Finance Bill - continued        House of Lords
PART III, INCOME TAX, CORPORATION TAX AND CAPITAL GAINS TAX - continued
Employee share ownership plans - continued

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Employee share ownership trusts.     54. No claim for relief under section 229(1) or (3) of the Taxation of Chargeable Gains Act 1992 (roll-over relief where disposal made to employee share ownership trust) may be made in relation to a disposal of shares, or an interest in shares, made on or after 6th April 2001.
 
Shares transferred from employee share ownership trust.     55. - (1) Section 69 of the Finance Act 1989 (chargeable events in relation to employee share ownership trusts) is amended in accordance with subsections (2) to (5).
 
      (2) In subsection (1) (definition of "chargeable event"), after paragraph (d) insert-
 
 
    "(e) where-
 
      (i) the trustees make a qualifying transfer within subsection (3AA) below for a consideration, and
 
      (ii) they do not, during the period specified in subsection (5A) below, expend a sum of not less than the amount of that consideration for one or more qualifying purposes,
 
    the expiry of that period.".
      (3) After subsection (3) insert-
 
 
    "(3AA) For the purposes of subsection (1)(a) above a transfer is also a qualifying transfer if-
 
 
    (a) it is a transfer of relevant shares made to the trustees of the plan trust of an employee share ownership plan,
 
    (b) the plan is approved under Schedule 8 to the Finance Act 2000 when the transfer is made, and
 
    (c) the consideration (if any) for which the transfer is made does not exceed the market value of the shares.
      (3AB) For the purpose of determining whether a transfer by the trustees is a qualifying transfer within subsection (3AA) above, where on or after 21st March 2000-
 
 
    (a) the trustees transfer or dispose of part of a holding of shares (whether by way of a qualifying transfer or otherwise), and
 
    (b) the holding includes any relevant shares,
       the relevant shares shall be treated as transferred or disposed of before any other shares included in that holding.
 
  For this purpose "holding" means any number of shares of the same class held by the trustees, growing or diminishing as shares of that class are acquired or disposed of.
 
      (3AC) For the purposes of subsections (3AA) and (3AB) above-
 
 
    "market value" has the same meaning as in Schedule 8 to the Finance Act 2000; and
 
    "relevant shares" means-
 
      (i) shares that are held by the trustees of the employee share ownership trust at midnight on 20th March 2000, and
 
      (ii) shares purchased by those trustees with original funds after that time.
      (3AD) For the purposes of subsection (3AC) above-
 
 
    (a) "original funds" means any money held by the trustees of the employee share ownership trust in a bank or building society account at midnight on 20th March 2000, and
 
    (b) any payment made by the trustees after that time (whether to acquire shares or otherwise) shall be treated as made out of original funds (and not out of money received after that time) until those funds are exhausted.".
      (4) In subsection (5) after "(1)(d)" insert "or (e)".
 
      (5) After that subsection insert-
 
 
    "(5A) The period referred to in paragraph (e) of subsection (1) above is the period-
 
 
    (a) beginning with the qualifying transfer mentioned in that paragraph, and
 
    (b) ending nine months after the end of the period of account in which that qualifying transfer took place.
  For this purpose the period of account means the period of account of the company that established the employee share ownership trust.".
 
      (6) In section 70 of the Finance Act 1989 (chargeable amounts), after subsection (3) insert-
 
 
    "(4) If the chargeable event falls within section 69(1)(e) above the chargeable amount is an amount equal to-
 
 
    (a) the amount of the consideration received for the qualifying transfer mentioned in section 69(1)(e) above, less
 
    (b) the amount of any expenditure by the trustees for a qualifying purpose during the period mentioned in section 69(5A) above.".
Further provisions about share options.     56. - (1) In Chapter IV of Part V of the Taxes Act 1988 (provisions relating to the Schedule E charge: other exemptions and reliefs), after section 187 insert-
 
 

"Contributions in respect of share option gains
Relief for contributions in respect of share option gains.     187A. - (1) Where a person ("the earner") is chargeable to tax under section 135 on a gain, relief is available under this section if-
 
 
    (a) an agreement has been entered into allowing the secondary contributor to recover from the earner the whole or part of any secondary Class 1 contributions in respect of the gain, or
 
    (b) an election is in force which has the effect of transferring to the earner the whole or part of the liability to pay secondary Class 1 contributions in respect of the gain.
      (2) The amount of the relief is the total of-
 
 
    (a) any amount that, in pursuance of any such agreement as is mentioned in subsection (1)(a), is recovered in respect of the gain by the secondary contributor not later than 60 days after the end of the year of assessment in which occurred the event giving rise to the charge to tax under section 135; and
 
    (b) the amount of any liability in respect of that gain that, by virtue of any such election as is mentioned in subsection (1)(b), has become the earner's liability.
      (3) Where notice of withdrawal of approval of any such election is given, relief under subsection (2)(b) is limited to so much of the earner's liability in respect of the gain as is met before the end of the 60th day after the end of the year of assessment in which occurred the event giving rise to the charge under section 135.
 
      (4) Relief under this section shall be given by way of deduction from the amount of the gain on which the earner is chargeable to tax under section 135.
 
      (5) Any such deduction does not affect the amount of the gain for the purposes of-
 
 
    (a) section 120(4) of the Taxation of Chargeable Gains Act 1992 (amount treated as consideration for acquisition of shares), or
 
    (b) section 4(4)(a) of the Contributions and Benefits Act (amount treated as remuneration for contributions purposes).
      (6) The agreements and elections referred to in this section are those having effect under paragraph 3A or 3B of Schedule 1 to the Contributions and Benefits Act.
 
  References to approval in relation to an election are to approval by the Inland Revenue under paragraph 3B of that Schedule.
 
      (7) In this section-
 
 
    "the Contributions and Benefits Act" means the Social Security Contributions and Benefits Act 1992 or the Social Security Contributions and Benefits (Northern Ireland) Act 1992; and
 
    "secondary Class 1 contributions" and "secondary contributor" have the same meaning as in that Act.".
  Section 187A inserted by this subsection applies to any agreement or election having effect as mentioned in subsection (6) of that section, whether made before or after the passing of this Act.
 
