1979.

Appeals etc

55

Schedule 10 makes provision about appeals and reviews.

Supplementary amendments

56

Schedule 11 contains supplementary amendments relating to administration and enforcement of soft drinks industry levy.

Miscellaneous

Regulations: death, incapacity or insolvency of person carrying on a business

57

• (1) The Commissioners may by regulations make provision for the purposes of soft drinks industry levy in relation to cases where a person carries on a business of—

• (a) an individual who has died or become incapacitated;

• (b) a person (whether or not an individual) who is subject to an insolvency procedure (as defined in the regulations).

• (2) Regulations under this section may include—

• (a) provision requiring the person who is carrying on the business (P) to notify the Commissioners that P is carrying on the business and of the event that led to P carrying it on;

• (b) provision allowing P to be treated for a limited time as if P and the person who has died, become incapacitated or is subject to an insolvency procedure were the same person;

• (c) such other provision as the Commissioners think fit for securing continuity in the application of this Part in cases to which the regulations apply.

Provisional collection of soft drinks industry levy

58

In section 1 of the Provisional Collection of Taxes Act 1968 (temporary statutory effect of House of Commons resolutions), in subsection (1), after “aggregates levy,” insert “ soft drinks industry levy, ”.

General

Interpretation of Part 2

59

• (1) In this Part—

• “accounting period” is to be construed in accordance with section 52(2)(c);

• “chargeable soft drink” has the meaning given by section 28;

• “the Commissioners” means the Commissioners for Her Majesty's Revenue and Customs;

• “compliant warehouse” is to be construed in accordance with section 32(5);

• “first recipient” and “first receipt”, in relation to imported chargeable soft drinks, have the meaning given by section 33(2) and (4);

• “first seller”, in relation to imported chargeable soft drinks, has the meaning given by section 33(9);

• “HMRC” means Her Majesty's Revenue and Customs;

• “package” and “packaged” are to be construed in accordance with section 26(3);

• “person who is already registrable” has the meaning given by section 41(4);

• “prepared drink” has the meaning given by section 27(1);

• “produce”, in relation to chargeable soft drinks, is to be construed in accordance with section 37(2);

• “relevant person” has the meaning given by section 33(5);

• “secondary warehousing condition” has the meaning given by section 32(4);

• “small producer” has the meaning given by section 38;

• “small producer threshold” has the meaning given by section 38(7);

• “soft drink” has the meaning given by section 26(1);

• “sugars” means anything that is required to be described as “sugars” for the purposes of a designated food labelling obligation (see subsection (3)).

• (2) In sections 30, 34, 52, 53(1) and (2) and 54 and in paragraph 11 of Schedule 8, “specified” means specified in regulations made by the Commissioners for the purposes of this Part.

• (3) In the definition of “sugars” in subsection (1), “designated food labelling obligation” means an obligation that—

• (a) relates to the provision of nutritional information on the packaging of food or drinks,

• (b) is imposed by an enactment, an EU instrument or subordinate legislation, and

• (c) is designated by regulations made by the Commissioners for the purposes of this Part.

• (4) Section 1122 of CTA 2010 (meaning of connected person) applies for the purposes of this Part.

• (5) For the purposes of this Part, a person “packages” chargeable soft drinks if—

• (a) the person packages soft drinks, and

• (b) the packaged soft drinks are chargeable soft drinks.

Regulations

60

• (1) Regulations under this Part—

• (a) may make different provision for different purposes;

• (b) may include incidental, consequential, supplementary or transitional provision.

• (2) Regulations under this Part are to be made by statutory instrument.

• (3) A statutory instrument containing regulations under section 54 may not be made unless a draft of the instrument has been laid before and approved by a resolution of the House of Commons.

• (4) Any other statutory instrument containing regulations under this Part is subject to annulment in pursuance of a resolution of the House of Commons.

• (5) But subsection (4) does not apply to a statutory instrument containing only regulations under section 61 (commencement of this Part).

Commencement

61

• (1) Subject to subsection (2), this Part comes into force on such day as the Commissioners may by regulations appoint.

• (2) The amendment made by paragraph 3 of Schedule 11 comes into force in accordance with provision made by the Treasury by regulations.

• (3) Regulations under this section may appoint different days for different purposes.

Part 3 — Final

Interpretation

62

In this Act the following abbreviations are references to the following Acts.

Short title

63

This Act may be cited as the Finance Act 2017.

SCHEDULE 1

Part 1 — Preliminary amendments

1

ITEPA 2003 is amended as follows.

2

In section 48 (scope of Chapter 8 of Part 2: workers' services provided through intermediaries)—

• (a) in subsection (1), after “through an intermediary” insert “ , but not where the services are provided to a public authority ”, and

• (b) after subsection (2) insert—

(3) In this Chapter “public authority” has the same meaning as in Chapter 10 of this Part (see section 61L).

3

In section 49(1) (engagements to which Chapter applies), after paragraph (a) insert—

(aa) the client is not a public authority,

.

4

In section 52(2)(b) and (c) (conditions of liability under Chapter 8 where intermediary is a partnership), for “this Chapter” substitute “ one or other of this Chapter and Chapter 10 ”.

5

In section 61(1) (interpretation of Chapter 8), before the definition of “engagement to which this Chapter applies” insert—

“engagement to which Chapter 10 applies” has the meaning given by section 61M(5);

.

6

In section 61A (scope of Chapter 9 of Part 2: workers' services provided by managed service companies), after subsection (2) insert—

(3) See also section 61D(4A) (disapplication of this Chapter if Chapter 10 applies).

7

In section 61D (deemed earnings where worker's services provided by managed service company), after subsection (4) insert—

(4A) This section does not apply where the provision of the relevant services gives rise (directly or indirectly) to an engagement to which Chapter 10 applies, and for this purpose it does not matter whether the client is also “the client” for the purposes of section 61M(1).

8

In section 61J(1) (interpretation of Chapter 9), before the definition of “managed service company” insert—

“engagement to which Chapter 10 applies” has the meaning given by section 61M(5),

.

