House of Commons - Explanatory Note
Income Tax (Trading and Other Income) Bill - continued          House of Commons

back to previous text

This change is in taxpayers' favour in principle. But it is expected to have no practical effect as it is in line with current practice.

Change 147: General calculation rules: apportionment of profits: clause 871

This modifies the application of section 72 of ICTA so that it applies to certain income within Schedule D Cases IV and V as well as Case VI.

Section 72(1) of ICTA permits the apportionment of profits or losses for the purposes of Schedule D Cases I, II or VI where accounts have been made up for a period which is not coterminous with the tax year (for income tax) or an accounting period (for corporation tax). Section 72 of ICTA is applied by section 21A of ICTA for the purpose of calculating the profits of a Schedule A business.

Although section 72 of ICTA is expressed to apply in the case of profits or gains chargeable under Schedule D Cases I, II and VI only, it applies also to income chargeable to tax under Schedule D Cases IV and V which is derived by a person (whether solely or in partnership) from a trade profession or vocation. Section 65(3) of ICTA applies the rules applicable to Schedule D Cases I and II in computing such Schedule D Case IV or V income. Clause 203 (apportionment etc. of profits to basis periods) applies the income tax rule in section 72 of ICTA to all trades, professions and vocations, whether within Schedule D Cases I or II or Cases IV or V.

Clause 871 applies the income tax rule in section 72 of ICTA for the purpose of calculating income charged under provisions listed in section 836B of ICTA (inserted by Schedule 1 to this Bill). The clause disapplies section 836B(4)(a) of ICTA, which excludes relevant foreign income from income within the tables in that section. This ensures that the clause extends to income within Schedule D Case IV or V as well as income within Case VI.

This change is in taxpayers' favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small.

Change 148: Definition of "caravan" given by clause 875 relevant to clauses 20, 266, 308, 787 and 809

This change provides a single definition of "caravan" relevant to a number of clauses and based on section 29(1) of the Caravan Sites and Control of Development Act 1960 and section 13(1) of the Caravan Sites Act 1968.

The change is relevant to clauses 20, 266, 308, 787 and 809.

For the purposes of paragraph 3 of Schedule A (see section 15(1) of ICTA) "caravan" has the meaning given by section 29(1) of the 1960 Act. Paragraph 3 is re-written in clause 266. The same definition is attracted by paragraph 4 of Schedule A (re-written in clause 308).

Subsection (1) of clause 875 reproduces the effect of section 29(1) of the 1960 Act; and subsection (2) reproduces the effect of section 13(1) of the 1968 Act. The clause does not, however, reproduce the effect of section 13(2) of the 1968 Act (which provides that a structure mentioned in section 13(1) (a twin-unit caravan) is not a caravan if its dimensions exceed specified limits). Neither the 1960 Act nor the 1968 Act extend to Northern Ireland. However, the Caravans Act (Northern Ireland) 1963 contains the same definition for Northern Ireland as is contained in section 29(1) of the 1960 Act.

It is not clear whether the 1968 Act modifications apply for the purposes of paragraphs 3 and 4 of Schedule A. First, it is likely that Parliament intended that only one definition of "caravan" was to apply throughout the United Kingdom. But the 1968 Act does not extend to Northern Ireland. As the substance of the definitions in the 1960 Act (which applies to Great Britain) and in the Northern Ireland Act of 1963 are the same, a reference to the definition in the 1960 Act would be enough to secure a uniform definition.

Second, paragraph 3(2) of Schedule A provides that "caravan" has the meaning "given by" section 29(1) of the 1960 Act. Section 13 of the 1968 Act modifies the operation of Part 1 of the 1960 Act (rather than the section 29(1) definition). Because the definitions in section 29(1) apply "in" Part 1 of the 1960 Act it is therefore not certain whether the modifications made by the 1968 Act have been attracted.

Clause 875 resolves these doubts by reproducing only section 13(1) of the 1968 Act. Consequently it does not matter whether a twin-unit caravan can be lawfully moved on a highway when assembled. For the purposes of Schedule A (as re-written in the Bill) it is also immaterial if the twin-unit caravan exceeds the dimensions specified in section 13(2) of the 1968 Act. Schedule A treatment seems more appropriate the bigger the structure is.

The definition of "caravan" in clause 875 is also relevant to clauses 787 and 809. "Caravan" is not defined in the definition of "residence" in paragraph 7 of Schedule 10 to F(No 2)A 1992 (rent-a-room relief) or in paragraph 7(3) of Schedule 36 to FA 2003 (foster-care relief). Accordingly, "caravan" has its ordinary meaning in those provisions. The definition of "caravan" in clause 875 is wider than the ordinary meaning: for example, it includes structures that can be moved only by being put on trailers.