      (2) Section 203FB of the Taxes Act 1988 (PAYE: gains from share options) is amended as follows-
 
 
    (a) in subsections (2) and (3), for "subsection (7)" substitute "subsection (6A)";
 
    (b) after subsection (6) insert-
 
    "(6A) Where section 203F has effect in accordance with subsection (2) or (3) above, subsection (3) of section 203F shall apply as if the reference in that subsection to the amount of income likely to be chargeable to tax under Schedule E in respect of the provision of the asset were a reference to the amount on which tax is likely to be chargeable by virtue of section 135 in respect of the event in question, reduced by the amount of any relief likely to be available under section 187A.";
 
 
    (c) in subsection (7), for "any of the preceding provisions of this section" substitute "subsection (4) or (5) above" and for "section 135, 140A or 140D" substitute "section 140A or 140D".
  These amendments apply where the event giving rise to the charge to tax occurs after the passing of this Act.
 
      (3) In section 136(6) of the Taxes Act 1988 and section 85(1) of the Finance Act 1988 (duty to deliver particulars relating to share options, etc. within 30 days after end of year of assessment), for "30 days" substitute "92 days".
 
  These amendments apply where the event giving rise to the duty to deliver particulars occurs on or after 6th April 2000.
 
      (4) After section 136(6) of the Taxes Act 1988 add-
 
 
    "(7) A body corporate is not obliged to deliver particulars under subsection (6) above which it has already given in a notice under paragraph 2 of Schedule 14 to the Finance Act 2000 (enterprise management incentives: notice required for option to be qualifying option).
 
  In other respects the obligations imposed by that subsection and that paragraph are independent of each other.
 
      (8) The duty of a body corporate under subsection (6) above to deliver particulars of any matter includes a duty to deliver particulars of any secondary Class 1 contributions payable in connection with that matter that-
 
 
    (a) are recovered as mentioned in section 187A(2)(a), or
 
    (b) are met as mentioned in section 187A(3).
  In this subsection "secondary Class 1 contributions" has the same meaning as in section 187A.".
 
  Section 136(8) inserted by this subsection applies to any amounts recovered or met as mentioned in section 187A(2)(a) or (3) of the Taxes Act 1988, whether before or after the passing of this Act.
 
 
Other provisions about employment
Benefits in kind: deregulatory amendments.     57. - (1) Chapter II of Part V of the Taxes Act 1988 (provisions relating to the Schedule E charge: benefits in kind, etc.) is amended in accordance with Schedule 10 to this Act.
 
      (2) The amendments have effect for the year 2000-01 and subsequent years of assessment.
 
Education and training.     58. - (1) After section 200D of the Taxes Act 1988 (work-related training) insert-
 
 
"Education and training funded by employers.     200E. - (1) This section applies for the purposes of Schedule E where any person (in this section, and sections 200F and 200G, called "the employer") incurs expenditure-
 
    (a) by making a payment to a person ("the provider") in respect of the costs of any qualifying education or training provided by the provider to a fundable employee of the employer (in this section, and sections 200F and 200G, called "the employee"), or
 
    (b) in paying or reimbursing any related costs.
      (2) Subject to sections 200F to 200H, the emoluments of the employee from the office or employment shall not be taken to include-
 
 
    (a) any amount in respect of that expenditure, or
 
    (b) any amount in respect of the benefit of the education or training provided by means of that expenditure.
      (3) In subsection (1) above "related costs", in relation to any qualifying education or training provided to the employee, means-
 
 
    (a) any costs that are incidental to the employee's undertaking the education or training and are incurred wholly and exclusively as a result of his doing so;
 
    (b) any expenses incurred in connection with an assessment (whether by examination or otherwise) of what the employee has gained from the education or training; and
 
    (c) the cost of obtaining for the employee any qualification, registration or award to which he has or may become entitled as a result of undertaking the education or training or of undergoing such an assessment.
      (4) In this section "qualifying education or training" means education or training of a kind that qualifies for grants whose payment is authorised by-
 
 
    (a) regulations under section 108 or 109 of the Learning and Skills Act 2000, or
 
    (b) regulations under section 1 of the Education and Training (Scotland) Act 2000.
      (5) For the purposes of this section, a person is a fundable employee of the employer if-
 
 
    (a) he holds, or has at any time held, an office or employment under the employer, and
 
    (b) he holds an account that qualifies under section 104 of the Learning and Skills Act 2000 or he is a party to qualifying arrangements.
      (6) In subsection (5) above "qualifying arrangements" means arrangements which qualify under-
 
 
    (a) section 105 or 106 of the Learning and Skills Act 2000, or
 
    (b) section 2 of the Education and Training (Scotland) Act 2000.
Section 200E: exclusion of expenditure not directly related to training.     200F. - (1) Section 200E shall not apply in the case of any expenditure to the extent that it is incurred in paying or reimbursing the cost of any facilities or other benefits provided or made available to the employee for either or both of the following purposes, that is to say-
 
 
    (a) enabling the employee to enjoy the facilities or benefits for entertainment or recreational purposes;
 
    (b) rewarding the employee for the performance of the duties of his office or employment under the employer, or for the manner in which he has performed them.
      (2) Section 200E shall not apply in the case of any expenditure incurred in paying or reimbursing any expenses of travelling or subsistence, except to the extent that those expenses would be deductible under section 198 if the employee-
 
 
    (a) undertook the education or training in question in the performance of the duties of-
 
      (i) his office or employment under the employer, or
 
      (ii) where the employee no longer holds an office or employment under the employer, the last office or employment that he did hold under the employer; and
 
    (b) incurred those expenses out of the emoluments of that office or employment.
      (3) Section 200E shall not apply in the case of any expenditure incurred in paying or reimbursing the cost of providing the employee with, or with the use of, any asset except where-
 
 
    (a) the asset is provided or made available for use only in the course of the education or training;
 
    (b) the asset is provided or made available for use in the course of the education or training and in the performance of the duties of the employee's office or employment but not to any significant extent for any other use;
 
    (c) the asset consists in training materials provided in the course of the education or training; or
 
    (d) the asset consists in something made by the employee in the course of the education or training or incorporated into something so made.
      (4) In subsection (1) above the reference to enjoying facilities or benefits for entertainment or recreational purposes includes a reference to enjoying them in the course of any leisure activity.
 