Part 2 — New Chapter 10 of Part 2 of ITEPA 2003

9

In Part 2 of ITEPA 2003 (employment income: charge to tax), after Chapter 9 insert—

(61K) (1) This Chapter has effect with respect to the provision of services to a public authority through an intermediary. (2) Nothing in this Chapter— (a) affects the operation of Chapter 7 of this Part (agency workers), or (b) applies to payments or transfers to which section 966(3) or (4) of ITA 2007 applies (visiting performers: duty to deduct and account for sums representing income tax). (61L) (1) In this Chapter “public authority” means— (a) a public authority as defined by the Freedom of Information Act 2000, (b) a Scottish public authority as defined by the Freedom of Information (Scotland) Act 2002 (asp 13), (c) the Corporate Officer of the House of Commons, (d) the Corporate Officer of the House of Lords, (e) the National Assembly for Wales Commission, or (f) the Northern Ireland Assembly Commission. (2) An authority within paragraph (a) or (b) of subsection (1) is a public authority for the purposes of this Chapter in relation to all its activities even if provisions of the Act mentioned in that paragraph do not apply to all information held by the authority. (3) Subsection (1) is subject to subsection (4). (4) A primary-healthcare provider is a public authority for the purposes of this Chapter only if the primary-healthcare provider— (a) has a registered patient list for the purposes of relevant medical-services regulations, (b) is within paragraph 43A in Part 3 of Schedule 1 to the Freedom of Information Act 2000 (providers of primary healthcare services in England and Wales) by reason of being a person providing primary dental services, (c) is within paragraph 51 in that Part of that Schedule (providers of healthcare services in Northern Ireland) by reason of being a person providing general dental services, or (d) is within paragraph 33 in Part 4 of Schedule 1 to the Freedom of Information (Scotland) Act 2002 (providers of healthcare services in Scotland) by reason of being a person providing general dental services. (5) In this section— - “primary-healthcare provider” means an authority that is within subsection (1)(a) or (b) only because it is within a relevant paragraph, - “relevant paragraph” means— 1. any of paragraphs 43A to 45A and 51 in Part 3 of Schedule 1 to the Freedom of Information Act 2000, or 2. any of paragraphs 33 to 35 in Part 4 of Schedule 1 to the Freedom of Information (Scotland) Act 2002, and - “relevant medical-services regulations” means any of the following— 1. the Primary Medical Services (Sale of Goodwill and Restrictions on Sub-contracting) Regulations 2004 (S.I. 2004/906), 2. the Primary Medical Services (Sale of Goodwill and Restrictions on Sub-contracting) (Wales) Regulations 2004 (S.I. 2004/1017), 3. the Primary Medical Services (Sale of Goodwill and Restrictions on Sub-contracting) (Scotland) Regulations 2004 (S.S.I. 2004/162), and 4. the Primary Medical Services (Sale of Goodwill and Restrictions on Sub-contracting) Regulations (Northern Ireland) 2004 (S.R. (N.I.) 2004 No. 477). (6) The Commissioners for Her Majesty's Revenue and Customs may by regulations amend this section in consequence of— (a) any amendment or revocation of any regulations for the time being referred to in this section, (b) any amendment in Part 3 of Schedule 1 to the Freedom of Information Act 2000, or (c) any amendment in Part 4 of Schedule 1 to the Freedom of Information (Scotland) Act 2002. (61M) (1) Sections 61N to 61R apply where— (a) an individual (“the worker”) personally performs, or is under an obligation personally to perform, services for another person (“the client”), (b) the client is a public authority, (c) the services are provided not under a contract directly between the client and the worker but under arrangements involving a third party (“the intermediary”), and (d) the circumstances are such that— (i) if the services were provided under a contract directly between the client and the worker, the worker would be regarded for income tax purposes as an employee of the client or the holder of an office under the client, or (ii) the worker is an office-holder who holds that office under the client and the services relate to the office. (2) The reference in subsection (1)(c) to a “third party” includes a partnership or unincorporated association of which the worker is a member. (3) The circumstances referred to in subsection (1)(d) include the terms on which the services are provided, having regard to the terms of the contracts forming part of the arrangements under which the services are provided. (4) Holding office as statutory auditor of the client does not count as holding office under the client for the purposes of subsection (1)(d), and here “statutory auditor” means a statutory auditor within the meaning of Part 42 of the Companies Act 2006 (see section 1210 of that Act). (5) In this Chapter “engagement to which this Chapter applies” means any such provision of services as is mentioned in subsection (1). (61N) (1) If one of Conditions A to C is met, identify the chain of two or more persons where— (a) the highest person in the chain is the client, (b) the lowest person in the chain is the intermediary, and (c) each person in the chain above the lowest makes a chain payment to the person immediately below them in the chain. (See section 61U for cases where one of Conditions A to C is treated as being met.) (2) In this section and sections 61O to 61S— - “chain payment” means a payment, or money's worth or any other benefit, that can reasonably be taken to be for the worker's services to the client, - “make”— 1. in relation to a chain payment that is money's worth, means transfer, and 2. in relation to a chain payment that is a benefit other than a payment or money's worth, means provide, and - “the fee-payer” means the person in the chain immediately above the lowest. (3) The fee-payer is treated as making to the worker, and the worker is treated as receiving, a payment which is to be treated as earnings from an employment (“the deemed direct payment”), but this is subject to subsections (5) to (7) and sections 61T and 61V. (4) The deemed direct payment is treated as made at the same time as the chain payment made by the fee-payer. (5) Subsections (6) and (7) apply, subject to sections 61T and 61V, if the fee-payer— (a) is not the client, and (b) is not a qualifying person. (6) If there is no person in the chain below the highest and above the lowest who is a qualifying person, subsections (3) and (4) have effect as if for any reference to the fee-payer there were substituted a reference to the client. (7) Otherwise, subsections (3) and (4) have effect as if for any reference to the fee-payer there were substituted a reference to the person in the chain who— (a) is above the lowest, (b) is a qualifying person, and (c) is lower in the chain than any other person in the chain who— (i) is above the lowest, and (ii) is a qualifying person. (8) In subsections (5) to (7) a “qualifying person” is a person who— (a) is resident in the United Kingdom or has a place of business in the United Kingdom, (b) is not a person who is controlled by— (i) the worker, alone or with one or more associates of the worker, or (ii) an associate of the worker, with or without other associates of the worker, and (c) if a company, is not one in which— (i) the worker, alone or with one or more associates of the worker, or (ii) an associate of the worker, with or without other associates of the worker, has a material interest (within the meaning given by section 51(4) and (5)). (9) Condition A is that— (a) the intermediary is a company, and (b) the conditions in section 61O are met in relation to the intermediary. (10) Condition B is that— (a) the intermediary