In relation to clause 787 (which re-writes paragraph 7 of Schedule 10 to F(No 2)A 1992), a structure covered by the extended definition of "caravan" may be covered by the reference to a building or part of a building. But if not, the effect of moving from the ordinary meaning of "caravan" to the definition in clause 875 is to widen the range of residences in relation to which rent-a-room relief is available.

In relation to clause 809 (which re-writes paragraph 7(3) of Schedule 36 to FA 2003) the definition of "residence" used in clause 787 applies. Consequently, the point made in relation to clause 787 is also relevant. In referring to "the" residence, paragraph 7(3) of Schedule 36 to FA 2003 assumes that the accommodation which is actually provided by the foster carer for the child is caught. That would include accommodation comprising a structure covered by the extended definition of "caravan". Therefore the application of the extended meaning of "caravan" has no effect in relation to foster-care relief.

The changes are in taxpayers' favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small.

Change 149: References to "the Inland Revenue": clause 878

This change converts references in the source legislation to an inspector or to the Board of Inland Revenue into references to any officer of the Board.

(A) References to an inspector The legislation rewritten in the Bill contains a substantial number of references to an "inspector" (which means an inspector of taxes: see section 832(1) of ICTA). Except in the cases where that legislation refers to the making of claims and elections to the inspector, the Bill replaces such references with references to "the Inland Revenue". This expression is defined by clause 878(1) to mean any officer of the Board of Inland Revenue. For the purposes of the Bill "the Board of Inland Revenue" means the Commissioners of Inland Revenue appointed under section 1 of the Inland Revenue Regulation Act 1890: see clause 878(1).

As a result, the provisions affected will expressly authorise or require things to be done by or in relation to an officer of the Board instead of by or in relation to an inspector. This is consistent with the internal reorganisation of the Inland Revenue which took place in the mid-1990s and resulted in the merger of the previously separate networks of collection and tax offices and less rigid specialisation in relation to particular functions.

This represents only a minor change in the law because a similar result could in many cases be achieved by a different means under section 1(2B) of TMA, which was inserted by FA 1990. Under that provision a person who is not an inspector may for particular purposes exercise functions conferred on inspectors if, in accordance with the Board's administrative practices, he or she has been authorised to act as an inspector for those purposes.

In the cases where the legislation rewritten in the Bill refers to the making of a claim or election to the inspector, the Bill does not expressly provide for such a claim or election to be made to an officer of the Board. It does not specify to whom the claim or election must be made.

If the claim or election could be made by being included in a return to an officer of the Board, section 42(2) of TMA will apply to require it to be made in such a return. Otherwise paragraph 2(1) of Schedule 1A to TMA will apply to require the claim or election to be made to an officer of the Board.

This does not represent a change to the position before the passing of the Bill. Section 42(2) of TMA and paragraph 2(1) of Schedule 1A to that Act also apply where the source legislation refers to the making of a claim or election to the inspector. They operate to require the claim or election to be made to an officer of the Board.

(B) References to the Board of Inland Revenue The source legislation also contains a number of references to "the Board" (which means the Commissioners of Inland Revenue: see section 832(1) of ICTA). Except where it is dealing with claims and elections, or where in practice the Board has not devolved the function concerned, the Bill replaces such references with references to "the Inland Revenue". As mentioned above, this expression is in turn defined by clause 878(1) to mean any officer of the Board of Inland Revenue.

Where the source legislation provides for a claim or election to be made to the Board, the Bill does not expressly state to whom such a claim or election is to be made. Section 42(2) of TMA, or paragraph 2(1) of Schedule 1A to that Act, will apply to require the claim or election to be made to an officer of the Board. In such cases the requirement to make the claim or election to the Board is still replaced by a requirement to make the claim or election to an officer of the Board, as a result of the application of the TMA.

This last change has a further consequence. If a claim to the Board is made in a return, section 46C of TMA provides that an appeal concerning the claim will be heard by the Special Commissioners. If such a claim is made otherwise than in a return, paragraph 10 of Schedule 1A to that Act has the same effect.

Neither section 46C of TMA nor paragraph 10 of Schedule 1A to that Act will apply to the equivalent claim under the Bill, which will be made to an officer of the Board. An appeal concerning such a claim will be heard by the General Commissioners instead, by virtue of section 31B of TMA (claims in returns) or paragraph 11(1) of Schedule 1A to that Act (other claims).

The claimant will still have the right under section 31D(1) of TMA (claims in returns) or paragraph 11(2) of Schedule 1A to that Act (other claims) to elect for the appeal to be heard by the Special Commissioners, although the General Commissioners may in certain circumstances disregard that election.