      (5) In this section-
 
 
    "subsistence" includes food and drink and temporary living accommodation; and
 
    "training materials" means stationery, books or other written material, audio or video tapes, compact disks or floppy disks.
Section 200E: exclusion of expenditure if contributions not generally available to staff.     200G. - (1) Section 200E shall not apply to any expenditure incurred in respect of-
 
 
    (a) the costs of any education or training provided to the employee, or
 
    (b) any related costs,
       unless the expenditure is incurred in giving effect to fair-opportunity arrangements that were in place at the time when the employer agreed to incur the expenditure.
 
  In this subsection "related costs", in relation to any education or training provided to the employee, has the meaning given by section 200E(3).
 
      (2) For the purposes of subsection (1) above "fair-opportunity arrangements" are in place at any time if at that time arrangements are in place that provide-
 
 
    (a) for the making of contributions by the employer to costs arising from qualifying education or training being undertaken by persons who hold, or have held, an office or employment under the employer, and
 
    (b) for such contributions to be generally available, on similar terms, to the persons who at that time hold an office or employment under the employer.
  In this subsection "qualifying education or training" has the same meaning as in section 200E.
 
      (3) The Treasury may by regulations make provision specifying the persons or other entities under whom Crown servants are to be treated for the purposes of this section as holding office or employment; and such regulations may-
 
 
    (a) deem a description of Crown servants (or two or more such descriptions taken together) to be an entity for the purposes of the regulations;
 
    (b) make different provision for different descriptions of Crown servants.
  In this subsection "Crown servant" means a person holding an office or employment under the Crown.
 
Section 200E: exclusion of expenditure otherwise relieved.     200H. Section 200E does not apply to expenditure to the extent that-
 
 
    (a) section 200B (expenditure on work-related training) applies to it, or
 
    (b) section 588(1) (expenditure on retraining courses) has effect in respect of it.
Education or training funded by third parties.     200J. - (1) This section applies where-
 
 
    (a) any person ("the employee") who holds, or has at any time held, an office or employment under another ("the employer") is provided by reason of that office or employment with any benefit,
 
    (b) that benefit consists in any qualifying education or training or is provided in connection with any such education or training, and
 
    (c) the amount which (apart from this section and sections 200E to 200H) would be included in respect of that benefit in the emoluments of the employee ("the chargeable amount") is or includes an amount that does not represent expenditure incurred by the employer.
      (2) For the purposes of Schedule E, the questions whether and to what extent those emoluments shall be taken to include an amount in respect of that benefit shall be determined in accordance with sections 200E to 200H as if the benefit had been provided by means of a payment by the employer of an amount equal to the whole of the chargeable amount.
 
      (3) In this section "qualifying education or training" has the same meaning as in section 200E.".
 
      (2) In section 200A(3)(b) of that Act (definition of a qualifying absence from home), at the end of sub-paragraph (iv) insert ", or
 
 
      (v) expenses the amount of which, having been paid or reimbursed by the person under whom he holds that office or employment, is excluded from his emoluments in pursuance of section 200E, or
 
      (vi) expenses the amount of which would be so excluded if it were so paid or reimbursed.".
      (3) This section applies for the year 2000-01 and subsequent years of assessment.
 
Cars available for private use.     59. Schedule 11 to this Act (which makes provision in relation to the taxation of cars available for private use) has effect for the year 2002-03 and subsequent years of assessment.
 
Provision of services through intermediary.     60. Schedule 12 to this Act has effect with respect to the provision of services through an intermediary.
 
 
Pension schemes
Occupational and personal pension schemes.     61. Schedule 13 to this Act (which makes provision in relation to occupational and personal pension schemes) has effect.
 
 
Enterprise incentives
Enterprise management incentives.     62. Schedule 14 to this Act (enterprise management incentives) has effect in relation to any right to acquire shares granted after the passing of this Act.
 
Corporate venturing scheme.     63. - (1) Schedule 15 to this Act (which makes provision for the corporate venturing scheme) has effect.
 
      (2) Schedule 16 to this Act (which makes consequential amendments) has effect.
 
      (3) Paragraph 3(2)(a)(i) to (iii) and (3) of Schedule 16 (and paragraph 3(1) so far as it relates to those provisions) have effect-
 
 
    (a) in relation to claims made under section 573 of the Taxes Act 1988, in respect of disposals on or after 1st April 2000, and
 
    (b) in relation to claims made under section 574 of that Act, in respect of disposals on or after 6th April 2000.
      (4) Subject to that, Schedules 15 and 16 apply in relation to shares issued on or after 1st April 2000 but before 1st April 2010.
 
Enterprise investment scheme: amendments.     64. The provisions relating to the enterprise investment scheme are amended in accordance with Schedule 17 to this Act.
 
  In that Schedule-
 
 
    Part I makes amendments reducing various periods which apply in relation to the provisions which determine the reliefs under the scheme;
 
    Part II makes amendments about qualifying companies;
 
    Part III makes other minor amendments.
Venture capital trusts: amendments.     65. The provisions relating to venture capital trusts are amended in accordance with Schedule 18 to this Act.
 
  In that Schedule-
 
 
    Part I makes amendments reducing various periods which apply in relation to the provisions which determine the reliefs; and
 
    Part II makes amendments about qualifying holdings.
Taper relief: taper for business assets.     66. - (1) Section 2A of the Taxation of Chargeable Gains Act 1992 (taper relief) is amended as follows.
 