is a partnership, (b) the worker is a member of the partnership, (c) the provision of the services is by the worker as a member of the partnership, and (d) the condition in section 61P is met in relation to the intermediary. (11) Condition C is that the intermediary is an individual. (12) Where a payment, money's worth or any other benefit can reasonably be taken to be for both— (a) the worker's services to the client, and (b) anything else, then, for the purposes of this Chapter, so much of it as can, on a just and reasonable apportionment, be taken to be for the worker's services is to be treated as (and the rest is to be treated as not being) a payment, or money's worth or another benefit, that can reasonably be taken to be for the worker's services. (61O) (1) The conditions mentioned in section 61N(9)(b) are that— (a) the intermediary is not an associated company of the client that falls within subsection (2), and (b) the worker has a material interest in the intermediary. (2) An associated company of the client falls within this subsection if it is such a company by reason of the intermediary and the client being under the control— (a) of the worker, or (b) of the worker and other persons. (3) The worker is treated as having a material interest in the intermediary if— (a) the worker, alone or with one or more associates of the worker, or (b) an associate of the worker, with or without other associates of the worker, has a material interest in the intermediary. (4) For this purpose “material interest” has the meaning given by section 51(4) and (5). (5) In this section “associated company” has the meaning given by section 449 of CTA 2010. (61P) (1) The condition mentioned in section 61N(10)(d) is— (a) that the worker, alone or with one or more relatives, is entitled to 60% or more of the profits of the partnership, or (b) that most of the profits of the partnership derive from the provision of services under engagements to which one or other of this Chapter and Chapter 8 applies— (i) to a single client, or (ii) to a single client together with associates of that client, or (c) that under the profit sharing arrangements the income of any of the partners is based on the amount of income generated by that partner by the provision of services under engagements to which one or other of this Chapter and Chapter 8 applies. (2) In subsection (1)(a) “relative” means spouse or civil partner, parent or child or remoter relation in the direct line, or brother or sister. (3) Section 61(4) and (5) apply for the purposes of this section as they apply for the purposes of Chapter 8. (61Q) (1) The amount of the deemed direct payment is the amount resulting from the following steps— - Step 1 Identify the amount or value of the chain payment made by the person who is treated as making the deemed direct payment, and deduct from that amount so much of it (if any) as is in respect of value added tax. - Step 2 Deduct, from the amount resulting from Step 1, so much of that amount as represents the direct cost to the intermediary of materials used, or to be used, in the performance of the services. - Step 3 Deduct, at the option of the person treated as making the deemed direct payment, from the amount resulting from Step 2, so much of that amount as represents expenses met by the intermediary that would have been deductible from the taxable earnings from the employment if— 1. the worker had been employed by the client, and 2. the expenses had been met by the worker out of those earnings. - Step 4 If the amount resulting from the preceding Steps is nil or negative, there is no deemed direct payment. Otherwise, that amount is the amount of the deemed direct payment. (2) For the purposes of Step 1 of subsection (1), any part of the amount or value of the chain payment which is employment income of the worker by virtue of section 863G(4) of ITTOIA 2005 (salaried members of limited liability partnerships: anti-avoidance) is to be ignored. (3) In subsection (1), the reference to the amount or value of the chain payment means the amount or value of that payment before the deduction (if any) permitted under section 61S. (4) If the actual amount or value of the chain payment mentioned in Step 1 of subsection (1) is such that its recipient bears the cost of amounts due under PAYE regulations or contributions regulations in respect of the deemed direct payment, that Step applies as if the amount or value of that chain payment were what it would be if the burden of that cost were not being passed on through the setting of the level of the payment. (5) In Step 3 of subsection (1), the reference to expenses met by the intermediary includes— (a) expenses met by the worker and reimbursed by the intermediary, and (b) where the intermediary is a partnership and the worker is a member of the partnership, expenses met by the worker for and on behalf of the partnership. (6) In subsection (4) “contributions regulations” means regulations under the Contributions and Benefits Act providing for primary Class 1 contributions to be paid in a similar manner to income tax in relation to which PAYE regulations have effect (see, in particular, paragraph 6(1) of Schedule 1 to the Act); and here “primary Class 1 contribution” means a primary Class 1 contribution within the meaning of Part 1 of the Contributions and Benefits Act. (61R) (1) The Income Tax Acts (in particular, Part 11 and PAYE regulations) apply in relation to the deemed direct payment as follows. (2) They apply as if— (a) the worker were employed by the person treated as making the deemed direct payment, and (b) the services were performed, or to be performed, by the worker in the course of performing the duties of that employment. (3) The deemed direct payment is treated in particular— (a) as taxable earnings from the employment for the purpose of securing that any deductions under Chapters 2 to 6 of Part 5 do not exceed the deemed direct payment, and (b) as taxable earnings from the employment for the purposes of section 232. (4) The worker is not chargeable to tax in respect of the deemed direct payment if, or to the extent that, by reason of any combination of the factors mentioned in subsection (5), the worker would not be chargeable to tax if— (a) the client employed the worker, (b) the worker performed the services in the course of that employment, and (c) the deemed direct payment were a payment by the client of earnings from that employment. (5) The factors are— (a) the worker being resident or domiciled outside the United Kingdom or meeting the requirement of section 26A, (b) the client being resident outside, or not resident in, the United Kingdom, and (c) the services being provided outside the United Kingdom. (6) Where the intermediary is a partnership or unincorporated association, the deemed direct payment is treated as received by the worker in the worker's personal capacity and not as income of the partnership or association. (7) Where— (a) the client is the person treated as making the deemed direct payment, (b) the worker is resident in the United Kingdom, (c) the services are provided in the United Kingdom, (d) the client is not resident in the United Kingdom, and (e) the client does not have a place of business in the United Kingdom, the client is treated as resident in the United Kingdom. (61S) (1) This section applies if, as a result of section 61R, a person who is treated as making a deemed direct payment is required under PAYE Regulations to pay an amount to the Commissioners for Her Majesty's Revenue and Customs (“the Commissioners”) in respect of the payment. (But see subsection (4)). (2) The person may deduct from the underlying chain payment an amount which is equal to the amount payable to the Commissioners, but where the amount or value of the underlying chain