Income Tax Bill

House of Commons

Session 2006 - 07
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Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 13 — Income tax liability: miscellaneous rules
Chapter 4 — Other miscellaneous rules
392

(2)
But subsection (1) does not prevent the income from being taken into account
in calculating profits, gains or losses of a business carried on in the United
Kingdom.
(3)
Her Majesty may by Order in Council direct that this section applies to a bank
or its issue department if it appears to Her Majesty that the bank—
5
(a)
is non-UK resident, and
(b)
is entrusted by the government of a territory outside the United
Kingdom with the custody of the territory’s principal foreign exchange
reserves.
(4)
No recommendation may be made to Her Majesty in Council to make an order
10
under this section unless a draft of the order has been laid before and approved
by a resolution of the House of Commons.
774
Official agents of Commonwealth countries etc
(1)
This section applies if an individual is employed in the United Kingdom as an
official agent for—
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(a)
a country mentioned in Schedule 3 to the British Nationality Act 1981
(c. 61) (which contains a list of Commonwealth countries) or the
Republic of Ireland, or
(b)
a state or province of a country within paragraph (a).
(2)
If conditions A and B are met, the individual is entitled to the same immunity
20
from income tax as that to which a member of the staff of a mission is entitled
under the Diplomatic Privileges Act 1964 (c. 81).
(3)
Condition A is that the individual has been certified—
(a)
to be ordinarily resident outside the United Kingdom, and
(b)
to be UK resident solely for the purposes of the individual’s functions
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as an official agent.
(4)
The certification must have been done by (as the case may be)—
(a)
the High Commissioner of the country for which the individual is an
official agent, or
(b)
the Agent-General of the state or province for which the individual is
30
an official agent.
(5)
In subsection (4)(a) “High Commissioner” includes the head of the mission of
the country in question by whatever name called.
(6)
Condition B is that the individual’s functions as an official agent are not
performed in connection with a trade, business or other undertaking carried on
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for the purposes of profit.
(7)
In this section “head of the mission” and “a member of the staff of a mission”
are to be read in accordance with the Diplomatic Privileges Act 1964.
775
European Economic Interest Groupings
(1)
The following rules about European Economic Interest Groupings apply for
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the purposes of charging income tax—
Rule 1

A grouping is treated as acting as the agent of its members.

Income Tax Bill
Part 13 — Income tax liability: miscellaneous rules
Chapter 4 — Other miscellaneous rules
393



Rule 2

The activities of a grouping are treated as those of its members acting jointly.


Rule 3
5

Each member of a grouping is treated as having a share of the grouping’s
property, rights and liabilities.


Rule 4

Any trade or profession carried on by the grouping is treated as carried on in
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partnership by the members of the grouping.
(2)
For the purposes of Rule 3, a member’s share of any property, rights or
liabilities of a grouping is determined according to the contract under which
the grouping is established.
(3)
If the contract does not provide for this, the member’s share is determined by
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reference to the share of the profits of the grouping to which the member is
entitled under the contract.
(4)
If the contract does not provide for this either, the members are treated as
having equal shares of the property, rights and liabilities of the grouping.
(5)
“European Economic Interest Grouping” means a European Economic Interest
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Grouping formed under Council Regulation (EEC) No 2137/85 of 25 July 1985,
whether registered in Great Britain, Northern Ireland or elsewhere.
776
Restriction of deductions for annual payments
In calculating a person’s income from any source, no deduction is allowed for
an annual payment to which section 837 applies (annual payments for
25
dividends or non-taxable consideration).
777
Letters patent etc: exempting provisions
(1)
No provision in letters patent granted by the Crown is to be construed as
conferring exemption from income tax.
(2)
Subsection (1) applies whether the letters patent are granted before or after the
30
date on which this Act is passed.
(3)
Any provision of the letters patent purporting to override the effect of
subsection (1) is void.
778
Extra return to be treated as interest etc
(1)
This section applies if—
35
(a)
securities (“old securities”) of a particular kind are issued by way of an
original issue of securities of that kind,
(b)
on a later occasion securities (“new securities”) of the same kind are
issued,
(c)
a sum (“the extra return”) is payable in respect of the new securities by
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the issuer of them to reflect the fact that interest is accruing on the old
securities,