The result of the changes mentioned in this section is that the provisions affected will authorise or require things to be done by or in relation to an officer of the Board instead of by or in relation to the Board itself. However, as with the conversion of references to an inspector, this reflects the current organisation of the Inland Revenue.

Under section 4A of the Inland Revenue Regulation Act 1890 (which was introduced by FA 1969) any function conferred on the Board by or under any enactment, including any future enactment, may be exercised by any officer of the Board acting on their authority. All of the functions under the provisions affected by the conversion of references to the Board, which are in the main concerned with administrative processes, have in fact been devolved to officers of the Board, and the Board itself is no longer directly involved in their exercise.

Each of the provisions affected by the conversion of references to the inspector or to the Board is identified in the Table of Origins by a cross-reference to this change.

This change has no implications for the amount of tax paid, who pays it or when. It affects administrative matters only (and does so in principle and occasionally in practice).

Change 150: Definition of "houseboat" given by clause 878 relevant to clauses 787 and 809

This change provides a single definition of "houseboat", relevant to clauses 787 and 809.

For the purposes of paragraph 3 of Schedule A (see section 15(1) of ICTA) "houseboat" is defined as a boat or similar structure designed or adapted for use as a place of human habitation. Paragraph 3 is re-written in clause 266. The same definition is attracted by paragraph 4 of Schedule A (re-written in clause 308).

But "houseboat" is not defined in the definition of "residence" in paragraph 7 of Schedule 10 to F(No 2)A 1992 (rent-a-room relief) or in paragraph 7(3) of Schedule 36 to FA 2003 (foster-care relief). Accordingly, "houseboat" has its ordinary meaning in those provisions. The definition of "houseboat" in clause 878 is wider than the ordinary meaning: for example, it includes structures which are similar to boats (but are not boats).

In relation to clause 787 (which re-writes paragraph 7 of Schedule 10 to F(No 2)A 1992), a structure covered by the extended definition of "houseboat" may be covered by the reference to a building or part of a building. But if not, the effect of moving from the ordinary meaning of "houseboat" to the definition in clause 878 is to widen the range of residences in relation to which rent-a-room relief is available.

In relation to clause 809 (which re-writes paragraph 7(3) of Schedule 36 to FA 2003) the definition of "residence" used in clause 787 applies. Consequently, the point made in relation to clause 787 is also relevant. In referring to "the" residence, paragraph 7(3) of Schedule 36 to FA 2003 assumes that the accommodation which is actually provided by the foster carer for the child is caught. That would include accommodation comprising a structure covered by the extended definition of "houseboat". Therefore the application of the extended meaning of "houseboat" has no effect in relation to foster-care relief.

The change is in taxpayers' favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small.

Change 151: Definition of "personal representatives" and replacement of the expression "executors or administrators" with "personal representatives": clause 878

This change involves replacing the expressions "personal representatives" and "executors and administrators", where they are used in the source legislation without definition, with a defined term, "personal representatives". It also involves applying that new definition in relation to provisions in the source legislation which use the expression "personal representatives" as defined in section 701(4) of ICTA.

The term "personal representatives" is used without definition in the following provisions of the legislation on which the Bill is based:

  • section 103(3)(b) and (bb) of ICTA (which disapplies the charge to tax on receipts after the discontinuance of a trade, profession or vocation in relation to consideration paid to the personal representatives of an author for the assignment of copyright, and consideration paid to the personal representatives of a designer for the assignment of a design right) (see clause 253);

  • section 108 of ICTA (which allows personal representatives to elect for tax chargeable on sums received after discontinuance to be charged as if they were received on the date of discontinuance) (see clause 257);

  • section 113(7) of ICTA (by which a change in the personal representatives of a person is not to be treated for the purposes of that section as a change in the persons carrying on a trade, profession or vocation carried on by the personal representatives as such) (see clauses 258 and 361);

  • section 525(2) of ICTA (which allows the personal representatives of a person on whom a charge to tax falls or would fall to be made by reason of the person's sale of patent rights to require the tax payable to be reduced) (see clauses 593 and 862);

  • paragraphs 4(2) and 6(7) and (8) of Schedule 13 to FA 1996 (by which the vesting of a relevant discounted security in personal representatives on a person's death, and the transfer of such a security by personal representatives to a legatee, is to be treated as a transfer of the security for its market value) (see clauses 437 and 440); and

  • paragraph 14 of Schedule 22 to FA 2002 (which makes provision about the liability of personal representatives to an adjustment charge arising from a change of basis in computing the profits of a trade, profession or vocation) (see clause 240).

