Income Tax Bill

House of Commons

Session 2006 - 07
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Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 12 — Funding bonds
431

(3)
Each partner in the partnership must be—
(a)
a person or body mentioned in section 869, or
(b)
a person or body to whom one of subsections (4) to (6) applies.
(4)
This subsection applies to a UK resident company.
(5)
This subsection applies to a company that—
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(a)
is non-UK resident,
(b)
carries on a trade in the United Kingdom through a permanent
establishment, and
(c)
is required to bring into account, in calculating its chargeable profits
(within the meaning of section 11(2) of ICTA), the whole of any share of
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the payment that is attributable to it because of sections 114 and 115 of
ICTA.
(6)
This subsection applies to the European Investment Fund.
(7)
The Treasury may by order amend this section to add to, restrict or otherwise
alter the persons or bodies falling within subsection (3)(b).
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Incorrect belief that payment is an excepted payment
871
Consequences of reasonable but incorrect belief
(1)
This section applies if—
(a)
a payment is made by a company, local authority or qualifying
partnership without a sum representing income tax on the payment
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being deducted from it,
(b)
at the time the payment is made, the company, authority or partnership
reasonably believes that it is an excepted payment,
(c)
one of the duties to deduct sums representing income tax mentioned in
section 863(2) would apply to the payment if the company did not so
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believe, and
(d)
the payment is not an excepted payment at the time it is made.
(2)
This Part has effect in relation to the payment as if section 863(1) had never
disapplied the duties to deduct mentioned in section 863(2).
Chapter 12
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Funding bonds
872
Duty to retain bonds where issue treated as payment of interest
(1)
This section applies if—
(a)
there is an issue of funding bonds to a creditor in respect of a liability
to pay interest on a debt incurred by a government, public institution,
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other public authority or body corporate,
(b)
by virtue of section 582(1)(a) of ICTA or section 380 of ITTOIA 2005, the
issue is treated as if it were a payment of an amount of interest (“the
deemed interest”), and

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 13 — Unauthorised unit trusts
432

(c)
the person by or through whom the bonds are issued is required, under
this Part, to deduct a sum representing income tax from the deemed
interest.
(2)
The person by or through whom the bonds are issued must retain bonds the
value of which is, at the time of their issue, equal to income tax on the deemed
5
interest at the savings rate in force for the tax year in which the bonds are
issued.
(3)
A person who retains bonds in accordance with subsection (2) is treated as
complying with the duty to deduct a sum representing income tax from the
deemed interest.
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(4)
The person may tender the bonds retained in satisfaction of any income tax to
be collected from the person in respect of the deemed interest under Chapter
15 or 16.
(5)
But see section 873 for provision about circumstances where it is impracticable
to retain bonds in accordance with subsection (2).
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(6)
In this Chapter “funding bonds” includes any bonds, stocks, shares, securities
or certificates of indebtedness.
873
Exception from duty to retain bonds
(1)
This section applies if an issue of funding bonds is treated as a payment of
interest (“the deemed interest”) as mentioned in section 872(1) and—
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(a)
the person by or through whom the bonds are issued is required to
retain bonds under section 872(2), but
(b)
it is impracticable for the person to do so.
(2)
The duty to deduct a sum representing income tax from the deemed interest
under this Part does not apply if the person tells the Commissioners for Her
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Majesty’s Revenue and Customs—
(a)
the names and addresses of the persons to whom the bonds have been
issued, and
(b)
the amount of the bonds issued to each person.
(3)
Accordingly—
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(a)
the duty to retain bonds under section 872(2) does not apply, and
(b)
the provisions in Chapters 15 and 16 about the collection of income tax
in respect of the deemed interest do not apply.
Chapter 13
Unauthorised unit trusts
35
874
Deemed payments to unit holders and deemed deductions of income tax
(1)
Subsections (2) and (3) apply if a unit holder in an unauthorised unit trust is
treated under Chapter 10 of Part 4 of ITTOIA 2005 (distributions from
unauthorised unit trusts if the trustees are UK resident) as having received
income on a date.
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Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 13 — Unauthorised unit trusts
433