      (2) In subsection (5), for the first two columns of the table (which relate to gains on disposals of business assets) substitute-
 
 
Gains on disposals of business assets
 
Number of whole years in qualifying holding period
 
Percentage of gain chargeable
 
1
 
87.5
 
2
 
75
 
3
 
50
 
4 or more
 
25
      (3) For subsections (8) and (9) substitute-
 
 
    "(8) The qualifying holding period of an asset for the purposes of this section is-
 
 
    (a) in the case of a business asset, the period after 5th April 1998 for which the asset had been held at the time of its disposal;
 
    (b) in the case of a non-business asset where-
 
      (i) the time which, for the purposes of paragraph 2 of Schedule A1, is the time when the asset is taken to have been acquired by the person making the disposal is a time before 17th March 1998, and
 
      (ii) there is no period which by virtue of paragraph 11 or 12 of that Schedule does not count for the purposes of taper relief,
 
    the period mentioned in paragraph (a) plus one year;
 
    (c) in the case of any other non-business asset, the period mentioned in paragraph (a).
  This subsection is subject to paragraph 2(4) of Schedule A1 and paragraph 3 of Schedule 5BA.".
 
      (4) This section applies to disposals on or after 6th April 2000.
 
Taper relief: assets qualifying as business assets.     67. - (1) Schedule A1 to the Taxation of Chargeable Gains Act 1992 (application of taper relief) is amended as follows.
 
      (2) In paragraph 4 (conditions for shares to qualify as business assets)-
 
 
    (a) in sub-paragraph (4) (disposal by personal representatives), for the words following "if at that time" substitute "the relevant company was a qualifying company by reference to the personal representatives"; and
 
    (b) in sub-paragraph (5) (disposal by legatee), for paragraph (b) substitute-
 
    "(b) the relevant company was a qualifying company by reference to the personal representatives.".
      (3) In paragraph 5 (conditions for other assets to qualify as business assets)-
 
 
    (a) in sub-paragraph (2) (disposal by individual), for paragraphs (d) and (e) substitute-
 
    "(d) the purposes of any office or employment held by that individual with a person carrying on a trade.";
       and
 
 
    (b) in sub-paragraph (3) (disposal by trustees of settlement), for paragraphs (e) and (f) substitute-
 
    "(e) the purposes of any office or employment held by an eligible beneficiary with a person carrying on a trade.".
      (4) For paragraph 6 (companies which are qualifying companies) substitute-
 
 
"6. - (1) A company shall be taken to have been a qualifying company by reference to an individual at any time when-
 
 
    (a) the company was a trading company or the holding company of a trading group, and
 
    (b) one or more of the following conditions was met-
 
      (i) the company was unlisted,
 
      (ii) the individual was an officer or employee of the company, or of a company having a relevant connection with it, or
 
      (iii) the voting rights in the company were exercisable, as to not less than 5%, by the individual.
      (2) A company shall be taken to have been a qualifying company by reference to the trustees of a settlement at any time when-
 
 
    (a) the company was a trading company or the holding company of a trading group, and
 
    (b) one or more of the following conditions was met-
 
      (i) the company was unlisted,
 
      (ii) an eligible beneficiary was an officer or employee of the company, or of a company having a relevant connection with it, or
 
      (iii) the voting rights in the company were exercisable, as to not less than 5%, by the trustees.
      (3) A company shall be taken to have been a qualifying company by reference to an individual's personal representatives at any time when-
 
 
    (a) the company was a trading company or the holding company of a trading group, and
 
    (b) one or more of the following conditions was met-
 
      (i) the company was unlisted, or
 
      (ii) the voting rights in the company were exercisable, as to not less than 5%, by the personal representatives.".
      (5) In paragraph 22(1) (interpretation), at the appropriate place insert-
 
 
    ""unlisted company" means a company-
 
      (a) none of whose shares is listed on a recognised stock exchange, and
 
      (b) which is not a 51 per cent subsidiary of a company whose shares, or any class of whose shares, is so listed;";
 
    and omit the definitions of "full-time working officer or employee" and "qualifying office or employment".
      (6) After paragraph 22 insert-
 
 

"Qualifying shareholdings in joint venture companies
 23. - (1) This Schedule has effect subject to the following provisions where a company ("the investing company") has a qualifying shareholding in a joint venture company.
 
      (2) For the purposes of this paragraph a company is a "joint venture company" if, and only if-
 
 
    (a) it is a trading company or the holding company of a trading group, and
 
    (b) 75% or more of its ordinary share capital (in aggregate) is held by not more than five companies.
  For the purposes of paragraph (b) above the shareholdings of members of a group of companies shall be treated as held by a single company.
 
      (3) For the purposes of this paragraph a company has a "qualifying shareholding" in a joint venture company if-
 
 
    (a) it holds more than 30% of the ordinary share capital of the joint venture company, or
 
    (b) it is a member of a group of companies, it holds ordinary share capital of the joint venture company and the members of the group between them hold more than 30% of that share capital.
      (4) For the purpose of determining whether the investing company is a trading company-
 
 
    (a) any holding by it of shares in the joint venture company shall be disregarded, and
 
    (b) it shall be treated as carrying on an appropriate proportion-
 
      (i) of the activities of the joint venture company, or
 
      (ii) where the joint venture company is the holding company of a trading group, of the activities of that group.
  This sub-paragraph does not apply if the investing company is a holding company.
 
      (5) For the purpose of determining whether the investing company is a holding company-
 
 
    (a) any holding by it of shares in the joint venture company shall be disregarded, and
 
    (b) it shall be treated as carrying on an appropriate proportion of the activities-
 
      (i) of the joint venture company, or
 
      (ii) where the joint venture company is the holding company of a trading group, of that group.
  This sub-paragraph does not apply if the joint venture company is a 51 per cent subsidiary of the investing company.
 
      (6) For the purpose of determining whether a group of companies is a trading group-
 
 
    (a) every holding of shares in the joint venture company by a member of the group having a qualifying shareholding in that company shall be disregarded, and
 
    (b) each member of the group having such a qualifying shareholding shall be treated as carrying on an appropriate proportion of the activities-
 
      (i) of the joint venture company, or
 
      (ii) where the joint venture company is the holding company of a trading group, of that group.
  This sub-paragraph does not apply if the joint venture company is a member of the group.
 
      (7) In sub-paragraphs (4)(b), (5)(b) and (6)(b) above "an appropriate proportion" means a proportion corresponding to the percentage of the ordinary share capital of the joint venture company held by the investing company or, as the case may be, by the group member concerned.
 