The expression "executors or administrators" is used, also without definition, in the following provisions of the legislation on which the Bill is based (using "personal representatives" in place of that expression):

  • section 584(7) of ICTA (relief for unremittable overseas income) (see clause 843); and

  • section 585(8) of ICTA (relief on delayed remittances) (see clause 837).

The definition of "personal representatives" in section 701(4) of ICTA applies to the following provisions of the legislation on which the Bill is based:

  • section 249(5) of ICTA (by which stock dividend income is deemed in certain circumstances to be part of the aggregate income of the estate of a deceased person) (see clauses 410 and 664);

  • section 421(2) of ICTA (by which the amount charged to tax in respect of the release of a loan made to a participator in a close company falls in certain circumstances to be treated as part of the aggregate income of the estate a deceased person) (see clauses 419 and 664);

  • section 347A(3) of ICTA (which makes provision about annual payments made by personal representatives) (see clauses 727 and 730);

  • section 547(1) of ICTA (by which the amount of a gain treated as arising on the happening of a chargeable event in relation to a contract for life insurance etc. is deemed in certain circumstances to be part of the aggregate income of the estate of a deceased person) (see clauses 466 and 664);

  • sections 547(7A) and 547A(3) of ICTA (which make provision for and in connection with the liability of personal representatives to tax on a gain treated as arising on the happening of a chargeable event in relation to a contract for life insurance etc.) (see clauses 466 and 470);

  • section 697(1) of ICTA (which makes provision for the determination of the amount of the residuary income of an estate for a year) (see clause 666);

  • section 698(1) and (3) of ICTA (which make provision for the personal representatives of a deceased person to be deemed to have an absolute or limited interest in relation to the estate of another deceased person) (see clause 650);

  • section 701(8), (9) and (12) of ICTA (which define various concepts for the purposes of Part 16 of that Act) (see clauses 651, 664 and 681); and

  • paragraph 7(3) of Schedule 5AA to ICTA (which makes provision about the application in relation to personal representatives of provisions about the taxation of profits and gains from disposals of futures and options involving guaranteed returns) (see clause 568).

The definition of "personal representatives" in section 701(4) of ICTA provides that:

"personal representatives" means, in relation to the estate of a deceased person, his personal representatives as defined in relation to England and Wales by section 55 of the Administration of Estates Act 1925 and persons having in relation to the deceased under the law of another country any functions corresponding to the functions for administration purposes under the law of England and Wales of personal representatives as so defined; and references to "personal representatives as such" shall be construed as references to personal representatives in their capacity as having such functions.

The new definition in clause 878 of the Bill provides that:

"personal representatives", in relation to a person who has died, means—

    (a) in the United Kingdom, persons responsible for administering the estate of the deceased, and

    (b) in a country or territory outside the United Kingdom, those persons having functions under its law equivalent to those of administering the estate of the deceased.

This follows section 721(1) of ITEPA. It is also similar to the definition of "personal representatives" in section 229(1) of ICTA. This definition (which does not apply to any of the provisions listed above) provides that:

"personal representatives" means persons responsible for administering the estate of a deceased person.

So the main difference between the definition in section 701(4) of ICTA and the definition in clause 878 is that the former applies the definition in section 55 of the Administration of Estates Act 1925. Subsection (1)(xi) of that section provides that—

"personal representative" means the executor, original or by representation, or administrator for the time being of a deceased person, and as regards any liability for the payment of death duties includes any person who takes possession of or intermeddles with the property of a deceased person without the authority of the personal representatives or the court, and "executor" includes a person deemed to be appointed executor as respects settled land.

It is also worth noting the definition of "personal representatives" in section 111(3) of FA 1989. This definition (which does not apply to any of the provisions listed above) provides that:

(3) In this section "personal representatives" means—

    (a) in relation to England and Wales, the deceased person's personal representatives as defined by section 55 of the Administration of Estates Act 1925;

    (b) in relation to Scotland, his executor or the judicial factor on his estate;

    (c) in relation to Northern Ireland, his personal representatives as defined by section 45(1) of the Administration of Estates Act (Northern Ireland) 1955; and

    (d) in relation to another country or territory, the persons having in relation to him under its law any functions corresponding to the functions for administration purposes of personal representatives under the law of England and Wales.

Section 45(1) of the Administration of Estates Act (Northern Ireland) 1955 provides that:

"personal representatives" means the executors or executor, original or by representation, or the administrators or administrator for the time being of a deceased person.

The first question is whether there is any difference in coverage between the definition in section 701(4) of ICTA on the one hand, and the first limb of the clause 878 definition on the other.

