Income Tax Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 5 — Deduction from payments of UK public revenue dividends
412

Payments which are payable gross
826
Payments of UK public revenue dividends which are payable gross
(1)
A payment of a UK public revenue dividend is payable gross if—
(a)
it is a payment of interest on gross-paying government securities, and
(b)
no deduction at source application has effect in respect of the securities
5
at the time the payment is made (see section 828).
(2)
In this Chapter “gross-paying government securities” means—
(a)
gilt-edged securities (see section 918), or
(b)
securities which are the subject of a Treasury direction under section
827(1) or (3).
10
827
Treasury directions
(1)
The Treasury may direct that any securities to which subsection (2) applies are
gross-paying government securities.
(2)
This subsection applies to any securities, so far as they are not gilt-edged
securities, issued or treated as issued under—
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(a)
the National Loans Act 1939 (c. 117), or
(b)
the National Loans Act 1968 (c. 13).
(3)
The Treasury may, at the request of the Department of Finance and Personnel
for Northern Ireland, direct that any securities issued under section 11(1)(c) of
the Exchequer and Financial Provisions Act (Northern Ireland) 1950 (c. 3 (N.I.))
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are gross-paying government securities.
(4)
In relation to any securities which are gross-paying government securities by
virtue of a direction under subsection (3)—
(a)
references in sections 828 and 829 to “the Registrar” are to be read as
references to the bank in the books of which the securities are registered
25
or inscribed, and
(b)
references in those sections to the Treasury are to be read as references
to the Department of Finance and Personnel for Northern Ireland.
(5)
A direction under subsection (1) or (3) in respect of any securities may provide
that the direction is to have effect in relation only to payments of interest on the
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securities made on or after a date specified in the direction.
Deduction at source applications
828
Deduction at source application
(1)
The holder of registered gross-paying government securities may make a
deduction at source application in respect of the securities.
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(2)
A deduction at source application in respect of any securities is an
application—
(a)
for payments of interest on those securities to be subject to the duty to
deduct sums representing income tax under section 825,
(b)
made to the Registrar, and
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Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 5 — Deduction from payments of UK public revenue dividends
413

(c)
made in such form as the Registrar may, with the approval of the
Treasury, prescribe.
(3)
A deduction at source application in respect of any securities has effect from
the date which is one month after the date on which it is made until—
(a)
the securities cease to be registered in the name of the person who made
5
the application, or
(b)
the application ceases to have effect under section 829 following its
withdrawal in accordance with that section.
(4)
If any registered gross-paying government securities are held on trust, the
holders of the securities may make a deduction at source application in respect
10
of them without the consent of any other person.
(5)
Subsection (4) applies despite anything in the instrument creating the trust.
(6)
In this Chapter—
“registered” means—
(a)
entered in the register of the Registrar, or
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(b)
entered in a register maintained in accordance with regulations
under section 207 of the Companies Act 1989 (c. 40) (transfer of
securities without written instrument), and
“the Registrar” means the person or persons appointed in accordance
with regulations under section 47(1)(b) of FA 1942 (see regulation 3 of
20
the Government Stock Regulations 2004 (S.I. 2004/1611)).
829
Withdrawal of application
(1)
A deduction at source application may be withdrawn by notice given to the
Registrar by the holder of the securities.
(2)
The notice must be given in such form as the Registrar may, with the approval
25
of the Treasury, prescribe.
(3)
If withdrawn, a deduction at source application ceases to have effect on the
date which is one month after the date on which the notice of withdrawal is
received by the Registrar.
Regulations
30
830
Power to make regulations
(1)
The Commissioners for Her Majesty’s Revenue and Customs may by
regulations—
(a)
make provision as to the time and manner in which persons are to
account for and pay income tax in respect of payments from which they
35
are required to deduct sums representing income tax under section 825,
and
(b)
otherwise modify the provisions of section 825 and Chapters 15 and 16
in their application to such payments.
(2)
Regulations under this section may—
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(a)
make different provision for different descriptions of UK public
revenue dividend and for different circumstances, and

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 6 — Deduction from annual payments and patent royalties
414

