Introduction Details of the Schedule
4.Paragraphs 1 to 3 of the Schedule provide for amendments to be made to the Taxes Management Act 1970 (‘TMA’), which in Part VA sets out the rules for payment of tax.
5.Paragraph 4 adds references to exit charge payment plans into section 109B TMA, which is concerned with the obligations imposed on a company intending to cease to be resident in the UK, and which it must comply with prior to migration.
6.Paragraph 5 amends section 109E TMA, which is concerned with the powers to recover tax from an individual involved in the management of a company that has ceased to be resident in the UK and which has failed to pay tax that is owed. The amendments ensure that the provisions are adapted to take account of the revised payable dates for tax that is subject to an exit charge payment plan.
7.Paragraph 6 inserts the new Schedule 3ZB to the TMA which sets out the arrangements for companies to enter into in an exit charge payment plan.
8.Part 1 of the new Schedule 3ZB deals with companies that cease to be resident in the UK. Part 2 deals with companies that are not resident in the UK but trade here through a PE (generally a branch, agency or other fixed place of business through which the trade is carried on). Part 3 makes provision for each of these companies to enter into exit charge payment plans.
9.Paragraph 1 of new Schedule 3ZB TMA specifies the conditions under which a UK resident company may apply for an exit charge payment plan.
10.An exit charge payment plan is available for companies that are formed in accordance with the laws of an EU or EEA Member State and who transfer their tax residence from the UK to another EU or EEA State, exercising a right to Freedom of Establishment that is protected by Article 49 of the Treaty on the Functioning of the European Union, or equivalent rights in the Agreement on the European Economic Area.
11.Exit charge payment plans are also available to companies resident elsewhere in the EU or EEA, which are formed in accordance with the laws of an EU or EEA Member State, and that are carrying on a trade in UK through a permanent establishment. Where all or part of their business ceases to be carried on in the UK, but they continue to carry on business and be resident elsewhere in the EU or EEA, they can use an exit charge payment plan to defer the payment of corporation tax related to exit charges. New paragraph 2 specifies the amount of tax on which a UK resident company may defer payment by entering into an exit charge payment plan. This is the difference between the amount of corporation tax that the company is liable to pay for the migration accounting period, and the amount to which it would be liable for the same period in the absence of the various exit charge provisions in the Taxation of Chargeable Gains Act 1992 (TCGA) and the Corporation Tax Act 2009 (CTA 2009).
12.In respect of income arising on loan relationships and derivative products, this is limited to tax on the amount of profits which would not otherwise have been brought into account if the company had drawn up accounts to the date on which it migrates.
13.New paragraph 3 defines various terms used in new Schedule 3ZB that apply to a UK resident company.
14.New paragraph 4 sets out the conditions under which a non-resident company may apply for an exit charge payment plan.
15.Exit charge payment plans are available to companies resident elsewhere in the EU or EEA, which are formed in accordance with the laws of an EU or EEA Member State, and that are carrying on a trade in UK through a PE. Where all or part of their business ceases to be carried on in the UK, but they continue to be resident elsewhere in the EU or EEA, they can use an exit charge payment plan to defer the payment of corporation tax related to exit charges.
16.New paragraph 5 specifies the amount of tax on which a non resident company may defer payment by entering into an exit charge payment plan. This is the difference between the amount of corporation tax that the company is liable to pay for the accounting period, and the amount to which it would be liable for the same period in the absence of the various exit charge provisions in the Taxation of Chargeable Gains Act 1992 (TCGA) and the Corporation Tax Act 2009 (CTA 2009).
17.In respect of income arising on loan relationships and derivative products, this is limited to tax on the amount of profits which would not otherwise have been brought into account if the company had drawn up accounts to the date of the event which gives rise to the exit charge. This ‘PE qualifying event’ may not bring about the end of an accounting period, so the definition of the migration accounting period for such a company is modified to refer to an accounting period of a company that contains one or more PE qualifying events.
18.New paragraph 6 specifies the amount of tax on which a non-resident company may defer payment by entering into an exit charge payment plan. This is the difference between the amount of corporation tax that a company is liable to pay for the migration accounting period, and the amount to which it would be liable for the same period in the absence of the various exit charge provisions in the Taxation of Chargeable Gains Act 1992 (TCGA) and the Corporation Tax Act 2009 (CTA 2009).
19.New paragraph 7 defines various terms used in new Schedule 3ZB that apply to a non-resident company.
20.New paragraphs 8 to 9 explains that an exit charge payment plan is an agreement between a company and an officer of HMRC which will override the usual collection and penalty consequences where a company does not pay the full amount of its corporation tax liability at the normal time.
21.Under the agreement, the company agrees to pay the deferred tax liabilities in accordance with the plan, along with interest from the normal due date for payment of the tax to the date it is actually paid.
22.An exit charge payment plan may include provision for HMRC to take security for the deferred payments under the plan where an HMRC officer considers that there would otherwise be a serious risk to the collection of tax. This security would generally take the form of a bank guarantee.
23.New paragraph 10 sets out the details that the company will need to supply when making an application for an exit charge payment plan. In addition to giving details of when, and to where the company is migrating, it should quantify to the best of its ability, the amount of tax that qualifies for deferral, how much of that qualifying tax it wishes to include in the exit charge payment plan, and the method it will use to determine when the tax is to be paid under the plan.
24.There are two alternative methods that the company may use to determine the period over which tax payments can be deferred. These are the standard instalment method and the realisation method. A company may choose which method to apply for, and need not apply the same method in respect of all assets and liabilities that give rise to exit charges. It may adopt the instalment method for certain assets and the realisation method for others, so long as the application clearly sets out which method is to be adopted for tax attributable to particular assets.