(2)
The trustees are treated as making on that date a payment to the unit holder
representing the gross amount of the income (see section 548(2) of ITTOIA
2005).
(3)
The trustees are also treated as deducting from that payment a sum
representing income tax on the gross amount of the income at the basic rate for
5
the tax year in which the payment is made.
(4)
Subsection (5) applies if the trustees of an unauthorised unit trust are treated
under section 469(4A) of ICTA (distributions from unauthorised unit trusts if
the trustees are UK resident) as making an annual payment to a unit holder.
(5)
The trustees are also treated as deducting from the annual payment a sum
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representing income tax on its gross amount (see section 469(4C) of ICTA) at
the basic rate for the tax year in which the payment is made.
(6)
In this Chapter—
“deemed deduction” means a deduction within subsection (3) or (5),
“deemed payment” means a payment within subsection (2) or (4), and
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“the gross amount” means, in relation to a deemed payment, the amount
of the payment before the deemed deduction is made from it.
875
Income tax to be collected from trustees
(1)
This section applies if in a tax year the trustees of an unauthorised unit trust are
treated as making deemed payments.
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(2)
Income tax is to be collected through the trustees’ self-assessment return for the
tax year (see Chapter 17).
(3)
The amount of income tax to be collected (“the collectable amount”) is the
amount equal to the sum of the deemed deductions from the deemed
payments.
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(4)
But if the sum of the gross amounts of the deemed payments exceeds the
trustees’ modified net income for the tax year (see section 958), the collectable
amount is the amount calculated by taking the steps in subsection (5).
(5)
The steps to be taken are as follows.

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Step 1

Take the amount equal to the sum of the gross amounts of the deemed
payments and reduce that amount by—
(a)
the amount of the trustees’ income pool as at the start of the tax year
(see section 876), or
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(b)
if less, the amount by which the sum of the gross amounts of the
deemed payments exceeds the trustees’ modified net income.


Step 2

Apply the basic rate for the tax year to the result from Step 1.
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876
Calculation of trustees’ income pool
(1)
This is how the amount of the trustees’ income pool as at the start of a tax year
(“the current tax year”) is calculated.

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 14 — Tax avoidance: directions for duty to deduct to apply
434


The calculation to be used depends on which of the following cases applies.

But this needs to be read with subsections (2) and (3).


Case 1

This case applies if the trustees’ modified net income for the previous tax year
5
exceeded the sum of the gross amounts of the deemed payments treated as
made by the trustees in that year.

The trustees’ income pool as at the start of the current tax year is the sum of—
(a)
the amount of the trustees’ income pool as at the start of the previous
tax year, and
10
(b)
the amount by which the trustees’ modified net income for the previous
tax year exceeded the sum of the gross amounts of the deemed
payments treated as made by the trustees in that year.


Case 2
15

This case applies if the trustees’ modified net income for the previous tax year
was less than the sum of the gross amounts of the deemed payments treated as
made by the trustees in that year.

The trustees’ income pool as at the start of the current tax year is—
(a)
the amount of the trustees’ income pool as at the start of the previous
20
tax year, less
(b)
the amount of the reduction made at Step 1 in section 875(5) for the
purpose of calculating the collectable amount for the previous tax year.


Case 3
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This case applies if the trustees’ modified net income for the previous tax year
equalled the sum of the gross amounts of the deemed payments treated as
made by the trustees in that year.

The trustees’ income pool as at the start of the current tax year is the same as
the amount of the trustees’ income pool as at the start of the previous tax year.
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(2)
If the trustees were non-UK resident for the previous tax year, references in
subsection (1) to the previous tax year are to be read as references to the last tax
year prior to the current tax year for which the trustees were UK resident.
(3)
The income pool as at the start of the current tax year is nil if—
(a)
the current tax year is the tax year during which the unauthorised unit
35
trust is established, or
(b)
the trustees have been UK resident for no tax year prior to the current
tax year.
Chapter 14
Tax avoidance: directions for duty to deduct to apply
40
877
Directions for deduction from payments to non-UK residents
(1)
This section applies if it appears to an officer of Revenue and Customs that any
person entitled to an amount taxable under—
(a)
Chapter 3 of Part 12 (tax avoidance: transactions in land), or
(b)
Chapter 4 of that Part (tax avoidance: sales of occupation income),
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Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 15 — Collection: deposit-takers, building societies and certain companies
435


