Undertakings given by employers etc in relation to retirement benefits etc

Finance (No. 3) Bill – in a Public Bill Committee at 3:15 pm on 19th May 2011.

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554Z15 Application etc

(1) This Chapter applies if there is an undertaking (“the relevant undertaking”) that a contribution to which subsection (2) would apply will be paid.

(2) This subsection applies to a contribution if—

(a) the contribution is paid to an arrangement which is not a registered pension scheme,

(b) in connection with that arrangement (directly or indirectly), relevant benefits are to be provided (directly or indirectly) out of the contribution by a relevant third person,

(c) the provision of the relevant benefits would be a relevant step, and

(d) the contribution is neither a tax-relieved contribution nor tax-exempt provision.

(3) In subsection (2)—

“relevant benefits” has the same meaning as in Chapter 2 of Part 6, but ignoring section 393B(2)(a),

“relevant third person” means a person within section 554A(7)(a) to (c) (ignoring this Chapter), and

“tax-exempt provision” and “tax-relieved contribution” have the meaning given by paragraph 3(3) and (4) of Schedule 34 to FA 2004.

(4) In this Chapter references to an undertaking include references to—

(a) an undertaking which is not legally enforceable, and

(b) an undertaking which is to be performed only on or following the meeting of a condition (including a condition which might never be met).

554Z16 Employer etc to be treated as relevant third person etc

(1) If B takes a step within section 554Z17 or 554Z18, Chapters 1 and 2 have effect in relation to the step—

(a) as if B were a relevant third person for the purposes of section 554A(1)(d), and

(b) as if the step were a relevant step within section 554B (if it would not otherwise be).

(2) For the purpose of determining whether Chapter 2 applies by reason of the step, Chapter 1 has effect—

(a) as if sections 554F to 554N, 554R to 554T, 554V and 554W were omitted,

(b) if the step is within section 554Z17, as if sections 554P(2)(d), (3) and (4) and 554Q(1)(c) and (d), (1A) and (1B) were omitted, and

(c) if the step is within section 554Z18, as if sections 554P and 554Q were omitted.

(3) If Chapter 2 applies by reason of the step, Chapter 2 has effect as if sections 554Z6 to 554Z11 were omitted.

(4) If Chapter 2 does not apply by reason of the step by virtue of section 554E(3) or (5A), section 554E(6) and (7) does not apply in relation to the step.

(5) For further modifications of Chapters 1 and 2, see sections 554Z17(3) and (4), 554Z18(5) and (6), 554Z19 and 554Z20.

(6) Regulations under section 554X may (in particular) make provision covering cases in which Chapters 1 and 2 have effect as provided for by this section.

(7) In this Chapter—

(a) references to B do not include references to B acting as a trustee,

(b) if B is a company and is a member of a group of companies, references to B are to be read as including references to any other company which is a member of that group, and

(c) if B is a limited liability partnership, references to B are to be read as including references to any company which is a wholly-owned subsidiary (as defined in section 1159(2) of the Companies Act 2006) of B.

554Z17 Earmarking etc

(1) B takes a step within this section if—

(a) a sum of money or asset held by or on behalf of B is earmarked (however informally) by B with a view to the relevant undertaking being performed at a later time (wholly or partly) out of—

(i) that sum of money or asset, or

(ii) any sum of money or asset which may arise or derive (directly or indirectly) from it, or

(b) a sum of money or asset otherwise starts being held by or on behalf of B, specifically with a view, so far as B is concerned, to the relevant undertaking being performed at a later time (wholly or partly) out of—

(i) that sum of money or asset, or

(ii) any sum of money or asset which may arise or derive (directly or indirectly) from it.

(2) For the purposes of subsection (1)(b) it does not matter whether or not the sum of money or asset in question has previously been held by or on behalf of B on a basis which is different to that mentioned in subsection (1)(b).

(3) Subsection (4) applies if, in the application of section 554P or 554Q in any case, the relevant step mentioned in section 554P(2)(a) or 554Q(3)(a) is a step within this section taken by B.

(4) In section 554P(2)(c) or 554Q(3)(c) (as the case may be) the reference to section 554B(1)(a) or (b) is to be read as a reference to subsection (1)(a) or (b) above.

554Z18 Provision of security

(1) B takes a step within this section if B provides security for the performance of the relevant undertaking.

