Finance (No. 2) Act 1987
| Year | 1987 |
Finance (No. 2) Act 1987
1987 CHAPTER 51
An Act to grant certain duties, to alter other duties, and to amend the law relating to the National Debt and the Public Revenue, and to make further provision in connection with Finance.
[23rd July 1987]
Most Gracious Sovereign,
We , Your Majesty's most dutiful and loyal subjects, the Commons of the United Kingdom in Parliament assembled, towards raising the necessary supplies to defray Your Majesty's public expenses, and making an addition to the public revenue, have freely and voluntarily resolved to give and grant unto your Majesty the several duties hereinafter mentioned; and do therefore most humbly beseech Your Majesty that it may be enacted, and be it enacted by the Queen's most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:—
Part I
Income Tax, Corporation Tax and Capital Gains Tax
Chapter I
Profit-Related Pay
Preliminary
1 Interpretation.
(1) In this Chapter—
‘employment’ means an office or employment whose emoluments fall to be assessed under Schedule E, and related expressions have corresponding meanings;
‘employment unit’ means an undertaking, or that part of an undertaking, to which a profit-related pay scheme relates;
‘pay’ (except in the expression ‘profit-related pay’) means emoluments paid under deduction of tax pursuant to section 204 of the Taxes Act (pay as you earn), reduced by any amounts included in them by virtue of Chapter II of Part III of the Finance Act 1976 ;
‘profit period’ means an accounting period by reference to which any profit-related pay is calculated;
‘profit-related pay’ means emoluments from an employment which are paid in accordance with a profit-related pay scheme;
‘profit-related pay scheme’ means a scheme providing for the payment of emoluments calculated by reference to profits;
‘profits’ or ‘losses’, in relation to a profit period, means the amount shown in the account prepared for that period in accordance with the relevant profit-related pay scheme as the profit, or as the case may be the loss, on ordinary activities after taxation;
‘registered scheme’ means a profit-related pay scheme registered under this Chapter;
‘scheme employer’ means the person on whose application a profit-related pay scheme is or may be registered under this Chapter.
(2) References in this Chapter to the employees to whom a profit-related pay scheme relates are references to the employees who will receive any payments of profit-related pay under the scheme.
2 Taxation of profit-related pay.
2. Any charge to income tax on profit-related pay paid in accordance with a registered scheme shall be made for the year of assessment in which it is paid (rather than the period for which it is paid).
The relief
3 Relief from tax.
(1) One half of any profit-related pay to which this section applies shall be exempt from income tax.
(2) This section applies to any profit-related pay paid to an employee by reference to a profit period and in accordance with a registered scheme, but only so far as it does not exceed the lower of the two limits specified in the following provisions of this section.
(3) The first of the limits referred to in subsection (2) above is one fifth of the aggregate of—
(a) the pay (but not any profit-related pay) paid to the employee in the profit period in respect of his employment in the employment unit concerned (or, if the employee is eligible to receive profit-related pay by reference to part only of the period, so much of his pay, but not any profit-related pay, as is paid in that part), and
(b) the profit-related pay paid to him by reference to that period in respect of that employment.
(4) The second of the limits referred to in subsection (2) above is 3000 (or, if the profit period is less than twelve months or the employee is eligible to receive profit-related pay by reference to part only of the profit period, a proportionately reduced amount).
4 Exceptions from relief.
(1) Profit-related pay shall not be exempt from income tax by virtue of section 3 above if—
(a) it is paid to an employee in respect of his employment in an employment unit during a time when he also has another employment, and
(b) he receives in respect of his other employment during that time profit-related pay which is exempt from income tax by virtue of that section.
(2) Subject to subsection (3) below, profit-related pay in respect of which no secondary Class 1 contributions under Part I of the Social Security Act 1975 or Part I of the Social Security (Northern Ireland) Act 1975 are payable shall not be exempt from income tax by virtue of section 3 above.
(3) Subsection (2) above shall not apply to profit-related pay in respect of which no Class 1 contributions are payable only because the employee's earnings are below the lower earnings limit for such contributions.
Registration
5 Persons who may apply for registration.
(1) Where the emoluments of all the employees to whom a profit-related pay scheme relates are paid by the same person, an application to register the scheme under this Chapter may be made to the Board by that person.
(2) Where subsection (1) above does not apply to a profit-related pay scheme, no application to register it may be made unless all the persons who pay emoluments to employees to whom the scheme relates are bodies corporate which are members of the same group; and in that case an application may be made by the parent company of the group.
(3) In subsection (2) above ‘group’ means a body corporate and its 51 per cent. subsidiaries, and ‘parent company’ means that body corporate; and in applying for the purposes of this section the definition of ‘51 per cent. subsidiary’ in section 532 of the Taxes Act, any share capital of a registered industrial and provident society (within the meaning of section 340 of the Taxes Act) shall be treated as ordinary share capital.
6 Excluded employments.
(1) No application may be made to register a scheme under this Chapter if any employment to which the scheme relates is—
(a) employment in an office under the Crown or otherwise in the service of the Crown, or
(b) employment by an excluded employer.
(2) For the purposes of this section ‘excluded employer’ means—
(a) a person in an employment within subsection (1) above;
(b) a body under the control of the Crown, or of one or more persons acting on behalf of the Crown;
(c) a local authority;
(d) a body under the control of one or more local authorities, or of the Crown (or one or more persons acting on behalf of the Crown) and one or more local authorities.
(3) For the purposes of this section a person has control of a body only if one or more of the following conditions is satisfied—
(a) in the case of a body whose affairs are managed by its members, he has the power to appoint more than half of the members;
(b) in the case of a body having a share capital, he holds more than half of its issued share capital;
(c) in the case of a body whose members vote in general meeting, he has the power to exercise more than half of the votes exercisable in general meeting;
(d) the articles of association or other rules regulating the body give him the power to secure that the affairs of the body are conducted in accordance with his wishes.
(4) For the purposes of this section a person shall be taken to possess any rights and powers possessed by—
(a) a person appointed by him to an office by virtue of which the rights or powers are exercisable, or
(b) a body which he controls,
including rights and powers which such an officer or body is taken to possess by virtue of this subsection.
(5) Subsections (3) and (4) above apply with the necessary modifications for the purpose of determining whether persons together have control of a body.
7 Applications for registration.
(1) An application for the registration of a profit-related pay scheme under this Chapter—
(a) shall be in such form as the Board may prescribe;
(b) shall contain a declaration by the applicant that the scheme complies with the requirements of Schedule 1 to this Act;
(c) shall contain an undertaking by the applicant that the emoluments paid to any employee to whom the scheme relates and to whom minimum wage legislation applies will satisfy that legislation without taking account of profit-related pay;
(d) shall specify the profit period or periods to which the scheme relates;
(e) shall be supported by such information as the Board may require.
(2) An application for the registration of a profit-related pay scheme under this Chapter shall be accompanied by a report by an independent accountant, in a form prescribed by the Board, to the effect that in his opinion—
(a) the scheme complies with the requirements of Schedule 1 to this Act;
(b) the books and records maintained and proposed to be maintained by the applicant are adequate for the purpose of enabling the documents required by section 12(1) below to be produced.
(3) An application for the registration of a profit-related pay scheme under...
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