is non-UK resident.
(2)
The officer may, in relation to any payment forming the whole or part of that
amount, direct that 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 in which the payment is made.
5
(3)
Subsection (2) does not affect the final liability of the person entitled to the
amount mentioned in subsection (1) including any liability under section
701(4) or 719(4) (recovery of tax where consideration receivable by person not
assessed).
(4)
For provision about the collection of income tax in respect of a payment from
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which a sum must be deducted under subsection (2)—
(a)
see Chapter 15 if the person making the payment is a UK resident
company, and
(b)
otherwise see Chapter 16.
Chapter 15
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Collection: deposit-takers, building societies and certain companies
Introduction
878
Overview of Chapter
(1)
This Chapter provides—
(a)
for persons who have made payments within section 879 (“section 879
20
payments”) to make returns of the payments, and
(b)
for the collection of income tax in respect of those payments.
(2)
Sections 880 and 881 contain definitions and other provisions in relation to the
following basic concepts used in the Chapter: “return period” and “accounting
period”.
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(3)
Section 882 requires persons who have made section 879 payments to deliver
returns of those payments made in return periods falling within accounting
periods, and section 883 requires such persons to deliver returns of those
payments made otherwise than in accounting periods.
(4)
Section 884 explains—
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(a)
how much income tax is due from persons in respect of section 879
payments made by them, and
(b)
when that income tax must be paid.
(5)
Sections 885 to 888 allow persons who have made section 879 payments to
make claims for income tax they have suffered to be set off against income tax
35
payable by them in respect of the payments.
(6)
Sections 889 to 893 explain what happens in cases where income tax payable in
respect of section 879 payments is not paid when it is due, or where returns are
incomplete or incorrect.
(7)
Sections 894 and 895 contain supplementary provisions.
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Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 15 — Collection: deposit-takers, building societies and certain companies
436

(8)
For further provisions applying to returns and set-off claims under this
Chapter, see TMA 1970 (in particular section 113(1) (returns) and section 42
and Schedule 1A (claims)).
879
Payments within this section
The payments within this section are—
5
(a)
a payment from which a deposit-taker or building society is required to
deduct a sum representing income tax under section 784,
(b)
a payment from which a UK resident company is required to deduct a
sum representing income tax under—
(i)
section 807(2) (payments of yearly interest),
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(ii)
section 822(4) (payments in respect of building society
securities),
(iii)
section 825(2) (certain payments of UK public revenue
dividends),
(iv)
section 834(4) (annual payments made by persons other than
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individuals),
(v)
section 836(7) (patent royalties),
(vi)
section 839(5) (royalty payments etc where the owner lives
abroad),
(vii)
section 843(2) (proceeds of a sale of patent rights paid to non-
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UK residents),
(viii)
section 861(2) (chargeable payments connected with exempt
distributions), or
(ix)
section 877(2) (directions for deduction from payments to non-
UK residents), and
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(c)
a payment from which a company is required to deduct a sum
representing income tax under section 852(2) (manufactured interest on
UK securities: payments by UK residents etc).
880
Return periods
(1)
For the purposes of this Chapter, the return periods which fall within a
30
person’s accounting period are determined as follows.
(2)
If at least one quarter date falls within the accounting period, each of the
following is a return period which falls within the accounting period—
(a)
any complete quarter which falls within the accounting period, and
(b)
any part of the accounting period which is not a complete quarter and
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which—
(i)
ends with the first (or only) quarter date in that period, or
(ii)
begins immediately after the last (or only) quarter date in that
period.
(3)
If no quarter date falls within the accounting period, the accounting period
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itself is to be treated as a return period which falls within the accounting
period.
(4)
In this section—
“quarter” means a period of three months ending—
(a)
unless paragraph (b) applies, with the last day of March, June,
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September or December, or

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 15 — Collection: deposit-takers, building societies and certain companies
437

(b)
if the person mentioned in subsection (1) is a building society,
with the last day of February, May, August or November, and
“quarter date” means—
(a)
unless paragraph (b) applies, the last day of March, June,
September or December, or
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(b)
if the person mentioned in subsection (1) is a building society,
the last day of February, May, August or November.
881
Meaning of “accounting period”
(1)
In this Chapter “accounting period”, in relation to a deposit-taker who is not a
company, means a period for which the deposit-taker’s accounts are drawn up.
10

“Deposit-taker” has the same meaning as in Chapter 2 (see section 786).
(2)
See section 12 of ICTA (basis of, and periods for, assessment) for provision
about accounting periods of companies.
Returns of income tax
882
Payments in an accounting period
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(1)
This section applies if a person makes a section 879 payment on a date which
falls within an accounting period of the person.
(2)
The person must deliver a return to an officer of Revenue and Customs for each
return period—
(a)
which falls within the accounting period, and
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(b)
in which the person makes a section 879 payment.
(3)
The person must deliver the return within 14 days after the end of the return
period to which it relates.
(4)
The return must show the amount of—
(a)
any section 879 payments made by the person in the return period, and
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(b)
the income tax payable by the person in respect of those payments (see
section 884).
883
Payments otherwise than in an accounting period
(1)
This section applies if a person makes a section 879 payment on a date which
does not fall within an accounting period of the person.
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(2)
The person must deliver a return to an officer of Revenue and Customs within
14 days after the date on which the payment is made.
(3)
The return must show the amount of—
(a)
the payment, and
(b)
the income tax payable by the person in respect of that payment (see
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section 884).