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 1 — Introduction
394

(d)
the issue price of the new securities includes an element (whether or not
separately identified) representing payment for the extra return, and
(e)
the extra return is equal to the amount of interest mentioned in
subsection (2).
(2)
The amount of interest referred to in subsection (1)(e) is—
5
(a)
the amount of interest payable for the relevant period on so many old
securities as there are new, or
(b)
if there are more new securities than old, the amount of interest which
would be so payable if there were as many old securities as new.
(3)
A sum paid or payable by way of the extra return is treated for income tax
10
purposes as if it were paid or payable as interest (so far as it would not be
treated in that way apart from this subsection).
(4)
No relief for the extra return is to be given to the issuer of the new securities.
779
Interpretation of section 778
(1)
This section applies for the purposes of section 778.
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(2)
Securities are of the same kind if they—
(a)
are treated as being of the same kind by the practice of a recognised
stock exchange, or
(b)
would be so treated if dealt in on a recognised stock exchange.
(3)
“The relevant period” is the period—
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(a)
beginning with the day mentioned in subsection (4), and
(b)
ending with the day (“the new issue day”) on which the new securities
are issued.
(4)
The day referred to in subsection (3)(a) is the day after—
(a)
the last interest payment day before the new issue day, or
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(b)
if there is no interest payment day before the new issue day, the day on
which the old securities are issued.
(5)
In subsection (4) “interest payment day” means a day on which interest is
payable under the old securities.
(6)
“Relief” means relief by way of deduction in calculating amounts of income
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charged to income tax or in calculating net income.
Part 14
Deduction of income tax at source
Chapter 1
Introduction
35
780
Overview of Part
(1)
This Part deals with deduction of income tax at source.
(2)
The following Chapters contain duties to deduct sums representing income tax
from certain payments—

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 1 — Introduction
395

(a)
Chapter 2 (deposit-takers and building societies),
(b)
Chapter 3 (certain payments of yearly interest),
(c)
Chapter 4 (payments in respect of building society securities),
(d)
Chapter 5 (payments of UK public revenue dividends),
(e)
Chapter 6 (annual payments and patent royalties),
5
(f)
Chapter 7 (other payments connected with intellectual property),
(g)
Chapter 9 (manufactured payments), and
(h)
Chapter 10 (non-commercial payments by companies).
(3)
Chapters 6 and 7 are subject to Chapter 8 which makes special provision in
relation to the deduction of sums representing income tax from royalty
10
payments.
(4)
Chapter 11 contains provision disapplying some of the duties to deduct where
payments are made between companies etc.
(5)
The following Chapters contain further provision in connection with the
deduction (or deemed deduction) of sums representing income tax from
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certain payments (or deemed payments)—
(a)
Chapter 12 (funding bonds),
(b)
Chapter 13 (unauthorised unit trusts), and
(c)
Chapter 14 (tax avoidance: directions for deductions from payments to
non-UK residents).
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(6)
Chapters 15 to 17 contain provision about the collection of income tax in
respect of payments from which sums are required to be deducted (or from
which sums are treated as deducted) under the preceding Chapters.
(7)
Chapter 18 deals with regimes involving the deduction of income tax at source
which apply in the case of—
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(a)
visiting performers,
(b)
non-resident landlords, and
(c)
Real Estate Investment Trusts.
(8)
Chapter 19 makes general provision for this Part including—
(a)
provision about the giving of statements about deduction of income
30
tax,
(b)
provision about payments where the recipient is a company or where
the payer is a public department, and
(c)
exceptions from duties to deduct for payments made by designated
international organisations, some payments under derivative contracts
35
and for some payments of interest on foreign currency securities.
(9)
The following provisions also deal with deduction of income tax at source—
(a)
Part 11 of ITEPA 2003 (Pay As You Earn), and
(b)
Chapter 3 of Part 3 of FA 2004 (construction industry scheme).
781
Income tax deducted at source treated as income tax paid by recipient
40
(1)
A sum representing income tax which is deducted (or treated as deducted)
under this Part from a payment is treated as income tax paid by the recipient.
(2)
The sum is accordingly taken into account under sections 59B and 59D of TMA
1970 (see also paragraph 8 of Schedule 18 to FA 1998) in determining the
income tax or corporation tax payable by, or repayable to, the recipient.
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Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 2 — Deduction by deposit-takers and building societies
396