(b)
contain incidental, supplemental, consequential and transitional
provision and savings.
(3)
The Commissioners for Her Majesty’s Revenue and Customs must not make
any regulations under this section unless a draft of them has been laid before
and approved by a resolution of the House of Commons.
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Chapter 6
Deduction from annual payments and patent royalties
Introduction
831
Overview of Chapter
(1)
This Chapter deals with the deduction of sums representing income tax from—
10
(a)
qualifying annual payments, and
(b)
royalties or other sums paid in respect of the use of patents.
(2)
See also—
(a)
Chapter 11 (payments between companies etc) for an exception from
the duties to deduct sums representing income tax under this Chapter,
15
(b)
Chapter 4 of Part 8, which gives relief for certain payments from which
sums representing income tax must be deducted under this Chapter,
and
(c)
section 615(3) of ICTA (exemption from tax in respect of certain
pensions) which contains a further exception from the duties to deduct
20
sums representing income tax under this Chapter.
(3)
If a payment to which a provision of this Chapter applies is also one to which
section 839 applies, it is treated as not being a payment to which a provision of
this Chapter applies.
832
Meaning of “qualifying annual payment”
25
(1)
In this Chapter “qualifying annual payment” means an annual payment that
meets the conditions in subsections (2) to (5).
(2)
The payment must arise in the United Kingdom.
(3)
If the recipient is a person other than a company, the payment must be—
(a)
a payment charged to income tax under—
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(i)
Chapter 7 of Part 4 of ITTOIA 2005 (purchased life annuity
payments),
(ii)
section 579 of that Act (royalties etc from intellectual property),
(iii)
Chapter 4 of Part 5 of that Act (certain telecommunication
rights: non-trading income), or
35
(iv)
Chapter 7 of Part 5 of that Act (annual payments not otherwise
charged), or
(b)
a payment charged to income tax under Part 9 of ITEPA 2003 because
section 609 or 611 of that Act applies to it (certain employment-related
annuities).
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(4)
If the recipient is a company, the payment must be—

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 6 — Deduction from annual payments and patent royalties
415

(a)
a payment charged to income tax as mentioned in subsection (3)(a), or
(b)
a payment charged to corporation tax under Case III of Schedule D.
(5)
The payment must not be—
(a)
interest,
(b)
a qualifying donation as defined in section 339 of ICTA (donations to
5
charity by companies),
(c)
a payment which is a qualifying donation for the purposes of Chapter
2 of Part 8 (gift aid),
(d)
a payment in relation to which income tax is treated as having been
paid under section 494(3) (income tax treated as paid by beneficiary or
10
settlor in relation to discretionary trust),
(e)
a payment which would fall within paragraph (d) but for the fact that
the trustees making the payment are non-UK resident, or
(f)
an annual payment to which section 837 applies (annual payments for
dividends or non-taxable consideration).
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Duty to deduct from annual payments
833
Deduction from commercial payments made by individuals
(1)
This section applies to any payment made in a tax year if—
(a)
it is a qualifying annual payment,
(b)
the person who makes it is an individual, and
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(c)
it is made for genuine commercial reasons in connection with the
individual’s trade, profession or vocation.
(2)
The individual must, on making the payment, deduct from it a sum
representing income tax on it at the basic rate in force for the tax year.
(3)
Income tax equal to the sum required to be deducted is to be collected through
25
the individual’s self-assessment return (see Chapter 17).
834
Deduction from annual payments made by other persons
(1)
This section applies to any payment made in a tax year if—
(a)
it is a qualifying annual payment, and
(b)
the person who makes it is not an individual.
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(2)
But this section does not apply if—
(a)
an individual’s personal representatives make the payment,
(b)
the individual would have been liable to make it if the individual had
not died, and
(c)
the payment would not have been made for genuine commercial
35
reasons in connection with the individual’s trade, profession or
vocation, had it been made by the individual.
(3)
If the person who makes the payment has some modified net income for the tax
year (see section 958)—
(a)
the person must, on making it, deduct from it a sum representing
40
income tax on it at the basic rate in force for the tax year, and
(b)
income tax equal to the sum required to be deducted is to be collected
through the person’s self-assessment return (see Chapter 17).

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 6 — Deduction from annual payments and patent royalties
416

(4)
If the person who makes the payment has no modified net income for the tax
year the person by or through whom the payment is made must, on making it,
deduct from it a sum representing income tax on it at the applicable rate (see
section 835).
(5)
For provision about the collection of income tax in respect of a payment from
5
which a sum must be deducted under subsection (4)—
(a)
see Chapter 15 if the person making the payment is a UK resident
company, and
(b)
otherwise see Chapter 16.
835
Meaning of “applicable rate” in section 834
10
(1)
This section gives the meaning of “applicable rate” in section 834(4).
(2)
Except in the case dealt with in subsection (3), the applicable rate is the basic
rate in force for the tax year in which the payment is made.
(3)
If the payment—
(a)
is an annuity payment under a purchased life annuity, and
15
(b)
meets the condition in subsection (4),

the applicable rate is the savings rate in force for the tax year in which the
payment is made.
(4)
The condition is that the payment either—
(a)
is savings income, or
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(b)
would be savings income, if it were the income of an individual within
the charge to income tax.
(5)
In this section “purchased life annuity” has the meaning given by section 423
of ITTOIA 2005.
Duty to deduct from patent royalties
25
836
Deduction from patent royalties
(1)
This section applies to any payment made in a tax year if—
(a)
it is a payment of a royalty or other sum in respect of the use of a patent,
and
(b)
it meets the conditions in subsections (2) to (4).
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(2)
The payment must not be—
(a)
a qualifying annual payment, or
(b)
an annual payment to which section 837 applies (annual payments for
dividends or non-taxable consideration).
(3)
The payment must arise in the United Kingdom.
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(4)
The payment must be one that is charged to income tax or corporation tax.
(5)
If the person who makes the payment is an individual—
(a)
the person must, on making the payment, deduct from it a sum
representing income tax on it at the basic rate in force for the tax year,
and
40