      (8) The following shall be treated as having a relevant connection with each other-
 
 
    (a) the investing company;
 
    (b) the joint venture company;
 
    (c) any company having a relevant connection with the investing company;
 
    (d) any company having a relevant connection with the joint venture company by virtue of being-
 
      (i) a 51 per cent subsidiary of that company, or
 
      (ii) a member of the same commercial association of companies.
      (9) The acquisition by the investing company of the qualifying shareholding shall not be treated as a relevant change of activity for the purposes of paragraph 11 above.
 
      (10) For the purposes of this paragraph "ordinary share capital" has the meaning given by section 832(1) of the Taxes Act.".
 
      (7) This section has effect for determining whether an asset is a business asset at any time on or after 6th April 2000.
 
  It does not affect the determination on or after that date whether an asset was a business asset at a time before that date.
 
 
Research and development
Meaning of "research and development".     68. - (1) Schedule 19 to this Act (meaning of "research and development") has effect.
 
  In that Schedule-
 
 
    Part I contains a new definition of "research and development" for the purposes of the Tax Acts, and
 
    Part II contains consequential amendments.
      (2) The amendments in Part II of that Schedule have effect-
 
 
    (a) for the purposes of income tax and capital gains tax, in relation to the year 2000-01 and subsequent years of assessment, and
 
    (b) for the purposes of corporation tax, for accounting periods ending on or after 1st April 2000.
Tax relief for expenditure on research and development.     69. - (1) Schedule 20 to this Act (tax relief for expenditure on research and development) has effect for accounting periods ending on or after 1st April 2000.
 
  In that Schedule-
 
 
    Part I provides for entitlement to relief,
 
    Part II provides for the manner of giving effect to the relief, and
 
    Part III contains supplementary provisions.
      (2) Schedule 21 to this Act (which contains consequential amendments) has effect accordingly.
 
 
Capital allowances
First year allowances for small or medium-sized enterprises.     70. - (1) In section 22(3D) of the Capital Allowances Act 1990 (expenditure qualifying for 40% first year allowances), for "in the period beginning with 2nd July 1998 and ending with 1st July 2000" substitute "on or after 2nd July 1998".
 
      (2) In that Act-
 
 
    (a) in section 22(3C)(a), (3CA)(a) and (3D)(a), for "a small company or a small business" substitute "a small or medium-sized enterprise";
 
    (b) in section 22A-
 
      (i) in the sidenote, for "small company or small business",
 
      (ii) in subsection (1) for "small company", and
 
      (iii) in subsection (2) for "small business",
 
    substitute "small or medium-sized enterprise".
  The amendments in this subsection are of nomenclature only.
 
First year allowances for ICT expenditure by small enterprises.     71. - (1) In section 22 of the Capital Allowances Act 1990 (first-year allowances), after subsection (3D) insert-
 
 
    "(3E) This section applies to-
 
 
    (a) any expenditure on information and communications technology which, disregarding any effect of section 83(2) on the time at which it is to be treated as incurred, is incurred by a small enterprise in the period beginning with 1st April 2000 and ending with 31st March 2003; and
 
    (b) any additional VAT liability incurred in respect of expenditure to which this section applies by virtue of paragraph (a) above.
      (3F) For the purposes of subsection (3E) above expenditure on information and communications technology means expenditure on items within any of the classes set out in subsection (3G) below.
 
      (3G) The classes referred to in subsection (3F) above are as follows:
 
  A. Computers and associated equipment
 
  This class covers-
 
 
    (a) computers,
 
    (b) peripheral devices designed to be used by being connected to or inserted in a computer,
 
    (c) equipment (including cabling) for use primarily to provide a data connection-
 
      (i) between one computer and another, or
 
      (ii) between a computer and a data communications network,
 
    (d) dedicated electrical systems for computers.
  For this purpose "computer" does not include computerised control or management systems or other systems that are part of a larger system whose principal function is not processing or storing information.
 
  B. Other qualifying equipment
 
  This class covers-
 
 
    (a) wireless application protocol telephones,
 
    (b) third generation mobile telephones,
 
    (c) devices designed to be used by being connected to a television set that are capable of receiving and transmitting information from and to data networks, and
 
    (d) other devices substantially similar to those within paragraphs (a), (b) and (c) that are capable of receiving and transmitting information from and to data networks.
  This is subject to any order under subsection (3H) below.
 
  C. Software
 
  This class covers the right to use or otherwise deal with software for the purposes of any equipment within Class A or B above.
 
      (3H) The Treasury may make provision by order-
 
 
    (a) further defining the descriptions of equipment within Class B in subsection (3G), or
 
    (b) adding further descriptions of equipment to that class.".
      (2) In sections 22(4), (6B) and (6C), 23(6), 42(9) and 50(3) and (4A) of that Act, for "and (3D)" substitute ", (3D) and (3E)".
 
      (3) In sections 43(5), 44(5), 46(8) and 48(7) of that Act, for "or (3D)" substitute ", (3D) or (3E)".
 
      (4) In section 39(2)(a) of that Act for "to (3D)" substitute "to (3E)".
 
Expenditure of a small enterprise.     72. After section 22A of the Capital Allowances Act 1990, insert-
 
 
"Expenditure of a small enterprise.     22AA. - (1) For the purposes of section 22 capital expenditure incurred by a company is capital expenditure incurred by a small enterprise if the company-
 
    (a) qualifies as small in relation to the financial year of the company in which the expenditure is incurred, and
 
    (b) is not a member of a large or medium-sized group at the time when the expenditure is incurred.
      (2) For the purposes of section 22, capital expenditure is capital expenditure incurred by a small enterprise if-
 
 
    (a) it is incurred by a business for the purposes of a trade (the "first trade") carried on by that business, and
 
    (b) were the first trade carried on by a company (the "hypothetical company") in the circumstances set out in subsection (3) below, that company would qualify as small in relation to the financial year of that company in which the expenditure would be treated as incurred.
      (3) Those circumstances are-
 
 
    (a) that every trade, profession or vocation carried on by the business concerned is carried on by the business as a part of the first trade,
 
    (b) that the financial years of the hypothetical company coincide with the chargeable periods of the business concerned, and
 
    (c) that accounts of the hypothetical company for any relevant chargeable period were prepared in accordance with the requirements of the Companies Act 1985 as if that period were a financial year of the company.
      (4) Subject to subsection (5) below, a company is a member of a large or medium-sized group at the time when any expenditure is incurred if -
 
 
    (a) it is at that time the parent undertaking of a group which does not qualify as small in relation to the financial year of the parent company in which that time falls; or
 
    (b) it is at that time a subsidiary undertaking in relation to the parent undertaking of such a group.
      (5) If, at the time when any expenditure is incurred by any company any arrangements exist which are such that, had effect been given to them immediately before that time, the company or a successor of the company would, at that time, have been a member of a large or medium-sized group, this section shall have effect as if the company concerned was a member of a large or medium-sized group at that time.
 