(3)
But this section does not apply to income tax deducted at source under section
899 (visiting performers) or 904 (non-resident landlords).
782
Interaction with other Income Tax Acts provisions
(1)
Regulations made under section 791 of ICTA (double taxation relief: power to
make regulations for carrying out section 788) make provision disapplying or
5
otherwise affecting duties to deduct under this Part in circumstances where
relief is available under double taxation arrangements.
(2)
Sections 821 and 822 of ICTA make provision in relation to under-deductions
and over-deductions from some payments which are made before the passing
of the relevant annual Act imposing income tax and corporation tax.
10
(3)
In accordance with section 783 of ITTOIA 2005 (general disregard of exempt
income for income tax purposes), any payment (or part of a payment) which is
exempt from income tax as a result of Part 6 of ITTOIA 2005 is ignored for the
purposes of the duties under this Part.

This is subject to any express or implied provision to the contrary.
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(4)
Paragraphs 11 to 13 of Schedule 2 to FA 2005 (alternative finance
arrangements: further provisions) make provision for Chapters 2 to 5, 12 and
19 to have effect in relation to alternative finance arrangements.
(5)
For exceptions from the duties to deduct under Chapters 3, 6, 7, 10 and 14 in
connection with the London Olympic Games and Paralympic Games see—
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(a)
Chapter 6 of Part 3 of FA 2006, and
(b)
regulations made under that Chapter.
Chapter 2
Deduction by deposit-takers and building societies
Introduction
25
783
Overview of Chapter
(1)
This Chapter deals with the deduction of sums representing income tax by
deposit-takers and building societies from payments of interest on relevant
investments.
(2)
Section 784 contains a general duty to deduct sums representing income tax
30
from such payments and section 785 confers power on the Commissioners for
Her Majesty’s Revenue and Customs to disapply section 784 by regulations.
(3)
Sections 786 to 789 set out some basic concepts, so that—
(a)
section 786 defines “deposit-taker” (and section 787 allows the Treasury
by order to prescribe persons as deposit-takers),
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(b)
section 788 defines “investment” and “deposit”, and
(c)
section 789 explains which investments are relevant investments.
(4)
Section 789 is subject to—
(a)
section 790 (which sets out when investments must be treated as
relevant and when they may be treated as not relevant), and
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Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 2 — Deduction by deposit-takers and building societies
397

(b)
sections 791 to 803 (which describe various kinds of investment which
are not relevant investments).
(5)
Sections 804 to 806 contain supplementary provisions.
(6)
For the purposes of this Chapter—
(a)
any reference to interest paid by a building society on a relevant
5
investment includes a reference to a dividend paid by the society in
respect of the investment,
(b)
“dividend” includes any distribution (whether or not described as a
dividend), and
(c)
crediting interest counts as paying it.
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Duty to deduct sums representing income tax
784
Duty to deduct sums representing income tax
(1)
This section applies if—
(a)
a deposit-taker or building society makes a payment of interest on an
investment (see section 788(1)), and
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(b)
when the payment is made, the investment is a relevant investment (see
section 789).
(2)
The deposit-taker or building society must, on making the payment, deduct
from it a sum representing income tax on it at the savings rate in force for the
tax year in which it is made.
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(3)
For provision about the collection of income tax in respect of a payment from
which a sum must be deducted under this section, see Chapter 15.
785
Power to make regulations disapplying section 784
(1)
The Commissioners for Her Majesty’s Revenue and Customs may make
regulations which provide that section 784 does not apply in relation to a
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payment of interest if prescribed conditions are met.
(2)
The regulations may, in particular, include—
(a)
provision for a certificate to be supplied to the effect that the person
beneficially entitled to a payment is unlikely to be liable to pay any
income tax for the tax year in which it is made,
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(b)
provision for the certificate to be supplied by that person or another
prescribed person,
(c)
provision about the time when, and the manner in which, a certificate
is to be supplied, and
(d)
provision about the form and contents of a certificate.
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(3)
Any provision included in the regulations under subsection (2)(d) may allow
the Commissioners to make requirements about the form and contents of a
certificate.
(4)
In this section “prescribed” means prescribed in the regulations.