The definition in section 55 of the Administration of Estates Act 1925 (and that in section 45(1) of the Administration of Estates Act (Northern Ireland) 1955 mentioned in the definition in section 111(3) of FA 1989) refer to executors as well as administrators.

Under English law, executors are generally appointed by the will. Administrators are appointed by the court where no one is appointed as executor by the will or where the deceased dies without leaving a valid will.

English law recognises three other categories of executor. The first is "executor according to the tenor" who on the terms of the will is appointed to perform the essential duties of an executor where the deceased person has failed to nominate a person to be his executor. Secondly there is the "executor de son tort", who is a person who takes upon himself the position of executor or intermeddles with the goods of the deceased person without having been appointed executor or administrator. Thirdly there is the "special executor", the term given to a person who is a trustee of settled land at the time of the death. The position is similar for Northern Ireland.

For the purposes of Scottish law, an executor is appointed either expressly or impliedly by the deceased, in which case he is known as an executor nominate, or by the court, in which case he is known as an executor dative. So the term "executor" under Scottish law is broadly equivalent to an "executor or administrator" under English law. Scottish law also recognises judicial factors and executor-creditors who may be appointed by the court to administer the deceased's estate or part of it. Although a judicial factor could not be described as an executor, he might be regarded as an "administrator".

So, in relation to any part of the United Kingdom, a deceased person's personal representatives within meaning of section 701(4) of ICTA (or section 111(3) of FA 1989) are the persons responsible for administering the person's estate. The first limb of the clause 878 definition therefore seems to catch the same persons as does section 701(4) of ICTA (and section 111(3) of FA 1989) in relation to each part of the United Kingdom, but does so more directly and succinctly.

Then there are the provisions in the source legislation which use the expression "personal representatives" or the expression "executors and administrators" without definition. It follows from what is said above that the application of the first limb of the clause 878 definition in relation to these provisions as rewritten in the Bill reflects the ordinary common sense meaning of those terms in each part of the United Kingdom.

So far as the second limb of the clause 878 definition is concerned, if the first limb covers the same ground as section 701(4) of ICTA, it follows that the application of that first limb to countries and territories outside the United Kingdom must have the same effect as the application of section 701(4) to such countries and territories.

That leaves the question of whether there is any change involved in applying the clause 878 definition to provisions in the source legislation which use the expressions "personal representatives" and "executors and administrators" without definition, as those provisions apply to countries and territories outside the United Kingdom.

The terms "executor" and "administrator" are not terms of art in relation to countries and territories outside the United Kingdom. But it seems likely that a court would hold that references to "personal representatives" or "executors or administrators" in tax legislation would, in the absence of a definition, cover the people that most closely resemble executors or administrators in the United Kingdom. In view of what is said above, that means the people who have functions corresponding to those of personal representatives in the United Kingdom ie functions equivalent to those of administering the estate of the deceased.

References to "personal representatives" or "executors or administrators" in the provisions on which the Bill is based can be read as references to anyone with responsibility for administering a deceased person's estates, including those with equivalent responsibilities in other jurisdictions. These provisions can be divided into two categories.

In the first category are provisions like section 108 of ICTA. These confirm that, on a person's death, the rights and liabilities which are or would otherwise have been conferred on him are conferred on his personal representatives or his executors and administrators. Sections 584(7) and 585(8) of ICTA and paragraph 14 of Schedule 22 to FA 2002 also fall into this category.

In this context it is clear that the references to "personal representatives" (or "executors or administrators") are to whoever in fact has the role of administering the property of the deceased person. These provisions are intended to confirm that such persons have the same ability to deal with the deceased's tax affairs as he or she would have if he or she were still alive, and are subject to the same tax liabilities.

The second category covers those provisions which only apply because a person has died, so that his or her property is being administered by his or her personal representatives. See, for example, section 103(3)(b) and (bb) of ICTA. This says that the fact that someone who was previously carrying on a trade has died does not mean that certain sums received by his or her personal representatives are to be treated as post-cessation receipts of the trade. Sections 113(7) and 525(2) of ICTA and paragraphs 4(2) and 6(7) and (8) of Schedule 13 to FA 1996 also fall into this category.

In these cases the fact that someone has died creates a gap in the law (or at least a doubt as to what the law is) or requires some special arrangement to be made. The provisions in question fill that gap. So it is consistent with the aim of these provisions for them to be interpreted as applying in all cases in which a person has died and his property is being administered by others.

 
previous Section contents continue
 
House of Commons home page Houses of Parliament home page House of Lords home page search Page enquiries index

© Parliamentary copyright 2004
Prepared: 3 December 2004