      (6) In this section the following expressions have the same meaning as in section 22A above: "arrangements", "business", "company", "financial year", "group", "parent undertaking" and "subsidiary undertaking".
 
      (7) References in this section, in relation to a company, to its qualifying as small-
 
 
    (a) except in the case of a company formed and registered in Northern Ireland, are references to its so qualifying, or being treated as so qualifying, for the purposes of section 247 of the Companies Act 1985; and
 
    (b) in the case of a company so formed and registered, are references to a company so qualifying, or being treated as so qualifying, for the purposes of Article 255 of the Companies (Northern Ireland) Order 1986.
      (8) In relation to a company with respect to which the question arises whether it is or would be a member of a large or medium-sized group, references to a group's qualifying as small-
 
 
    (a) except in the case of a company formed and registered in Northern Ireland, are references to its so qualifying, or being treated as so qualifying, for the purposes of section 249 of the Companies Act 1985; and
 
    (b) in the case of a company so formed and registered, are references to its so qualifying, or being treated as so qualifying, for the purposes of Article 257 of the Companies (Northern Ireland) Order 1986;
       but for the purposes of this section each of those provisions shall be construed as if references, in relation to a group, to the parent company were references to the parent undertaking.
 
      (9) For the purposes of this section a company is the successor of another if-
 
 
    (a) it carries on a trade which, in whole or in part, the other company has ceased to carry on, and
 
    (b) the circumstances are such that section 343 of the principal Act applies in relation to the two companies as the predecessor and the successor within the meaning of that section.".
Repeal of notification requirements.     73. - (1) In section 118 of the Finance Act 1994 (notification requirements)-
 
 
    (a) subsections (1) to (5) and (7) to (9) shall cease to have effect; and
 
    (b) in subsection (6), for "the provisions mentioned in subsection (2) above" there shall be substituted-
 
    "(a) section 25(1) of the Capital Allowances Act 1990 (meaning of qualifying expenditure for the purposes of writing-down allowances for expenditure on machinery or plant); and
 
    (b) section 44(4) of the Finance Act 1971 (provision corresponding to section 25(1) applicable to earlier chargeable periods),".
      (2) This section has effect for chargeable periods as respects which the period specified in subsection (3A) of that section ends on or after 1st April 2000.
 
Pool for certain leased assets and inexpensive cars.     74. - (1) In section 41 of the Capital Allowances Act 1990 (writing-down allowances etc for leased assets and inexpensive cars)-
 
 
    (a) in subsection (1), paragraphs (b) and (c) and the word "or" at the end of paragraph (a); and
 
    (b) in subsection (4), paragraph (a) and, in paragraph (b), the words from "or within (1)(b) or (c)" to "subsection (1)(c)" and the words "or subsection (1)(b) or (c)",
       shall cease to have effect for chargeable periods ending on or after the relevant date.
 
      (2) Subsection (3) below applies where-
 
 
    (a) immediately before the end of the relevant chargeable period, a person was treated for the purposes of sections 24, 25 and 26 of the Capital Allowances Act 1990 as having incurred expenditure on the provision of machinery or plant wholly and exclusively for the purposes of a separate trade carried on by him;
 
    (b) the expenditure fell within subsection (1)(b) or (c) of section 41 of that Act; and
 
    (c) qualifying expenditure in respect of the separate trade for the relevant chargeable period exceeded any disposal value brought into account in respect of that trade for that period.
      (3) The balance of the excess (after the deduction of any writing-down allowances made by reference to it) shall be treated for the purposes of sections 24, 25 and 26 of the Capital Allowances Act 1990 as capital expenditure which-
 
 
    (a) was incurred by that person in the relevant chargeable period on the provision of the machinery or plant for the purposes of the trade which is the actual trade for the purposes of section 41 of that Act; and
 
    (b) does not form part of his qualifying expenditure for that period.
      (4) In this section-
 
 
    "the relevant chargeable period" means the chargeable period immediately preceding that which begins on or before and ends on or after the relevant date;
 
    "the relevant date" means, subject to subsection (5) below, 6th April 2000 for the purposes of income tax and 1st April 2000 for the purposes of corporation tax.
      (5) A person may, by a notice given to an officer of the Board, elect that this section shall have effect in relation to any trade carried on by him as if the relevant date were 6th April 2001 or, as the case may be, 1st April 2001.
 
Machinery and plant allowances for non-residents etc.     75. - (1) In section 83 of the Capital Allowances Act 1990 (interpretation of Part II), after subsection (2) there shall be inserted-
 
 
    "(2A) In this Part (except in Chapter V and sections 64A and 75 to 78), references-
 
 
    (a) to a trade, or
 
    (b) to activities falling in accordance with section 28A, 29 or 61 to be treated as a trade,
       shall be construed as if activities were capable of being comprised in a trade, or of being treated as a trade, to the extent only that they are activities the profits or gains from which are, or (if there were any) would be, chargeable to income tax or corporation tax.".
 
