Income Tax (Trading and Other Income) Bill

House of Commons

Session 2004 - 05
Internet Publications
Other Bills before Parliament

Income Tax (Trading and Other Income) Bill

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 2 — Interest
163

is made to deduct tax under section 349(2) of ICTA in the case of interest
distributions within that subsection).
(5)
The amount of the payment treated as made to each owner is so much of the
total amount mentioned in subsection (1) as is proportionate to the owner’s
shares.
5
(6)
This section only applies if the condition in section 468L(1A) of ICTA (the
qualifying investments test) is met throughout the distribution period.
(7)
This section does not apply if the open-ended investment company is an
approved personal pension scheme.
(8)
See section 375 for the interpretation of this section and section 374.
10
374
Date when interest payments under section 373 made
(1)
This section applies for determining the date on which payments of interest
under section 373 are treated as made.
(2)
The date on which the payments are treated as made depends on whether a
date is specified for any distribution for the distribution period in question by
15
or in accordance with—
(a)
the company’s instrument of incorporation and its prospectus in issue
for the time being (including any supplements), or
(b)
in the case of an open-ended investment company which is part of an
umbrella company, such parts of those documents of the umbrella
20
company as apply to the open-ended investment company.
(3)
If such a date is so specified, the payments are treated as made on that date.
(4)
If no such date is so specified, the payments are treated as made on the last day
of that period.
375
Interpretation of sections 373 and 374
25
(1)
In sections 373 and 374 and this section—
“approved personal pension scheme” has the same meaning as in Chapter
4 of Part 14 of ICTA (see section 630(1) of that Act),
“distribution” includes investment on behalf of an owner of shares in
respect of the owner’s accumulation shares,
30
“distribution accounts” means the accounts showing how the total
amount available for distribution to owners of shares is calculated,
“distribution period” means the period by reference to which that amount
is ascertained,
“the OEIC Regulations” means the Open-ended Investment Companies
35
(Tax) Regulations 1997 (S.I. 1997/1154),
“open-ended investment company” has the same meaning as in Chapter
3 of Part 12 of ICTA (unit trust schemes etc.) (see section 468(10) and
(11) of ICTA, as inserted by regulation 10 of the OEIC Regulations),
“owner of shares” has the same meaning as in that Chapter (see section
40
468(10) and (15) of that Act, as so inserted), and
“umbrella company” has the same meaning as in section 468 of that Act
(see section 468(18), as so inserted).

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 2 — Interest
164

(2)
In subsection (1) “accumulation share” means a share in respect of which
income is credited periodically to the capital part of the company’s scheme
property.
(3)
In subsection (2) “scheme property” has the same meaning as in Chapter 3 of
Part 12 of ICTA (unit trust schemes etc.) (see section 468(10) and (13) of ICTA,
5
as inserted by regulation 10 of the OEIC Regulations).
376
Authorised unit trust interest distributions
(1)
This section applies if the distribution accounts of an authorised unit trust
show the total amount available for distribution to unit holders as available for
distribution as yearly interest.
10
(2)
Subsection (1) is subject to subsections (6) and (7).
(3)
For income tax purposes payments of yearly interest are treated as made to the
unit holders.
(4)
Subsection (3) is subject to the qualifications in section 468L(4) of ICTA (which
modifies the obligation for a person by or through whom a payment of interest
15
is made to deduct tax under section 349(2) of ICTA in the case of interest
distributions within that subsection).
(5)
The amount of the payment treated as made to each unit holder is so much of
the total amount mentioned in subsection (1) as is proportionate to the unit
holder’s rights.
20
(6)
This section only applies if the condition in section 468L(1A) of ICTA (the
qualifying investments test) is met throughout the distribution period.
(7)
This section does not apply if the authorised unit trust is an approved personal
pension scheme.
(8)
See section 378 for the interpretation of this section and section 377.
25
377
Date when interest payments under section 376 made
(1)
This section applies for determining the date on which payments of interest
under section 376 are treated as made.
(2)
The date on which the payments are treated as made depends on whether a
date is specified by or in accordance with the trust’s terms for any distribution
30
for the distribution period in question.
(3)
If such a date is so specified, the payments are treated as made on that date.
(4)
If no such date is so specified, the payments are treated as made on the last day
of that period.
378
Interpretation of sections 376 and 377
35
In sections 376 and 377—
“approved personal pension scheme” has the same meaning as in Chapter
4 of Part 14 of ICTA (see section 630(1) of that Act),
“distribution” includes investment on behalf of a unit holder in respect of
the holder’s accumulation units,
40