payment is treated by section 61Q(4) as increased by the cost of any amount due under PAYE Regulations, the amount that may be deducted is limited to the difference (if any) between the amount payable to the Commissioners and the amount of that increase. (3) Where a person in the chain other than the intermediary receives a chain payment from which an amount has been deducted in reliance on subsection (2) or this subsection, that person may deduct the same amount from the chain payment made by them. (4) This section does not apply in a case to which 61V(2) applies (services-provider treated as making deemed direct payment). (5) In subsection (2) “the underlying chain payment” means the chain payment whose amount is used at Step 1 of section 61Q(1) as the starting point for calculating the amount of the deemed direct payment. (61T) (1) If the conditions in section 61M(1)(a) to (c) are met in any case, and a person as part of the arrangements mentioned in section 61M(1)(c) enters into a contract with the client, the client must inform that person (in the contract or otherwise) of which one of the following is applicable— (a) the client has concluded that the condition in section 61M(1)(d) is met in the case; (b) the client has concluded that the condition in section 61M(1)(d) is not met in the case. (2) If the contract is entered into on or after 6 April 2017, the duty under subsection (1) must be complied with— (a) on or before the time of entry into the contract, or (b) if the services begin to be performed at a later time, before that later time. (3) If the contract is entered into before 6 April 2017, the duty under subsection (1) must be complied with on or before the date of the first payment made under the contract on or after 6 April 2017. (4) If the information which subsection (1) requires the client to give to a person has been given (whether in the contract, as required by subsection (2) or (3) or otherwise), the client must, on a written request by the person, provide the person with a written response to any questions raised by the person about the client's reasons for reaching the conclusion identified in the information. (5) A response required by subsection (4) must be provided before the end of 31 days beginning with the day the request for it is received by the client. (6) If— (a) the client fails to comply with the duty under subsection (1) within the time allowed by subsection (2) or (3), (b) the client fails to provide a response required by subsection (4) within the time allowed by subsection (5), or (c) the client complies with the duty under subsection (1) but fails to take reasonable care in coming to its conclusion as to whether the condition in section 61M(1)(d) is met in the case, section 61N(3) and (4) have effect in the case as if for any reference to the fee-payer there were substituted a reference to the client, but this is subject to section 61V. (61U) (1) In the case of an engagement to which this Chapter applies, the worker must inform the potential deemed employer of which one of the following is applicable— (a) that one of conditions A to C in section 61N is met in the case; (b) that none of conditions A to C in section 61N is met in the case. (2) If the worker has not complied with subsection (1) then, for the purposes of section 61N(1), one of conditions A to C in section 61N is to be treated as met. (3) In this section “the potential deemed employer” is the person who, if one of conditions A to C in section 61N were met, would be treated as making a deemed direct payment to the worker under section 61N(3). (61V) (1) Subsection (2) applies if in any case— (a) a person (“the deemed employer”) would, but for this section, be treated by section 61N(3) as making a payment to another person (“the services-provider”), and (b) the fraudulent documentation condition is met. (2) Section 61N(3) has effect in the case as if the reference to the fee-payer were a reference to the services-provider, but— (a) section 61N(4) continues to have effect as if the reference to the fee-payer were a reference to the deemed employer, and (b) Step 1 of section 61Q(1) continues to have effect as referring to the chain payment made by the deemed employer. (3) Subsection (2) has effect even though that involves the services-provider being treated as both employer and employee in relation to the deemed employment under section 61N(3). (4) “The fraudulent documentation condition” is that a relevant person provided any person with a fraudulent document intended to constitute evidence— (a) that the case is not an engagement to which this Chapter applies, or (b) that none of conditions A to C in section 61N is met in the case. (5) A “relevant person” is— (a) the services-provider; (b) a person connected with the services-provider; (c) if the intermediary in the case is a company, an office-holder in that company. (61W) (1) Subsection (2) applies where— (a) a person (“the payee”) receives a payment or benefit (“the end-of-line remuneration”) from another person (“the paying intermediary”), (b) the end-of-line remuneration can reasonably be taken to represent remuneration for services of the payee to a public authority, (c) a payment (“the deemed payment”) has been treated by section 61N(3) as made to the payee, (d) the underlying chain payment can reasonably be taken to be for the same services of the payee to that public authority, and (e) the recipient of the underlying chain payment has (whether by deduction from that payment or otherwise) borne the cost of any amounts due, under PAYE regulations and contributions regulations in respect of the deemed payment, from the person treated by section 61N(3) as making the deemed payment. (2) For income tax purposes, the paying intermediary and the payee may treat the amount of the end-of-line remuneration as reduced (but not below nil) by any one or more of the following— (a) the amount (see section 61Q) of the deemed payment; (b) the amount of any capital allowances in respect of expenditure incurred by the paying intermediary that could have been deducted from employment income under section 262 of CAA 2001 if the payee had been employed by the public authority and had incurred the expenditure; (c) the amount of any contributions made, in the same tax year as the end-of-line remuneration, for the benefit of the payee by the paying intermediary to a registered pension scheme that if made by an employer for the benefit of an employee would not be chargeable to income tax as income of the employee. (3) Subsection (2)(c)does not apply to— (a) excess contributions paid and later repaid, (b) contributions set under subsection (2) against another payment by the paying intermediary, or (c) contributions deductible at Step 5 of section 54(1) in calculating the amount of the payment (if any) treated by section 50 as made in the tax year concerned by the paying intermediary to the payee. (4) For the purposes of subsection (3)(c), the contributions to which Step 5 of section 54(1) applies in the case of the particular calculation are “deductible” at that Step so far as their amount does not exceed the result after Step 4 in that calculation. (5) In subsection (1)(d) “the underlying chain payment” means the chain payment whose amount is used at Step 1 of section 61Q(1) as the starting point for calculating the amount of the deemed payment. (6) Subsection (2) applies whether the end-of-line remuneration— (a) is earnings of the payee, (b) is a distribution of the paying intermediary, or (c) takes some other form. (61X) In this Chapter— - “associate” has the meaning given by section 60; - “company” means a body corporate or unincorporated association, and does not include a partnership; - “engagement to which Chapter 8 applies” has the meaning given by section 49(5).