      (2) After section 79 of that Act there shall be inserted-
 
 
"Reduction in qualifying use.     79A. - (1) This section applies where-
 
    (a) any expenditure falls, for the purposes of making allowances or charges, to be treated in accordance with section 79 as incurred on the provision of machinery or plant for the purposes of a notional trade;
 
    (b) there is such a change of circumstances as would make it appropriate for any reduction falling to be made under subsection (5) of that section-
 
      (i) for the chargeable period in which the change takes place ("the relevant chargeable period"), or
 
      (ii) for any subsequent chargeable period,
 
    to represent a larger proportion of the amount reduced than would have been appropriate apart from the change;
 
    (c) no disposal value in respect of the machinery or plant would, apart from this section, fall to be brought into account for the relevant chargeable period; and
 
    (d) the open market value of the machinery or plant at the end of the relevant chargeable period exceeds the qualifying expenditure in respect of the notional trade for that period by more than £1 million.
      (2) It shall be assumed that the notional trade is permanently discontinued immediately before the end of the relevant chargeable period.
 
      (3) Section 79(3) shall have effect as if immediately after the beginning of the following chargeable period expenditure had been incurred on the provision of the machinery or plant of an amount equal to the disposal value brought into account by virtue of subsection (2) above.
 
      (4) In this section "open market value" has the same meaning as in section 76.".
 
      (3) In section 81 of that Act (effect of bringing an asset into use for the purposes of a trade after it has been used for a purpose that does not attract capital allowances), after subsection (2) there shall be inserted-
 
 
    "(2AA) Where-
 
 
    (a) a person is treated by virtue of subsection (1)(a) above as having incurred capital expenditure on the provision of machinery or plant, and
 
    (b) the sum which (apart from this subsection) would be taken to be the amount of that expenditure is more than the amount of capital expenditure actually incurred by that person on the provision of the machinery or plant,
       the amount of the capital expenditure treated by virtue of subsection (1)(a) above as incurred on the provision of the machinery or plant shall be deemed (subject to subsection (2AB) below) to be equal to the amount actually so incurred by that person.
 
      (2AB) Where any of the amount of capital expenditure actually incurred on the provision of the machinery or plant by the person in question would have fallen by virtue of section 75, 76 or 76A to be disregarded for the purposes of sections 24, 25 and 26 had it been in consequence of that expenditure that the machinery or plant was provided for the purposes of a trade, the references in subsection (2AA) above to that amount shall be construed as references to only so much of that expenditure as would not have fallen to be so disregarded.".
 
      (4) In Schedule 19AC to the Taxes Act 1988 (overseas life insurance companies), in paragraph 10B (modifications of section 440), after sub-paragraph (2) there shall be inserted-
 
 
    "(2A) The following subsection shall be treated as inserted after subsection (4)-
 
"(4AA) Section 81 of the 1990 Act (as it has effect by virtue of section 83(2A) of that Act) shall apply in relation to any case in which an asset or part of an asset held by an overseas life insurance company-
 
 
    (a) ceases to be within the category set out in paragraph (h) of subsection (4) above; and
 
    (b) at the same time comes within another of the categories set out in that subsection.".".
      (5) In section 53 of the Capital Allowances Act 1990-
 
 
    (a) in subsection (1), paragraph (bb) (which, for the purposes of making allowances in respect of machinery or plant subject to equipment leasing, requires the equipment lessee to be within the charge to tax) shall cease to have effect; and
 
    (b) in subsection (1B)(b), for "paragraphs (bb) and" there shall be substituted "paragraph".
      (6) In this section-
 
 
    (a) subsections (1), (4) and (5) have effect for chargeable periods ending on or after 21st March 2000;
 
    (b) subsection (2) has effect where the change of circumstances occurs on or after that date; and
 
    (c) subsection (3) has effect where the condition mentioned in section 81(1)(a) of that Act is fulfilled on or after that date.
Production animals.     76. - (1) Section 82 of the Capital Allowances Act 1990 (capital expenditure to which Part II does not apply) shall be renumbered as subsection (1) of that section; and after that provision as so renumbered there shall be inserted-
 
 
    "(2) This Part shall not apply to capital expenditure-
 
 
    (a) on animals or other creatures to which Schedule 5 to the principal Act (treatment of farm animals etc for purposes of Case I of Schedule D) applies; or
 
    (b) on shares in such animals or creatures.".
      (2) In paragraph 9(4) of Schedule 5 to the Taxes Act 1988 (treatment of farm animals etc for purposes of Case I of Schedule D), for the words from "in relation to animals" to the end there shall be substituted-
 
 
    "(a) in relation to animals or other creatures kept singly as they apply in relation to herds; and
 
    (b) in relation to shares in animals or other creatures as they apply in relation to animals or other creatures themselves.".
      (3) The enactments amended by subsections (1) and (2) above shall be deemed always to have had effect with the amendments made by those subsections.
 
Sale and leaseback.     77. - (1) After section 76A of the Capital Allowances Act 1990 insert-
 
 
"Special provision for sale and leaseback cases.     76B. - (1) This section applies where-
 
    (a) subsection (1), (2) or (3) of section 75 applies by virtue of paragraph (b) (and not by virtue of paragraph (a) or (c)) of that subsection, or is treated (under one or both of sections 76(1) and 76A(1)) as so applying;
 
    (b) the conditions set out in subsection (2) below are fulfilled; and
 
    (c) the seller and the buyer elect that this section should apply.
      (2) The conditions are-
 
 
    (a) that the seller incurred capital expenditure on the provision of the machinery or plant;
 
    (b) that the machinery or plant was new at or after the time when it was acquired by the seller;
 
    (c) that the machinery or plant was acquired by the seller otherwise than as a result of a transaction to which section 75(1), (2) or (3) applies, or is treated (under one or both of sections 76(1) and 76A(1)) as applying;
 
    (d) that the sale is effected not more than four months after the first occasion on which the machinery or plant is brought into use by any person for any purpose;
 
    (e) that the seller has not-
 
      (i) made a claim for an allowance in respect of capital expenditure incurred on the provision of the machinery or plant;
 
      (ii) made a return in which such expenditure is taken into account in determining his qualifying expenditure for the purposes of section 24; or
 
      (iii) given notice of any such amendment of a return as provides for such expenditure to be so taken into account.
      (3) In a case where this section applies-
 
 
    (a) no allowance shall be made to the seller under this Act in respect of the capital expenditure incurred on the provision of the machinery or plant, or any additional VAT liability incurred in respect of it;
 
    (b) the whole amount of that expenditure, and any such liability, shall be left out of account in determining the amount for any period of the seller's qualifying expenditure under section 25;
 
    (c) section 76(2) shall have effect as if paragraph (a) were omitted; and
 
    (d) section 76A shall have effect as if subsection (5) were omitted.
      (4) An election under this section shall be made by notice to an officer of the Board not more than two years after the time of the sale.
 