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 2 — Interest
165

“distribution accounts” means the accounts showing how the total
amount available for distribution to unit holders is ascertained, and
“distribution period” means the period by reference to which that amount
is ascertained.
379
Industrial and provident society payments
5
(1)
Any dividend, bonus or other sum payable to a shareholder in—
(a)
a registered industrial and provident society, or
(b)
a UK agricultural or fishing co-operative,

is treated as interest for income tax purposes if it is payable by reference to the
amount of the shareholder’s holding in its share capital.
10
(2)
In subsection (1)—
“registered industrial and provident society” means a society registered
or treated as registered under the Industrial and Provident Societies
Act 1965 (c. 12) or the Industrial and Provident Societies Act (Northern
Ireland) 1969 (c. 24 (N.I.)), and
15
“UK agricultural or fishing co-operative” means a co-operative
association—
(a)
which is established in the United Kingdom and UK resident,
and
(b)
whose primary object is assisting its members in—
20
(i)
carrying on agricultural or horticultural businesses on
land occupied by them in the United Kingdom, or
(ii)
carrying on businesses consisting in the catching or taking
of fish or shellfish.
(3)
In subsection (2) “co-operative association” means a body with a written
25
constitution from which the Secretary of State considers that it is in substance
a co-operative association.
(4)
For the purposes of subsection (3), the Secretary of State must have regard to
the way in which the body’s constitution provides for its income to be applied
for its members’ benefit and all other relevant provisions.
30
(5)
In Northern Ireland subsections (3) and (4) apply with the substitution for “the
Secretary of State” of “the Department of Agriculture and Rural Development”.
380
Funding bonds
(1)
This section applies to the issue of funding bonds to a creditor in respect of a
liability to pay interest on a debt incurred by a government, public institution,
35
other public authority or body corporate.
(2)
The issue is treated for income tax purposes as if it were the payment of so
much of that interest as equals the market value of the bonds at their issue.
(3)
In this section “funding bonds” includes any bonds, stocks, shares, securities or
certificates of indebtedness.
40
381
Discounts
(1)
All discounts, other than discounts in deeply discounted securities, are treated
as interest for the purposes of this Act.

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 3 — Dividends etc. from UK resident companies etc.
166

(2)
In this section “deeply discounted securities” means securities to which
Chapter 8 of this Part applies (profits from deeply discounted securities).
Chapter 3
Dividends etc. from UK resident companies etc.
Introduction
5
382
Contents of Chapter
(1)
This Chapter—
(a)
imposes a charge to income tax on dividends and other distributions of
UK resident companies (see section 383),
(b)
treats dividends as paid in some circumstances (see sections 386 to 391),
10
and
(c)
makes special provision where the charge is in respect of shares
awarded under an approved share incentive plan (see sections 392 to
396).
(2)
This Chapter also makes provision about tax credits, tax being treated as paid
15
and reliefs available in respect of certain distributions which applies whether
or not the distributions are otherwise dealt with under this Chapter (see
sections 397 to 401).
(3)
For exemptions from the charge under this Chapter, see in particular—
Chapter 3 of Part 6 (income from individual investment plans),
20
Chapter 5 of that Part (venture capital trust dividends),
section 770 (amounts applied by SIP trustees acquiring dividend shares or
retained for reinvestment), and
section 498 of ITEPA 2003 (no charge on shares ceasing to be subject to SIP
in certain circumstances).
25
(4)
In this Chapter “dividends” does not include income treated as arising under
section 410 (stock dividends).
Charge to tax on dividends and other distributions
383
Charge to tax on dividends and other distributions
(1)
Income tax is charged on dividends and other distributions of a UK resident
30
company.
(2)
For income tax purposes such dividends and other distributions are to be
treated as income.
(3)
For the purposes of subsection (2), it does not matter that those dividends and
other distributions are capital apart from that subsection.
35
384
Income charged
(1)
Tax is charged under this Chapter on the amount or value of the dividends
paid and other distributions made in the tax year.

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 3 — Dividends etc. from UK resident companies etc.
167

(2)
Subsection (1) is subject to—
section 393(2) and (3) (later charge where cash dividends retained in SIPs
are paid over), and
section 394(3) (distribution when dividend shares cease to be subject to
SIP).
5
(3)
See also section 398 (under which the amount or value of the dividends or other
distributions is treated as increased if any person is entitled to a tax credit in
respect of them).
385
Person liable
(1)
The person liable for any tax charged under this Chapter is—
10
(a)
the person to whom the distribution is made or is treated as made (see
Part 6 of ICTA and sections 386(3) and 389(3)), or
(b)
the person receiving or entitled to the distribution.
(2)
Subsection (1) is subject to—
section 393(4) (later charge where cash dividends retained in SIPs are paid
15
over), and
section 394(4) (distribution when dividend shares cease to be subject to
SIP).
Amounts treated as dividends
386
Open-ended investment company dividend distributions
20
(1)
This section applies if the distribution accounts of an open-ended investment
company show the total amount available for distribution to owners of shares
in the company as available for distribution as dividends.
(2)
Subsection (1) is subject to subsection (5).
(3)
For income tax purposes dividends are treated as paid to the owners of the
25
shares by the company.
(4)
The amount of the dividends treated as paid to each owner is so much of the
total amount mentioned in subsection (1) as is proportionate to the owner’s
shares.
(5)
This section does not apply if the open-ended investment company is an
30
approved personal pension scheme.
(6)
See section 388 for the interpretation of this section and section 387.
387
Date when dividends paid under section 386
(1)
This section applies for determining the date on which dividends are treated as
paid under section 386.
35
(2)
The date on which the dividends are treated as paid depends on whether a date
is specified for the distribution period in question by or in accordance with—
(a)
the company’s instrument of incorporation and its prospectus in issue
for the time being (including any supplements), or