Part 3 — Consequential amendments

10

In section 7(5)(a) of ITEPA 2003 (amounts treated as earnings by Chapters 7 to 9 of Part 2 are “employment income” and “general earnings”), for “9” substitute “ 10 ”.

11

In section 49 of ITEPA 2003 (engagements to which Chapter 8 of Part 2 applies), after subsection (4) insert—

(4A) Holding office as statutory auditor of the client does not count as holding office under the client for the purposes of subsection (1)(c), and here “statutory auditor” means a statutory auditor within the meaning of Part 42 of the Companies Act 2006 (see section 1210 of that Act).

12

In section 339A of ITEPA 2003 (travel for employment involving intermediaries), after subsection (6) insert—

(6A) Subsection (3) does not apply in relation to an engagement if— (a) sections 61N to 61R in Chapter 10 of Part 2 apply in relation to the engagement, (b) one of Conditions A to C in section 61N is met in relation to the employment intermediary, and (c) the employment intermediary is not a managed service company. (6B) This section does not apply in relation to an engagement if— (a) sections 61N to 61R in Chapter 10 of Part 2 do not apply in relation to the engagement because the circumstances in section 61M(1)(d) are not met, (b) assuming those circumstances were met, one of Conditions A to C in section 61N would be met in relation to the employment intermediary, and (c) the employment intermediary is not a managed service company. (6C) In determining for the purposes of subsection (6A) or (6B) whether one of Conditions A to C in section 61N is or would be met in relation to the employment intermediary, read references to the intermediary as references to the employment intermediary.

13

In Chapter 11 of Part 2 of ITTOIA 2005 (trade profits: specific trades), after section 164A insert—

(164B) (1) This section applies for the purposes of calculating the trading profits of a person where— (a) the person is the intermediary in a chain identified under section 61N of ITEPA 2003 (see section 61N(1)(b)), (b) a deemed direct payment is treated as made under subsection (3) of that section, and (c) the person receives a payment which can reasonably be taken to be in respect of the same services as those in respect of which the underlying chain payment is made. (2) The payment mentioned in subsection (1)(c) is not required to be brought into account in calculating the profits of the trade. (3) In this section “underlying chain payment” means the payment whose amount is used at Step 1 of section 61Q(1) of ITEPA 2003 as the starting point for calculating the amount of the deemed direct payment mentioned in subsection (1)(b).

14

In Chapter 9 of Part 3 of CTA 2009 (trade profits: specific trades), after section 141 insert—

(141A) (1) This section applies for the purposes of calculating the trading profits of a person where— (a) the person is the intermediary in a chain identified under section 61N of ITEPA 2003 (see section 61N(1)(b)), (b) a deemed direct payment is treated as made under subsection (3) of that section, and (c) the person receives a payment which can reasonably be taken to be in respect of the same services as those in respect of which the underlying chain payment is made. (2) The payment mentioned in subsection (1)(c) is not required to be brought into account in calculating the profits of the trade. (3) In this section “underlying chain payment” means the payment whose amount is used at Step 1 of section 61Q(1) of ITEPA 2003 as the starting point for calculating the amount of the deemed direct payment mentioned in subsection (1)(b).

Part 4 — Commencement

15

The amendments made in ITEPA 2003 by Parts 1 and 3 of this Schedule have effect for the tax year 2017-18 and subsequent tax years.

16

The amendment made by Part 2 of this Schedule has effect in relation to deemed direct payments treated as made on or after 6 April 2017, and does so even if relating to services provided before that date.

17

The payments to which the amendments made in ITTOIA 2005 and CTA 2009 by Part 3 of this Schedule apply include payments made before the passing of this Act.

SCHEDULE 2

Optional remuneration arrangements

1

In Part 3 of ITEPA 2003 (employment income: earnings and benefits etc treated as earnings), in Chapter 2 (taxable benefits: the benefits code), after section 69 insert—

(69A) (1) Subsections (2) to (7) have effect for the purposes of the benefits code. (2) A benefit provided for an employee is provided under “optional remuneration arrangements” so far as it is provided under arrangements of type A or B (regardless of whether those arrangements are made before or after the beginning of the person's employment). (3) “Type A arrangements” are arrangements under which, in return for the benefit, the employee gives up the right (or a future right) to receive an amount of earnings within Chapter 1 of Part 3. (4) “Type B arrangements” are arrangements (other than type A arrangements) under which the employee agrees to be provided with the benefit rather than an amount of earnings within Chapter 1 of Part 3. (5) A benefit provided for an employee is to be regarded as provided under optional remuneration arrangements (whether of type A or type B) so far as it is just and reasonable to attribute the provision of the benefit to the arrangements in question. (6) Where a benefit is provided for an employee under any arrangements, the mere fact that under the arrangements the employee makes good, or is required to make good, any part of the cost of provision is not to be taken to show that the benefit is (to any extent) provided otherwise than under optional remuneration arrangements. (7) Where a benefit is provided for an employee partly under optional remuneration arrangements and partly otherwise than under such arrangements, the benefits code is to apply with any modifications (including provision for just and reasonable apportionments) that may be required for ensuring that the benefit is treated— (a) in accordance with the relevant provision in the column 2 of the table so far as it is provided under optional remuneration arrangements, and (b) in accordance with the relevant provision in column 1 of the table so far as it is provided otherwise than under such arrangements.

Column 1	Column 2
Section	Section
81(1)	81(1A)(b)
87(1)	87A(1)(a)
94(1)	94A(1)(a)
102(1A)	102(1B)(b)
120(1)	120A(1)(a)
149(1)	149A(2)(a)
154(1)	154A(1)(a)
160(1)	160A(2)(a)
175(1)	175(1A)(b)
203(1)	203A(1)(a)

(69B) (1) For the purposes of the benefits code “the amount foregone”— (a) in relation to a benefit provided for an employee under type A arrangements means the amount of earnings mentioned in section 69A(3); (b) in relation to a benefit provided for an employee under type B arrangements means the amount of earnings mentioned in section 69A(4); (c) in relation to a benefit provided for an employee partly under type A arrangements and partly under type B arrangements, means the sum of the amounts foregone under the arrangements of each type. (2) Subsection (3) applies where, in order to determine the amount foregone with respect to a particular benefit mentioned in section 69A(3) or (4), it is necessary to apportion an amount of earnings to the benefit. (3) The apportionment is to be made on a just and reasonable basis. (4) In this section and section 69A references to a benefit provided for an employee include a benefit provided for a member of an employee's family or household. (5) In this section and section 69A— - “benefit” includes any benefit or facility, regardless of its form and the manner of providing it; - “earnings” means earnings within Chapter 1 of Part 3 (and includes a reference to amounts which would have been such earnings if the employee had received them).