25.In order to prevent abuse of the deferral arrangements, a company may not use the standard instalment method where obtaining a deferral of tax payments is the main purpose, or one of the main purposes of arrangements that include the change of residence of the company (in relation to a company that ceases to be UK resident) or for the transfer of the assets that are the subject of exit charges (in relation to a non-resident company with a UK PE).
26.New paragraphs 11 and 12 set out additional details that the company needs to provide on entering into an exit charge payment plan where it intends to adopt the realisation method.
27.New paragraph 11 specifies that the company must identify the assets (and, where appropriate, the liabilities) in respect of which income, profits or gains arise under the exit charge provisions, the amount of each item of such income, profits or gains arising under the various exit charges, and the amount of deferred tax that is to be attributed to each of the exit charge assets and liabilities. The attribution of deferred tax is to be made in proportion to the income, profits or gains arising on each of the assets or liabilities. No amount is to be apportioned to an asset or liability that has given rise to a loss.
28.New paragraph 12 then specifies what further information is required to determine the period over which tax will be payable under the plan in respect of intangible fixed assets, loan relationships or derivative contracts. Intangible fixed assets for these purposes are defined in new paragraph 3(2)(c) and (3) to include assets that are pre-2002 assets for the purposes of Part 8 of CTA 2009. The company must include in the exit charge payment plan details of the remaining term of a financial instrument or the remaining useful life of intangible fixed assets as of the date of migration.
29.New paragraph 13 sets out how tax may be deferred under the standard instalment method. Any qualifying tax to be deferred using this method can be paid in six equal annual instalments which commence nine months and one day after the end of the accounting period in which the exit charges arise.
30.Where a company adopts only this method, it is not required to provide HMRC with annual reports on the realisation of its exit charge assets and liabilities. The deferral of tax under this method will run for the full six years unless either the company decides to pay the balance of any unpaid tax and interest, or one of the events specified in new paragraph 14 paragraph 9(4) occurs. Under any of these circumstances the balance of any deferred tax is payable no later than the next instalment date. These circumstances include the company becoming insolvent, entering into administration or having a liquidator appointed, or the equivalent processes under the Company Law of another Member State.
31.The balance of tax due under an exit charge payment plan will also become payable if the company is no longer regarded as resident in any Member State, although a transfer of residence within the EU or EEA will not affect the deferral arrangements.
32.New paragraphs 14 to 16 set out how tax may be deferred under the realisation method in respect of different classes of asset or liability.
33.Where a company adopts the realisation method in relation to some or all of its assets, it will be required to provide HMRC with annual reports detailing the realisation of its exit charge assets and liabilities.
34.Deferral periods will vary depending upon the nature of the asset or liability, and its treatment for tax and accounting purposes. The general scheme is that tax will either be paid in instalments or on disposal of the asset, depending upon how the value of the asset or liability is expected to be realised, either through use or through subsequent disposal. This is specified as being in instalments over the useful economic life of an intangible fixed asset, in instalments over the term of a financial instrument or deferred until a disposal of the asset in any other case. For all assets and liabilities, the maximum period over which payments may be deferred is the shorter of ten years, or until the company ceases to hold the asset or liability.
35.New paragraph 14 provides for the deferral of tax attributed to any asset other than an intangible fixed asset, a loan relationship or a derivative contract until disposal, subject to an upper limit of ten years. A disposal for these purposes includes a sale and all the matters that would fall to be treated as a disposal by the company for the purposes of chargeable gains, including any occasions when an asset is deemed to have been disposed of, in whole or in part. Where there is a part disposal of the asset, the tax attributable to the part disposed of is payable on the next anniversary of the first potential payment date under the exit charge payment plan. Attribution of the tax is to be made on a just and reasonable basis.
36.New paragraph 15 sets out the deferral periods applicable to loan relationships, derivative contracts and intangible fixed assets. The general scheme provides for the tax to be paid in equal annual instalments over the expected term or useful economic life of the asset or liability, up to a maximum period of ten annual instalments.
37.New paragraphs 16 and 17 modify the general scheme and determine when the balance of tax outstanding in respect of an exit charge asset or liability where tax is deferred under the realisation method is to be payable in full, or in part, on the next instalment date following the occurrence of particular events.
38.New paragraph 16 requires the outstanding balance to be paid in full where either the company no longer holds the exit charge asset or liability, or one of the events listed in new paragraph 14paragraph 9(4) occurs.
39.New paragraph 17 provides equivalent rules to the part disposal rules for chargeable gains assets dealing with instances where an exit charge asset or liability is realised or disposed of in part. A just and reasonable proportion of the tax is attributed to the part realised, which is to be paid on the next instalment date, along with a proportionate part of the tax relating to the balance of the asset or liability. Tax that remains unpaid in respect of the asset continues to be treated in accordance with the exit charge payment plan.
40.Paragraph 7 of this Schedule inserts a reference to corporation tax payable in accordance with an exit charge payment plan into Schedule 56 of Finance Act 2009, which sets out when a taxpayer may incur a penalty for late payment of tax. Although these rules are provided in the statute, they will only apply for corporation tax purposes after such time as an Order to that effect has been made.
41.Paragraph 8 sets out the commencement rule. Companies may apply to defer tax payments in respect of an amount of an exit charge arising for accounting periods ended on or after 10 March 2012. For a company that is not in the quarterly instalment payment scheme for large companies, its corporation tax bill for an accounting period ended on that date would be due and payable on or after 11 December 2012. Applications to enter into an exit charge payment plan must be made within nine months and one day of the end of an accounting period.
42.Subparagraph (3) provides a transitional rule for periods where the relevant day falls between 11 December 2012 and 31 March 2013, in which case an application may be made at any time until 31 March 2013.