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 3 — Dividends etc. from UK resident companies etc.
168

(b)
in the case of an open-ended investment company which is part of an
umbrella company, such parts of those documents of the umbrella
company as apply to the open-ended investment company.
(3)
If such a date is so specified, the dividends are treated as paid on that date.
(4)
If no such date is so specified, the dividends are treated as paid on the last day
5
of that period.
388
Interpretation of sections 386 and 387
(1)
In sections 386 and 387 and this section—
“approved personal pension scheme” has the same meaning as in Chapter
4 of Part 14 of ICTA (see section 630(1) of that Act),
10
“distribution” includes investment on behalf of an owner of shares in
respect of the owner’s accumulation shares,
“distribution accounts” means the accounts showing how the total
amount available for distribution to owners of shares is calculated,
“distribution period” means the period by reference to which that amount
15
is ascertained,
“the OEIC Regulations” means the Open-ended Investment Companies
(Tax) Regulations 1997 (S.I. 1997/1154),
“open-ended investment company” has the same meaning as in Chapter
3 of Part 12 of ICTA (unit trust schemes etc.) (see section 468(10) and
20
(11) of ICTA, as inserted by regulation 10 of the OEIC Regulations),
“owner of shares” has the same meaning as in that Chapter (see section
468(10) and (15) of that Act, as so inserted), and
“umbrella company” has the same meaning as in section 468 of that Act
(see section 468(18), as so inserted).
25
(2)
In subsection (1) “accumulation share” means a share in respect of which
income is credited periodically to the capital part of the company’s scheme
property.
(3)
In subsection (2) “scheme property” has the same meaning as in Chapter 3 of
Part 12 of ICTA (unit trust schemes etc.) (see section 468(10) and (13) of ICTA,
30
as inserted by regulation 10 of the OEIC Regulations).
389
Authorised unit trust dividend distributions
(1)
This section applies if the distribution accounts of an authorised unit trust
show the total amount available for distribution to unit holders as available for
distribution as dividends.
35
(2)
Subsection (1) is subject to subsection (6).
(3)
For income tax purposes dividends are treated as paid to the unit holders.
(4)
The amount of the dividends treated as paid to each unit holder is so much of
the total amount mentioned in subsection (1) as is proportionate to the unit
holder’s rights.
40
(5)
The dividends are treated as paid on the shares and by the company referred
to in section 468(1) of ICTA (which relates to the trustees of an authorised unit
trust being treated as a UK resident company in which the unit holders’ rights
are shares).

Income Tax (Trading and Other Income) Bill
Part 4 — Savings and investment income
Chapter 3 — Dividends etc. from UK resident companies etc.
169

(6)
This section does not apply if the authorised unit trust is an approved personal
pension scheme.
(7)
See section 391 for the interpretation of this section and section 390.
390
Date when dividends paid under section 389
(1)
This section applies for determining the date on which dividends are treated as
5
paid under section 389.
(2)
The date on which the dividends are treated as paid depends on whether a date
is specified by or in accordance with the trust’s terms for any distribution for
the distribution period in question.
(3)
If such a date is so specified, the dividends are treated as paid on that date.
10
(4)
If no such date is so specified, the dividends are treated as paid on the last day
of that period.
391
Interpretation of sections 389 and 390
In sections 389 and 390—
“approved personal pension scheme” has the same meaning as in Chapter
15
4 of Part 14 of ICTA (see section 630(1) of that Act),
“distribution” includes investment on behalf of a unit holder in respect of
the holder’s accumulation units,
“distribution accounts” means the accounts showing how the total
amount available for distribution to unit holders is ascertained, and
20
“distribution period” means the period by reference to which that amount
is ascertained.
Shares in approved share incentive plans ("SIPs")
392
SIP shares: introduction
(1)
Sections 393 to 395 contain special rules about the charge under this Chapter in
25
respect of shares awarded to an individual under an approved share incentive
plan.
(2)
Those sections only apply if condition A or B was met at the time the shares in
question were so awarded.
(3)
Condition A is that—
30
(a)
the earnings from the eligible employment were general earnings (see
section 7(3) of ITEPA 2003) to which any of the charging provisions of
Chapter 4 or 5 of Part 2 of ITEPA 2003 applied, or
(b)
if there had been any earnings from it, they would have been such
earnings.
35
(4)
In subsection (3)—
(a)
“the eligible employment” means the employment resulting in the
individual meeting the employment requirement in relation to the
plan, and