Benefits in kind: amount treated as earnings

2

Part 3 of ITEPA 2003 (employment income: earnings and benefits in kind etc treated as earnings) is amended as follows.

3

• (1) Section 81 (benefit of cash voucher treated as earnings) is amended as follows.

• (2) After subsection (1) insert—

(1A) Where a cash voucher to which this Chapter applies is provided pursuant to optional remuneration arrangements— (a) subsection (1) does not apply, and (b) the relevant amount is to be treated as earnings from the employment for the tax year in which the voucher is received by the employee. (1B) In this section “the relevant amount” means— (a) the cash equivalent, or (b) if greater, the amount foregone with respect to the benefit of the voucher (see section 69B).

• (3) At the end insert—

(3) For the purposes of subsection (1B), assume that the cash equivalent is zero if the condition in subsection (4) is met. (4) The condition is that the benefit of the voucher would be exempt from income tax but for section 228A (exclusion of certain exemptions).

4

After section 87 insert—

(87A) (1) Where a non-cash voucher to which this Chapter applies is provided pursuant to optional remuneration arrangements— (a) the relevant amount is to be treated as earnings from the employment for the tax year in which the voucher is received by the employee, and (b) section 87(1) does not apply. (2) To find the relevant amount, first determine which (if any) is the greater of— (a) the cost of provision (see section 87(3)), and (b) the amount foregone with respect to the benefit of the voucher (see section 69B). (3) If the cost of provision is greater than or equal to the amount foregone, the “relevant amount” is the cash equivalent of the benefit of the non-cash voucher (see section 87(2)). (4) Otherwise, the “relevant amount” is the difference between— (a) the amount foregone, and (b) any part of the cost of provision that is made good by the employee, to the person incurring it, on or before 6 July following the relevant tax year. (5) If the voucher is a non-cash voucher other than a cheque voucher, the relevant tax year is— (a) the tax year in which the cost of provision is incurred, or (b) if later, the tax year in which the employee receives the voucher. (6) If the voucher is a cheque voucher, the relevant tax year is the tax year in which the voucher is handed over in exchange for money, goods or services. (7) For the purposes of subsections (2) and (3), assume that the cost of provision is zero if the condition in subsection (8) is met. (8) The condition is that the non-cash voucher would be exempt from income tax but for section 228A (exclusion of certain exemptions).

5

In section 88 (year in which earnings treated as received)—

• (a) in subsection (1), after “87” insert “ or 87A ”;

• (b) in subsection (2), after “87” insert “ or 87A ”.

6

After section 94 insert—

(94A) (1) If the conditions in subsections (2) and (3) are met in relation to any occasions on which a credit-token to which this Chapter applies is used by the employee in a tax year to obtain money, goods or services— (a) the relevant amount is to be treated as earnings from the employment for that year, and (b) section 94(1) does not apply in relation to the use of the credit-token on those occasions. (2) The condition in this subsection is that the credit-token is used pursuant to optional remuneration arrangements. (3) The condition in this subsection is that AF is greater than the relevant cost of provision for the tax year. In this section “AF” means so much of the amount foregone (see section 69B) as is attributable on a just and reasonable basis to the use of the credit-token by the employee in the tax year pursuant to the optional remuneration arrangements to obtain money, goods or services. (4) The “relevant amount” is the difference between— (a) AF, and (b) any part of the relevant cost of provision for the tax year that is made good by the employee, to the person incurring it, on or before 6 July following the tax year which contains the occasion of use of the credit-token to which the making good relates. (5) But the relevant amount is taken to be zero if the amount given by paragraph (b) of subsection (4) exceeds AF. (6) For the purposes of this section the “relevant cost of provision for the tax year” is determined as follows— - Step 1 Find the cost of provision with respect to each occasion of use of the credit-token by the employee in the tax year pursuant to the optional remuneration arrangements to obtain money, goods or services. - Step 2 The total of those amounts is the relevant cost of provision for the tax year. (7) But the relevant cost of provision for the tax year is to be taken to be zero if the condition in subsection (8) is met. (8) The condition is that use of the credit token by the employee in the tax year pursuant to the optional remuneration arrangements to obtain money, goods or services would be exempt from income tax but for section 228A (exclusion of certain exemptions). (9) In this section “cost of provision” has the same meaning as in section 94.

7

In section 97 (living accommodation to which Chapter 5 applies), in subsection (1A)(b), for “the cash equivalent of” substitute “ an amount in respect of ”.

8

In section 98 (accommodation provided by local authority), in the words before paragraph (a), for “This Chapter” substitute “ In section 102 (benefit of accommodation treated as earnings) subsection (1A) (accommodation provided otherwise than pursuant to optional remuneration arrangements) ”.

9

• (1) Section 99 (accommodation provided for performance of duties) is amended as follows.

• (2) In subsection (1), for “This Chapter” substitute “ In section 102 (benefit of accommodation treated as earnings) subsection (1A) (accommodation provided otherwise than pursuant to optional remuneration arrangements) ”.

• (3) In subsection (2), for “This Chapter” substitute “ In section 102 (benefit of accommodation treated as earnings) subsection (1A) ”.

10

In section 100 (accommodation provided as result of security threat), in the words before paragraph (a), for “This Chapter” substitute “ In section 102 (benefit of accommodation treated as earnings) subsection (1A) (accommodation provided otherwise than pursuant to optional remuneration arrangements) ”.

11

In section 100A (homes outside UK owned by company etc), in subsection (1), for “This Chapter” substitute “ In section 102 (benefit of accommodation treated as earnings) subsection (1A) (accommodation provided otherwise than pursuant to optional remuneration arrangements) ”.

12

In section 101 (Chevening House), in the words before paragraph (a), for “This Chapter” substitute “ In section 102 (benefit of accommodation treated as earnings) subsection (1A) (accommodation provided otherwise than pursuant to optional remuneration arrangements) ”.

13

• (1) Section 102 (benefit of living accommodation treated as earnings) is amended as follows.

• (2) In subsection (1), for the words before paragraph (a) substitute “ This section applies if living accommodation to which this Chapter applies is provided in any period (“the taxable period”)— ”.

