Explanatory note

The Regulations amend Part 8C of the Corporation Tax Act 2010 (c. 4) (“CTA 2010”) which was inserted into the CTA 2010 by section 38(3) of Finance (No. 2) Act 2015 (c. 33). Part 8C applies a corporation tax rate of 45% to payments of restitution interest made by the Commissioners for Her Majesty’s Revenue and Customs (“HMRC”).

Part 2 of the Regulations (consisting of Regulations 5 to 12) amends the anti-avoidance provisions and excludes from the charge certain categories of claimant who, under statute, were historically either fully or partially exempt from tax on their investment income. Regulation 2 provides that these changes have effect from 21 October 2015. Authority for the retrospective effect is provided by section 357YW(3) of the CTA 2010.

Regulations 5 and 6 provide that Part 8C of the CTA 2010 does not apply to charitable companies as defined for the purposes of CTA 2010 by Schedule 4 of that Act.

Regulation 7 modifies section 357YC CTA 2010 to ensure that a claim for restitution made by a company where the restitution interest is passed through to another company without being recognised under generally accepted accounting principles by the first company falls within Condition A.

Regulations 8 and 9 provide that the part of the restitution interest which represents income of policyholders of with-profits funds does not fall within the scope of Part 8C of the CTA 2010. The part which is attributable to a claim made in respect of alleged unlawful tax paid or collected which is attributable to shareholder profits remains within the scope.

Regulation 10 extends the provisions of section 357YM CTA 2010 to include the assignment of rights by a non-resident company where that company carries on a trade through a permanent establishment in the United Kingdom.

Regulation 11 inserts, after section 357YN CTA 2010, new section 357YNA CTA 2010 and new section 357YNB CTA 2010 which deal with the consequences of the assignment of rights under section 357YM CTA 2010 where the transferor is subsequently wound up and/or dissolved.

New section 357YNA CTA 2010 includes subsections (1) to (6) which apply when the transferor company within section 357YM CTA 2010 has subsequently been wound up or dissolved after it had assigned its rights (or possible rights) to restitution interest to a person not chargeable to corporation tax.

In that situation a notice may be given to a related company providing that the restitution interest which had been treated as arising to the transferor company within section 357YM CTA 2010 will be treated as arising to the related company instead.

The notice will specify the amount of restitution interest and the date on which it is paid or payable and must be given at the time of the withholding obligation under section 357YO CTA 2010 or, if later, at the time an assessment is made under section 357YQ CTA 2010.

New section 357YNB CTA 2010 includes subsections (1) to (5) which define the meaning of a related company in the relevant period. A company will be related to the transferor company if it is a member of the same group as the transferor. The relevant period will begin 12 months before the commencement of the winding up, or, if not wound up, from 12 months prior to the date of dissolution and will end when the restitution interest is paid or becomes payable (whichever is later).

Regulation 12 modifies section 357YP CTA 2010 to make clear that in computing the amount of tax payable in relation to restitution interest, subsection (1) of section 357YP CTA 2010 provides that tax withheld under section 357YO CTA 2010 can go towards discharging the company’s liability to corporation tax on the restitution interest.

Part 3 of the Regulations (consisting of Regulations 13 to 18) makes minor amendments to Part 8C. Regulation 3 provides that these amendments have effect from 14th March 2017

A Tax Information and Impact Note covering this instrument will be published on the HMRC website at https://www.gov.uk/government/collections/tax-information-and-impact-notes-tiins.