      (5) An election under this section shall be irrevocable once made; and nothing in-
 
 
    (a) section 42 of, or Schedule 1A to, the Taxes Management Act 1970 (claims and elections for income tax purposes); or
 
    (b) paragraphs 54 to 60 of Schedule 18 to the Finance Act 1998 (claims and elections for corporation tax purposes),
       shall apply to such an election.
 
      (6) In this section, in a case where section 75(2) applies or is treated as applying, "the seller" means the owner of the machinery or plant, "the buyer" means the person entering into the contract and "the sale" means the making of the contract.
 
      (7) In this section, in a case where section 75(3) applies or is treated as applying-
 
 
    (a) "the seller" means the assignor, "the buyer" means the assignee and "the sale" means the assignment; and
 
    (b) references to the machinery or plant being acquired by the seller shall be construed as references to the contract being entered into by the assignor.
      (8) In this section "return" means any return required to be made under the Taxes Management Act 1970 for income tax or corporation tax purposes.".
 
      (2) In subsections (1), (2) and (3) of section 75 of that Act, after "76A" there shall be inserted ", 76B".
 
Meaning of "fixture".     78. - (1) Section 51 of the Capital Allowances Act 1990 (application and interpretation of Chapter VI: plant and machinery: fixtures) is amended as follows.
 
      (2) In subsection (1) for the words from the beginning to "other land" substitute-
 
 
    "(1) This Chapter applies to determine entitlement to allowances under this Part in respect of expenditure on the provision of machinery or plant that is, or becomes, a fixture;".
 
      (3) In subsection (2) (definitions), for the definition of "fixture" substitute-
 
 
    ""fixture", subject to subsection (2A) below, means machinery or plant that is so installed or otherwise fixed in or to a building or other description of land as to become, in law, part of that building or other land;".
      (4) After subsection (2), insert-
 
 
    "(2A) In this Chapter-
 
 
    "fixture" includes any boiler, or water-filled radiator, installed in a building as part of a space or water heating system; and
 
    "relevant land", in relation to such a fixture, means the building in which it is so installed.".
      (5) For subsection (8) substitute-
 
 
    "(8) Nothing in this Chapter affects the entitlement of any person to an allowance by virtue of section 154 (allowances in respect of contributions to capital expenditure).".
 
      (6) The amendments in this section shall be deemed always to have had effect.
 
Leased assets under the Affordable Warmth Programme.     79. - (1) In section 53 of the Capital Allowances Act 1990 (fixtures: expenditure incurred by equipment lessor), after subsection (1C) insert-
 
 
    "(1D) Where the conditions in subsection (1E) below are satisfied in any case, subsection (1) above shall have effect as if the following were omitted, that is to say-
 
 
    (a) in paragraph (b), the words from "for the purposes of" to "by the equipment lessee", and
 
    (b) paragraphs (ba), (bb) and (d).
      (1E) Those conditions are-
 
 
    (a) that the machinery or plant consists of a boiler, heat exchanger, radiator or heating control that is installed in a building as part of a space or water heating system; and
 
    (b) that the agreement for the lease is approved for the purposes of this section as entered into as part of the Affordable Warmth Programme.
      (1F) The approval mentioned in subsection (1E)(b) above may be given, with the consent of the Treasury-
 
 
    (a) by the Secretary of State;
 
    (b) in the case of buildings in Scotland, by the Scottish Ministers;
 
    (c) in the case of buildings in Wales, by the National Assembly for Wales;
 
    (d) in the case of buildings in Northern Ireland, by the Department for Social Development in Northern Ireland.
      (1G) Where any such approval is withdrawn-
 
 
    (a) the approval shall be treated for the purposes of subsection (1E)(b) above as never having had effect, and
 
    (b) all such assessments and adjustments of assessments shall be made as are necessary in consequence of the withdrawal of the approval.
      (1H) Where a person who has made a return becomes aware that anything contained in the return has, after being made, become incorrect by reason of the withdrawal of any such approval, he shall, within three months of first becoming so aware, give notice to an officer of the Board of the amendments required to his return in consequence of the withdrawal of approval.".
 
      (2) In the second column of the table in section 98 of the Taxes Management Act 1970 (penalty for failure to provide information etc.), in the entry relating to requirements imposed by provisions of the Capital Allowances Act 1990, for "and 51(6A)" substitute "51(6A) and 53(1H)".
 
      (3) This section has effect in relation to expenditure incurred after the passing of this Act and before 1st January 2008.
 
Fixtures and machinery and plant on hire-purchase etc.     80. - (1) In section 60 of the Capital Allowances Act 1990 (machinery and plant on hire-purchase etc.), after subsection (3) insert-
 
 
    "(4) This section has effect subject to section 60A below.".
 
      (2) After that section insert-
 
 
"Machinery and plant on hire-purchase etc.: fixtures.     60A. - (1) Section 60 does not-
 
    (a) apply to expenditure incurred on machinery or plant that is a fixture, or
 
    (b) prevent Chapter VI of this Part (fixtures) applying in relation to expenditure on machinery or plant incurred under such a contract as is mentioned in subsection (1) of that section.
      (2) If machinery or plant that is treated as belonging to a person under section 60 becomes a fixture, then, unless it is treated under Chapter VI of this Part as belonging to that person, it shall be treated for the purposes of this Part as ceasing to belong to him at the time when it becomes a fixture.
 
      (3) In this section "fixture" has the same meaning as in Chapter VI of this Part.".
 
      (3) In section 60A of that Act (as inserted by subsection (2) above)-
 
 
    (a) subsection (1) shall be deemed always to have had effect, and
 
    (b) subsection (2) does not apply where the machinery or plant concerned became a fixture (within the meaning of that section) before the passing of this Act.
 
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