• (3) The words in subsection (1) from “the cash equivalent” to the end become subsection (1A).

• (4) After subsection (1A) insert—

(1B) If the benefit of the accommodation is provided pursuant to optional remuneration arrangements— (a) subsection (1A) does not apply, and (b) the relevant amount is to be treated as earnings from the employment for that tax year.

• (5) Omit subsection (2).

• (6) At the end insert—

(4) Section 103A indicates how the relevant amount is determined.

14

In section 103 (method of calculating cash equivalent), in subsection (3), for “102(2)” substitute “ 102(1) ”.

15

After section 103 insert—

(103A) (1) To find the relevant amount, first determine which (if any) is the greater of— (a) the modified cash equivalent of the benefit of the accommodation (see sections 105(2A) and 106(2A)), and (b) the amount foregone with respect to the benefit of the accommodation (see section 69B). (2) If the amount mentioned in subsection (1)(a) is greater than or equal to the amount mentioned in subsection (1)(b), the “relevant amount” is the cash equivalent of the benefit of the accommodation (see section 103). (3) Otherwise, the “relevant amount” is the difference between— (a) the amount foregone with respect to the benefit of the accommodation, and (b) the deductible amount (see subsections (7) and (8)). (4) If the amount foregone with respect to the benefit of the accommodation does not exceed the deductible amount, the relevant amount is taken to be zero. (5) For the purposes of subsections (1) and (2), assume that the modified cash equivalent of the benefit of the accommodation is zero if the condition in subsection (6) is met. (6) The condition is that the benefit of the accommodation would be exempt from income tax but for section 228A (exclusion of certain exemptions). (7) If the cost of providing the living accommodation does not exceed £75,000, the “deductible amount” means any sum made good, on or before 6 July following the tax year which contains the taxable period, by the employee to the person at whose cost the accommodation is provided that is properly attributable to its provision. (8) If the cost of providing the living accommodation exceeds £75,000, the “deductible amount” means the total of amounts A and B where— - A is equal to so much of MG as does not exceed RV; - B is the amount of any excess rent paid by the employee in respect of the taxable period; - MG is the total of any sums made good, on or before 6 July following the tax year which contains the taxable period, by the employee to the person at whose cost the accommodation is provided that are properly attributable to its provision (in the taxable period); - RV is the rental value of the accommodation for the taxable period as set out in section 105(3) or (4A)(b) (as applicable). (9) In subsection (8) “excess rent” means so much of the rent in respect of the taxable period paid— (a) by the employee, (b) in respect of the accommodation, (c) to the person providing it, and (d) on or before 6 July following the tax year which contains the taxable period, as exceeds the rental value of the accommodation. (10) Where it is necessary for the purposes of subsection (1)(b) and (3)(a) to apportion an amount of earnings to the benefit of the accommodation in the taxable period, the apportionment is to be made on a just and reasonable basis. In this subsection “earnings” is to be interpreted in accordance with section 69B(5).

16

• (1) Section 105 (cash equivalent: cost of accommodation not over £75,000) is amended as follows.

• (2) In subsection (1), after “equivalent” insert “ or modified cash equivalent ”.

• (3) After subsection (2) insert—

(2A) The modified cash equivalent is equal to the rental value of the accommodation for the taxable period.

17

• (1) Section 106 (cash equivalent: cost of accommodation over £75,000) is amended as follows.

• (2) In subsection (1), after “equivalent” insert “ or modified cash equivalent ”.

• (3) After subsection (2) insert—

(2A) To calculate the modified cash equivalent— (a) apply steps 1 to 3 in subsection (2), as if the words “cash equivalent” in step 1 were “modified cash equivalent (for the purposes of section 105)”; (b) calculate the modified cash equivalent by adding together the amounts calculated under steps 1 and 3 as applied by paragraph (a).

18

• (1) Section 109 (priority of Chapter 5 over Chapter 1 of Part 3 of the Act) is amended as follows.

• (2) In subsection (1)(a), for “the cash equivalent of the benefit of living accommodation” substitute “ an amount ”.

• (3) In subsection (2), for “of the cash equivalent” substitute “ mentioned in subsection (1)(a) ”.

• (4) In subsection (4), in the words before paragraph (a), for “cash equivalent of the benefit of the living accommodation” substitute “ amount mentioned in subsection (1)(a) ”.

19

In section 114 (cars, vans and related benefits), in subsection (2)—

• (a) in paragraph (a), for “the cash equivalent of” substitute “ an amount in respect of ”;

• (b) in paragraph (b), for “the cash equivalent of” substitute “ an amount in respect of ”;

• (c) in paragraph (c), for “the cash equivalent of” substitute “ an amount in respect of ”;

• (d) in paragraph (d), for “the cash equivalent of” substitute “ an amount in respect of ”.

20

• (1) Section 119 (where alternative to benefit of car or van offered) is amended as follows.

• (2) For subsection (1) substitute—

(1) This section applies where in a tax year— (a) a car is made available as mentioned in section 114(1), (b) the car's CO₂ emissions figure (see sections 133 to 138) does not exceed 75 grams per kilometre, and (c) an alternative to the benefit of the car is offered.

• (3) In the heading, before “car” insert “ low emission ”.

21

In section 120 (benefit of car treated as earnings), after subsection (3) insert—

(4) This section is subject to section 120A.

22

After section 120 insert—

(120A) (1) Where this Chapter applies to a car in relation to a particular tax year and the conditions in subsection (3) are met— (a) the relevant amount (see section 121A) is to be treated as earnings from the employment for that tax year, and (b) section 120(1) does not apply. (2) In such a case (including a case where the relevant amount is nil) the employee is referred to in this Chapter as being chargeable to tax in respect of the car in the tax year. (3) The conditions are that— (a) the car is made available to the employee or member of the employee's household pursuant to optional remuneration arrangements, (b) the amount foregone (see section 69B) with respect to the benefit of the car for the tax year is greater than the modified cash equivalent of the benefit of the car for the tax year (see section 121B), and (c) the car's CO₂ emissions figure (see sections 133 to 138) exceeds 75 grams per kilometre.