(2) For the purposes of this Part, the sum of money or asset which is the subject of the step is to be taken to be—

(a) any sums of money which, as at the time the step is taken, are the subject of the security, and

(b) any assets which, as at that time, are the subject of the security,

and references to the sum of money or asset which is the subject of a relevant step are to be read accordingly.

(3) If, when the step is taken, the security covers other undertakings as well as the relevant undertaking, the sums of money and assets within subsection (2)(a) and (b) are to be apportioned between the relevant undertaking and the other undertakings on a just and reasonable basis.

(4) Subsections (2) and (3) are subject to section 554Z19(7).

(5) Section 554P does not apply in any case in which the relevant step mentioned in section 554P(2)(a) would be a step within this section taken by B.

(6) Section 554Q(3) does not apply in any case in which the relevant step mentioned in section 554Q(3)(a) would be a step within this section taken by B.

(7) In this Chapter references to providing security for the performance of an undertaking are references to providing such security in any way, however informal.

554Z19 Valuation of step within section 554Z18

(1) This section applies if, by virtue of section 554Z16, Chapter 2 applies by reason of a step taken by B within section 554Z18.

(2) Section 554Z2 has effect as if subsections (3) and (4) below were substituted for subsections (1) to (6) of that section.

(3) The value of the relevant step is—

(a) the amount to be paid as a contribution under the relevant undertaking determined, as at the time the step is taken, on a just and reasonable basis assuming that any condition to be met before any payment is made will be met, or

(b) if lower, the value of the security.

(4) For the purposes of subsection (3)(b) the value of the security—

(a) consists of—

(i) the total amount of the sums of money included in the subject of the step (see section 554Z18(2)(a)), and

(ii) the total market value, as at the time the step is taken, of the assets included in the subject of the step (see section 554Z18(2)(b)), but

(b) is to be subject to a just and reasonable reduction to take account of any term of the security which limits the total amount which may be made available under the security for the performance of the relevant undertaking to an amount which is lower than the amount determined under paragraph (a).

(5) The following subsections apply if, as at the end of the day of an anniversary of the taking of the step (“the anniversary day”), B continues to provide the security for the performance of the relevant undertaking.

(6) This Part has effect as if B’s continuing to provide the security were a new step (“the anniversary step”) within section 554Z18—

(a) which is taken by B at the end of the anniversary day, and

(b) by reason of which Chapter 2 is to apply by virtue of section 554Z16 (subject only to section 554A(4)).

(7) If the total amount of the sums of money which are the subject of the security (“the security sums”) varies from time to time, for the purpose of determining the sums of money included in the subject of the anniversary step, in section 554Z18(2)(a) the reference to the time the step is taken is to be read as a reference to the time during the preceding year at which the total amount of the security sums is at its highest.

(8) For the purposes of subsection (4)(a)(ii) the market value of any asset included in the subject of the anniversary step may be determined as at any time during the preceding year (so long as the asset is the subject of the security, or one of the assets which is the subject of the security, as at that time).

(9) In subsections (7) and (8) “the preceding year” means the year ending with the anniversary day.

554Z20 Relief for earmarking or security not followed by contribution or relevant benefit

(1) This section applies if, by virtue of section 554Z16, Chapter 2 applies by reason of a step taken by B within section 554Z17 or 554Z18.

(2) Section 554Z13 has effect in relation to the step with the following modifications.

(3) Subsection (1)(b) has effect as if for “not a relevant step in relation to a relevant sum or asset” there were substituted “neither the payment of the relevant contribution (or any part of it) nor the provision of any relevant benefit”.

(4) Subsection (1)(c) has effect as if for the words from “no further relevant step” to “any relevant sum or asset” there were substituted “the relevant contribution (or any part of it) will not be paid or a relevant benefit will not be provided”.

(5) Subsection (1) has effect as if subsection (6) below were substituted for subsection (3).

(6) In subsection (1)—

(a) “the relevant contribution” means the contribution to be paid under the relevant undertaking (within the meaning of Chapter 3), and

(b) “relevant benefit” means a relevant benefit to be provided out of the relevant contribution as mentioned in section 554Z15(2)(b) and (c).”’.

