Policy paper

Corporation Tax: changes to Part 8C of the Corporation Tax Act 2010 tax on restitution interest payments

Published 22 March 2017

1. Who is likely to be affected

Companies who have made a claim against HM Revenue and Customs (HMRC) for, or who have received restitution interest from, HMRC.

2. General description of the measure

The measure will amend Part 8C of The Corporation Tax Act 2010 (CTA 2010) to remove charitable companies and the income of policyholders of with-profits funds from the scope of the 45% rules. They will bring a corporate beneficiary, in receipt of restitution interest sought on its behalf, within the scope of the rules.

An anti-avoidance provision is extended to include a non-resident company which carries out a trade in the United Kingdom through a permanent establishment in the United Kingdom. New rules are introduced so that a charge to the 45% rate, which had remained with the transferor company as part of the anti-avoidance provision, is passed to a related group company if the transferor company is wound up or dissolved.

Changes are also being made to clarify self-assessment obligations and to whom any appeal against the withholding of the 45% tax should be made.

3. Policy objective

The measure will ensure that the rules are not applied to claimants who, disregarding available reliefs, deductions and allowances, would not have benefited from a windfall if any award of restitution interest was taxed at the current prevailing corporation tax rate because of statutory exemptions from tax that were applied over the period of the claim. The measure also ensures that the anti-avoidance provisions are robust and clarify procedural requirements.

4. Background to the measure

The Corporation Tax Act 2010 (Part 8C) (Amendment) Regulations 2017 was laid before the House of Commons on 13 March 2017 under the affirmative procedure.

5. Detailed proposal

5.1 Operative date

There are changes affecting certain companies who are chargeable to the special corporation tax rate of 45% on restitution interest, in particular charitable companies and life insurance companies with policyholders of ‘with-profits’ funds; companies subject to corporation tax that have assigned their rights to a person outside of the scope of corporation tax and companies who are a beneficiary of a claim for restitution made by a third party. In addition, there are changes impacting the calculation of tax payable. These are to have had effect from 21 October 2015.

There are also further minor amendments which will affect all companies chargeable to the special corporation tax rate of 45% on restitution interest and these have effect from the date the regulations come into force.

5.2 Current law

The current law is contained in sections 357YA to 357YW within Part 8C of the Corporation Tax Act 2010.

5.3 Proposed revisions

The wording of Condition A at section 357YC is being amended to ensure that a corporate beneficiary of a claim for restitution is also within the scope of the rules where that claim has been made on its behalf by a third party and the restitution interest is then passed directly to that beneficiary without the amount of restitution being recognised in the third party’s financial statements.

Sections 357YA and 357YB are being amended to exclude claims for restitution made by or on behalf of a charitable company from the scope of the rules. A new section 357YDA is being inserted which will exclude from the scope of Part 8C of CTA 2010 income which is attributable to a policyholder of a with-profits fund while leaving the income belonging to the shareholder of the life insurance company within the scope. The new section provides rules to determine the amount of policyholder income, the sum of which will not then be treated as restitution interest.

As well as applying to UK resident companies, the anti-avoidance provision at section 357YM is being extended to apply to non-resident company which carries on a trade in the United Kingdom through a permanent establishment in the United Kingdom. New sections 357YNA and 357YNB are being inserted to strengthen the anti-avoidance provision at section 357YM. Section 357YNA provides for a notice to be given to a related company that the restitution interest which is to be treated as arising to the transferor company under section 357YM will be treated as arising to the related company in situations where the transferor company enters into a winding up or dissolution. Section 357YNB sets out the meaning of a related company.

The wording at section 357YP is being amended to make clear that any tax withheld from the restitution by HM Revenue and Customs will go towards discharging the corporation tax liability on the restitution interest when it is included in a claimant’s self-assessment.

Section 357YS is being amended to clarify that any written notice of appeal against the deduction of withholding tax is to be given to HM Revenue and Customs.

There are miscellaneous changes to sections 357YC, 357YP and 357YR so that ‘Commissioners’ will now read ‘Commissioners for Her Majesty’s Revenue and Customs’. Section 357YH and 357YJ make minor changes to the existing wording to clarify that these sections concern any tax advantage and not just ‘restitution-related’ tax advantage.

5.4 Summary of impacts

Exchequer impact (£m)

2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022

The Office for Budget Responsibility will include the impact of this measure in its Autumn 2017 forecast.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

The measure will not impact on individuals or households since the special corporation tax rate of 45% applies only to companies that have made a claim for restitution in respect of a mistake of law. The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

It is not anticipated that any group with protected characteristics will be adversely affected by this measure.

Impact on business including civil society organisations

Charitable companies and life insurance companies who have made a claim for a mistake of law will benefit from this measure. A claim brought by a charitable company will now be outside the scope of the special 45% corporation tax rate on restitution interest. The amount of restitution interest arising from a claim by a life insurance company which is attributable to a policyholder of a with-profits fund will be outside the scope as well.

This measure is expected to have a negligible impact on businesses and civil society organisations. Businesses and organisations which are brought within the scope of the rules by these regulations will incur one-off costs of familiarisation with the new rules and in applying the new rate of 45% to the restitution interest rather than the general Corporation Tax rate. There are not expected to be any on-going costs. There will also be no increase in the administration burden of the claimant businesses who are already within the scope of the rules.

Operational impact (£m) (HMRC or other)

Operational impact for HMRC is anticipated to be negligible for this measure.

Other impacts

Other impacts have been considered and none have been identified.

6. Monitoring and evaluation

The measure will be monitored through information collected from the claims for restitution as and when they are finally determined.

7. Further advice

If you have any questions about this measure, please contact Susan Gardner on Telephone: 03000 563815 or email: susan.m.gardner@hmrc.gsi.gov.uk.

8. Declaration

Jane Ellison MP, Financial Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.