23

After section 121 insert—

(121A) (1) To find the relevant amount for the purposes of section 120A, take the following steps— - Step 1 Take the amount foregone with respect to the benefit of the car for the tax year. - Step 2 Make any deduction under section 132A in respect of capital contributions made by the employee to the cost of the car or accessories.The resulting amount is the provisional sum. - Step 3 Make any deduction from the provisional sum under section 144 in respect of payments by the employee for the private use of the car.The result is the “relevant amount” for the purposes of section 120A. (2) Where it is necessary, for the purpose of determining the “amount foregone” under step 1 of subsection (1), to apportion an amount of earnings to the benefit of the car for the tax year, the apportionment is to be made on a just and reasonable basis. In this subsection “earnings” is to be interpreted in accordance with section 69B(5). (121B) (1) The “modified cash equivalent” of the benefit of a car for a tax year is calculated in accordance with the following steps (which must be read with subsections (2) to (4))— - Step 1 Find the price of the car in accordance with sections 122 to 124A. - Step 2 Add the price of any accessories which fall to be taken into account in accordance with sections 125 to 131.The resulting amount is the interim sum. - Step 3 Find the appropriate percentage for the car for the year in accordance with sections 133 to 142. - Step 4 Multiply the interim sum by the appropriate percentage for the car for the year. - Step 5 Make any deduction under section 143 for any periods when the car was unavailable.The resulting amount is the modified cash equivalent of the benefit of the car for the year. (2) Where the car is shared the modified cash equivalent is calculated under this section in accordance with section 148. (3) The modified cash equivalent of the benefit of a car for a tax year is to be taken to be zero if the condition in subsection (4) is met. (4) The condition is that the benefit of the car for the tax year would be exempt from income tax but for section 228A (exclusion of certain exemptions). (5) The method of calculation set out in subsection (1) is modified in the special cases dealt with in— (a) section 146 (cars that run on road fuel gas), and (b) section 147A (classic cars: optional remuneration arrangements).

24

In section 126 (amounts taken into account in respect of accessories), in subsection (1), in the words before paragraph (a), after “121(1)” insert “ and step 2 of section 121B(1) ”.

25

• (1) Section 131 (replacement accessories) is amended as follows.

• (2) In subsection (1), in the words before paragraph (a), after “applies” insert “ for the purposes of sections 121(1) and 121B(1) ”.

• (3) After subsection (1) insert—

(1A) In the application of this section for the purposes of section 121B(1)— (a) references to the cash equivalent of the benefit of the car for the tax year are to be read as references to the modified cash equivalent of the benefit of the car for the tax year, and (b) references to step 2 of section 121(1) are to be read as references to step 2 of section 121B(1).

26

In section 132 (capital contributions by employee), in subsection (1), in the words before paragraph (a), after “applies” insert “ for the purposes of section 121(1) ”.

27

After section 132 insert—

(132A) (1) This section applies for the purposes of section 121A(1) if the employee contributes a capital sum to expenditure on the provision of— (a) the car, or (b) any qualifying accessory which is taken into account in calculating under section 121B the modified cash equivalent of the benefit of the car. (2) A deduction is to be made from the amount carried forward from step 1 of section 121A(1)— (a) for the tax year in which the contribution is made, and (b) for all subsequent tax years in which the employee is chargeable to tax in respect of the car by virtue of section 120A. (3) The amount of the deduction allowed in any tax year is found by multiplying the capped amount by the appropriate percentage. (4) In subsection (3) the reference to “the appropriate percentage” is to the appropriate percentage for the car for the tax year (determined in accordance with sections 133 to 142). (5) In this section “the capped amount” means the lesser of— (a) the total of the capital sums contributed by the employee in that year and any earlier years to expenditure on the provision of— (i) the car, or (ii) any qualifying accessory which is taken into account in calculating under section 121B the modified cash equivalent of the benefit of the car for the tax year in question, and (b) £5,000. (6) This section is modified by section 147A (classic cars: optional remuneration arrangements).

28

• (1) Section 143 (deduction for periods when car unavailable) is amended as follows.

• (2) Before subsection (1) insert—

(A1) This section has effect for the purposes of— (a) section 121(1) (method of calculating the cash equivalent of the benefit of a car), and (b) section 121B(1) (optional remuneration arrangements: meaning of “modified cash equivalent”).

• (3) In subsection (1), after “121(1)” insert “ or (as the case may be) step 4 of section 121B(1) ”.

• (4) In subsection (3), in the definition of “A”, at the end insert “ of section 121(1) or (as the case may be) step 4 of section 121B(1) ”.

29

• (1) Section 144 (deduction for payments for private use) is amended as follows.

• (2) In subsection (1), for “calculated under step 7 of section 121(1)” substitute “ (see subsection (1A)) ”.

• (3) After subsection (1) insert

(1A) In this section “the provisional sum” means the provisional sum calculated under— (a) step 7 of section 121(1) (method of calculating the cash equivalent of the benefit of a car), or (b) step 2 of section 121A(1) (optional remuneration arrangements: method of calculating relevant amount).

• (4) In subsection (2), for the words from “so that” to the end substitute

so that— (a) in a case within subsection (1A)(a), the cash equivalent of the benefit of the car for the year is nil, or (b) in a case within subsection (1A)(b), the relevant amount for the purposes of section 120A is nil.

• (5) In subsection (3)—

• (a) for “In any other case” substitute “ Where subsection (2) does not apply, ” and

• (b) for the words from “give” to the end substitute

give— (a) in a case within subsection (1A)(a), the cash equivalent of the benefit of the car for the year, or (b) in a case within subsection (1A)(b), the relevant amount for the purposes of section 120A.

30

• (1) Section 145 (modification of provisions where car temporarily replaced) is amended as follows.

• (2) In subsection (1), for paragraph (c) substitute—

(c) the employee is chargeable to tax— (i) in respect of both the normal car and the replacement car by virtue of section 120, or (ii) in respect of both the normal car and the replacement car by virtue of section 120A, and”.

• (3) After subsection (5) insert—

(6) Where this section applies by virtue of subsection (1)(c)(ii), the condition in subsection (5)(b) is to be taken to be met if it would be met on the assumption that the cash equivalent of the benefit of the cars in question is to be calculated under section 121(1).

31

• (1) Section 146 (cars that run on road fuel gas) is amended as follows.

• (2) In subsection (1), in the words before paragraph (a), after “applies” insert “ for the purposes of sections 121 and 121B ”.

• (3) In subsection (2), after “121(1)” insert “ or (as the case may be) step 1 of section 121B(1) ”.

32

After section 147 insert—