Annex 1: Minor Changes in the Law Change 76: Relief for employee share acquisitions: recovery of relief given in respect of approved Share Incentive Plans (SIPs): sections 986, 990, 992, 993 and 998
This change deals with the withdrawal of relief given in respect of an approved SIP.
Schedule 4AA to ICTA gives relief for the costs of setting up an approved SIP, contributions to a plan trust and the provision of shares awarded to employees under the SIP. It is rewritten in Chapter 1 of Part 11 of this Act.
Paragraphs 10, 11 and 12 of Schedule 4AA to ICTA withdraw relief in certain circumstances.
If relief is withdrawn, Schedule 4AA to ICTA treats the company as receiving a trading receipt equal to the withdrawn relief. If the business is a property business the effect of section 21A of ICTA is to treat the company as receiving a receipt of the property business equal to the withdrawn relief (because section 85B of ICTA, which provides that Schedule 4AA shall have effect, is in Chapter 5 of Part 4 of ICTA and that Chapter is listed in section 21A(2) of ICTA). If relief is withdrawn under paragraph 11 of Schedule 4AA and the company is carrying on an investment or insurance business, paragraph 13 of Schedule 4AA provides for an amount to be taxed under Schedule D Case VI.
But paragraph 13 of Schedule 4AA to ICTA does not apply to the case where a deduction under paragraph 9 of Schedule 4AA is withdrawn under paragraph 10(1) or 10(8) or paragraph 12 of Schedule 4AA.
The purpose of this change is to clarify and make more consistent the way in which withdrawn relief is treated. This is done in section 986 of this Act, which deals with the treatment of amounts treated as received under Chapter 1 of Part 11 of this Act when relief is withdrawn. The following sections in this Act also treat a company as receiving a an amount equal to the withdrawn relief: sections 990(4) and (5), 992(4) and (6), 993(2) and (4) and 998(3) and (4). This amount is treated as received when the event withdrawing the relief occurs. In the source legislation it is treated as arising in the period of account in which the event occurs.
If the company is carrying on a trade or property business the amount is treated as a receipt of that trade or business, see section 986(2) of this Act.
If the company has ceased to carry on the trade or property business the amount is treated as a post-cessation receipt, see section 986(3). This clarifies the existing law which does not expressly deal with the case of a trading receipt received after the trade has ceased.
If the company is not carrying on, or has not carried on, a trade or property business the amount is one to which the charge to corporation tax on income is applied, see section 986(4). This includes not only the amount that is taxed under Schedule D Case VI by paragraph 13 of Schedule 4AA to ICTA but also an amount which paragraphs 10 and 12 of Schedule 4AA treat as a trading receipt even though the company is not carrying on a trade.
This change clarifies and standardises the law on the basis of generally accepted practice. To that extent this change removes in principle the right of a taxpayer to assert that the generally accepted practice is unlawful.
This change is adverse to some taxpayers in principle. But it is expected to have no practical effect as it is in line with generally accepted practice.