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 6 — Deduction from annual payments and patent royalties
417

(b)
income tax equal to the sum required to be deducted is to be collected
through the person’s self-assessment return (see Chapter 17).
(6)
If the person who makes the payment is not an individual, and has some
modified net income for the tax year (see section 958)—
(a)
the person must, on making the payment, deduct from it a sum
5
representing income tax on it at the basic rate in force for the tax year,
and
(b)
income tax equal to the sum required to be deducted is to be collected
through the person’s self-assessment return (see Chapter 17).
(7)
If the person who makes the payment—
10
(a)
is not an individual, and
(b)
has no modified net income for the tax year,

the person by or through whom the payment is made must, on making it,
deduct from it a sum representing income tax on it at the basic rate in force for
the tax year.
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(8)
See Chapter 8 which makes special provision in relation to royalties (double
taxation arrangements: deduction at treaty rate and EU companies: discretion
to pay gross).
(9)
For provision about the collection of income tax in respect of a payment from
which a sum must be deducted under subsection (7)—
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(a)
see Chapter 15 if the person making the payment is a UK resident
company, and
(b)
otherwise see Chapter 16.
Supplementary
837
Annual payments for dividends or non-taxable consideration
25
(1)
For the purposes of section 832(5)(f) and 836(2)(b) this section applies to an
annual payment which meets the conditions in subsections (2) to (7).
(2)
The payment must be a payment charged to—
(a)
income tax under Part 5 of ITTOIA 2005, or
(b)
corporation tax under Case III of Schedule D.
30
(3)
The payment must be made under a liability incurred for consideration in
money or money’s worth all or any of which—
(a)
consists of a dividend or the right to receive a dividend, or
(b)
is not required to be brought into account in calculating for the
purposes of income tax or corporation tax the income of the person
35
making the payment.
(4)
The payment must not be a payment of income—
(a)
which arises under a settlement made by one party to a marriage or
civil partnership by way of provision for the other—
(i)
after the dissolution or annulment of the marriage or civil
40
partnership, or
(ii)
while they are separated under an order of a court, or under a
separation agreement, or if the separation is likely to be
permanent, and

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 7 — Deduction from other payments connected with intellectual property
418

(b)
which is payable to, or applicable for the benefit of, the other party.
(5)
The payment must not be made by an individual for genuine commercial
reasons in connection with the individual’s trade, profession or vocation.
(6)
The payment must not be made to an individual under a liability incurred at
any time in consideration of the individual surrendering, assigning or
5
releasing an interest in settled property to or in favour of a person with a
subsequent interest.
(7)
The payment must not be a payment of an annuity granted in the ordinary
course of a business of granting annuities.
(8)
In the application of this section to Scotland the reference in subsection (6) to
10
settled property is to be read as a reference to property held in trust.
838
Interpretation of Chapter
In this Chapter “individual” includes a Scottish partnership if at least one
partner is an individual.
Chapter 7
15
Deduction from other payments connected with intellectual property
Certain royalties etc where usual place of abode of owner is abroad
839
Certain royalties etc where usual place of abode of owner is abroad
(1)
This section applies to any payment made in a tax year if—
(a)
it is a payment of any royalties, or sums payable periodically, in respect
20
of a relevant intellectual property right (see section 840),
(b)
it is one that is charged to income tax or corporation tax, and
(c)
condition A or B is met.
(2)
Condition A is that the usual place of abode of the owner of the right is outside
the United Kingdom.
25
(3)
Condition B is that—
(a)
a person (“the seller”) has assigned the right to another person,
(b)
the usual place of abode of the seller is outside the United Kingdom,
(c)
the seller is entitled to periodical payments in respect of the right, and
(d)
the payments are in respect of that entitlement.
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(4)
But this section does not apply if the payment is made in respect of copies of
works, or articles, which have been exported from the United Kingdom for
distribution outside the United Kingdom.
(5)
The person by or through whom the payment is made must, on making it,
deduct from it a sum representing income tax on it at the basic rate in force for
35
the tax year.
(6)
See—