106, page 111, line 5 [Schedule 2], at end insert—

57A (1) This paragraph applies if—

(a) B takes a step within section 554Z18 of ITEPA 2003 before 6 April 2011 by providing security (“the early security”) for the performance of an undertaking (“the early undertaking”),

(b) on or after 6 April 2011 at a time when B is continuing to provide the early security, there is a change in the terms of the early undertaking which does not amount to the giving of a new undertaking, and

(c) as a result of the change, the amount to be paid as a contribution (“the early contribution”) under the early undertaking increases, or will increase.

‘(2) Chapter 3 of Part 7A of ITEPA 2003 has effect—

(a) as if the change in the terms of the early undertaking were a new undertaking to pay a contribution covering the increase in the amount of the early contribution as determined on a just and reasonable basis, and

(b) as if B, in continuing to provide the early security, provides security for the performance of the new undertaking at the time of the change in the terms.

(3) Section 554Z16(7) of ITEPA 2003 applies for the purposes of this paragraph as it applies for the purposes of Chapter 3 of Part 7A of that Act.’.

94, page 111, line 18 [Schedule 2], leave out from ‘earnings’ to end of line 28 and insert

‘of A from A’s employment with B within Chapter 1 of Part 3 of ITEPA 2003 for the pre-6 April 2011 tax year, or the tax payable by A for the pre-6 April 2011 tax year was otherwise decided on the basis that the pre-6 April 2011 step was to be treated as giving rise to earnings of A from A’s employment with B within Chapter 1 of Part 3 of ITEPA 2003 for that tax year,

(i) the tax payable by A for the pre-6 April 2011 tax year was otherwise decided on the basis that the pre-6 April 2011 step was to be treated as giving rise to earnings of A from A’s employment with B within Chapter 1 of Part 3 of ITEPA 2003 for that tax year,

(e) before the chargeable step is taken, A or B has paid, or otherwise accounted for, any tax which A or B is required to pay or otherwise account for as a consequence of—

(i) the agreement mentioned in paragraph (d)(i), or

(ii) the tax payable by A for the pre-6 April 2011 tax year having otherwise been decided on the basis mentioned in paragraph (d)(ii), and

(f) after any reductions under sections 554Z3 to 554Z7 of ITEPA 2003, it is determined on a just and reasonable basis that the value of the chargeable step represents (or still represents after any such reductions) to any extent—

(i) the earnings treated as arising from the pre-6 April 2011 step as mentioned in paragraph (d)(i) or (ii), or

(ii) any return on those earnings since the taking of the pre-6 April 2011 step (whether income or capital, direct or indirect or realised or unrealised).

‘(2) After any reductions under sections 554Z3 to 554Z7 of ITEPA 2003, the value of the chargeable step is to be reduced (but not below nil) by an amount reflecting the extent to which, as determined under sub-paragraph (1)(f), that value represents (or still represents) the earnings mentioned in sub-paragraph (1)(f)(i) or any return on those earnings mentioned in sub-paragraph (1)(f)(ii).

(3) In sub-paragraph (1)(f)(ii) “return” does not include any return so far as, it is reasonable to suppose, the return exceeds the return which might have been expected applying the assumption that all relevant connected persons are acting at arm’s length of each other.

(4) In sub-paragraph (3) “relevant connected person” means a person with a connection (direct or indirect) to an arrangement (within the meaning of Part 7A of ITEPA 2003) by virtue of which the return arises.’.—(Mr Gauke.)

Question put, That the Schedule, as amended, be the Second schedule to the Bill.

The Committee divided: Ayes 16, Noes 14.

Division number 5 Decision Time — Undertakings given by employers etc in relation to retirement benefits etc

Aye: 16 MPs

No: 14 MPs

Ayes: A-Z by last name

Question accordingly agreed to.

Schedule 2, as amended, agreed to.

Photo of Roger Gale Roger Gale Parliamentary Assembly of the Council of Europe (Substitute Member)

Before we proceed to clause 27, I wish to make an observation. According to the information provided to me by the usual channels, which might have been updated since in the light of experience, we are running considerably behind schedule. It is not the Chairman’s job to dictate the terms of the business of the House, and I do not wish or intend to do so. It is, however, my job to protect the well-being of those serving on the Committee. If, therefore, we have not reached a point by 4 o’clock at which the usual channels deem it appropriate to adjourn, I shall suspend the sitting for half an hour for the comfort of staff and Officers of the House. That will mean that we will sit again at 4.30 pm for a period of time as yet to be determined.