Clause 911: Application to public departments

2765.     This clause ensures that the rules in this Part regarding deduction at source and collection of income tax apply to payments made by United Kingdom government departments. It is based on section 829(1) and (3) of ICTA.

2766.     Without this clause, the principle of Crown exemption would apply so that annual payments by UK government departments would not be subject to the provisions of this Part.

2767.     Subsection (2) ensures that the clause is limited to United Kingdom government departments.

2768.     Section 829(2) of ICTA has not been rewritten. That subsection was only necessary because section 829(1) was widely drafted and could have imposed liability on income received by a department. As this clause is restricted to annual payments made by departments, section 829(2) of ICTA is unnecessary and is repealed.

2769.     No deduction is required from annual payments by one government department to another. In the source legislation, section 829(2) of ICTA addressed this point. But specific provision is not necessary.

2770.     Crown exemption does not apply if it is clear from the legislation in question that the provisions concerned do apply to the Crown. For example, it is clear from the legislation about PAYE that the Crown must operate PAYE. Accordingly, section 829(2A) of ICTA is unnecessary and is repealed.

Clause 912: Designated international organisations: exceptions from duties to deduct

2771.     This clause provides that certain payments made by international organisations which are designated by the Treasury are not subject to deduction at source under this Part. It is based on section 582A ICTA.

2772.     This clause applies to:

• payments of yearly interest under clause 807 by such a designated organisation or a partnership of which such an organisation is a member;

• annual payments, patent royalties and other payments connected with intellectual property under Chapters 6 or 7 (see Change 81 in Annex 1);

• payments under Chapter 14 (tax avoidance); and

• payments of manufactured interest or overseas dividends under clauses 852(2) and 855(2).

Clause 913: Derivative contracts: exception from duties to deduct

2773.     This clause provides that nothing in this Part imposes a duty on a company to deduct at source if it is making a payment under certain derivative contracts. It is based on paragraph 51 of Schedule 26 to FA 2002.

2774.     The derivative contracts concerned are those to which the calculation rules in Schedule 26 to FA 2002 apply, which are those the company either enters into or acquires. See paragraph 53 of that Schedule.

Clause 914: Foreign currency securities etc: exception from duties to deduct

2775.     This clause provides that nothing in this Part imposes a duty to deduct at source on interest payments within section 755(1) of ITTOIA. It is based on section 581A of ICTA.

Clause 915: Income tax is calculated by reference to gross amounts

2776.     This clause provides that the amount on which tax is to be calculated is the gross amount in each case. It is new.

Clause 916: Meaning of "deposit"

2777.     This clause defines the meaning of "deposit" for the purposes of this Chapter. It is based on section 481(3) of ICTA.

2778.     Section 481(3) of ICTA applies to deposit-takers and is also rewritten in Chapter 2 of this Part (deduction by deposit-takers and building societies). By including the definition of "deposit" in this Chapter the application of the definition has been extended to building society deposits. This will ensure that the definitions of "qualifying certificate of deposit" (clause 919) and "qualifying uncertificated eligible debt security unit" (clause 920) are the same for deposit-takers and building societies.

Clause 917: Meaning of "financial instrument"

2779.     This clause gives the definition of "financial instrument" which occurs in the context of this Part in relation to persons authorised under FISMA who deal in financial instruments as principal. It is based on section 349(5) and (6) of ICTA.

Clause 918: Meaning of "gilt-edged securities"

2780.     This clause defines gilt-edged securities. It is based on section 50(7) of, and paragraph 3A(2) of Schedule 23A to, ICTA.

Clause 919: Meaning of "qualifying certificate of deposit"

2781.     This clause defines "qualifying certificate of deposit". It is based on sections 349(4) and 482(6) of ICTA.

2782.     Interest (and, in the case of building societies, dividends) paid by a deposit-taker or building society in respect of a deposit in respect of which a "qualifying certificate of deposit" has been issued is payable gross (see clauses 798 and 822).

2783.     In order for a "certificate of deposit" (defined in clause 953) to be a "qualifying certificate of deposit", the certificate must require the issuer to pay an amount of at least £50,000 (or equivalent if made in a foreign currency) at a specified time within five years of the deposit being made.

2784.     The definition of "qualifying certificate of deposit" has been aligned to the wording of the definition of "qualifying time deposit" (see clause 799) so that it is clear that a "qualifying certificate of deposit" can only be paid in one tranche "at a specified time". See Change 142 in Annex 1.

Clause 920: Meaning of "qualifying uncertificated eligible debt security unit"

2785.     This clause defines "qualifying uncertificated eligible debt security unit". It is based on sections 349(4) and 482(6) of ICTA and section 552(2) of ITTOIA.

2786.     Interest (and, in the case of building societies, dividends) paid by a deposit-taker or building society in respect of qualifying uncertificated eligible debt security units is payable gross. See clauses 797 and 822.

2787.     For an uncertificated eligible debt security to be "qualifying" there has to be a right to receive an amount of at least £50,000 (or equivalent if made in a foreign currency) at a specified time within five years of the deposit being made.

2788.     The definition of "qualifying uncertificated eligible debt security unit" has been aligned to the wording of the definition of "qualifying time deposit" (see clause 799) so that it is clear that a "qualifying uncertificated eligible debt security unit" can only be paid in one tranche "at a specified time". See Change 142 in Annex 1.

2789.     Subsection (4) defines various terms in the definition of "uncertificated eligible debt security units" by reference to the Uncertificated Securities Regulations 2001 (SI 2001/3755).

Clause 921: Meaning of "quoted Eurobond"

2790.     This clause defines "quoted Eurobond". It is based on the definition in section 349(4) of ICTA.

2791.     Interest on a quoted Eurobond is not subject to deduction at source. See clauses 815 and 822.

Part 15: Income Tax Acts definitions etc

Overview

2792.     This Part sets out definitions and related material applying for the purposes of the Income Tax Acts generally. It is mainly based on provisions in Part 19 of ICTA.

2793.     Many of these definitions apply in relation to corporation tax as well as income tax. Some of them also apply to capital gains tax, or in relation to capital allowances, either by cross reference or by virtue of parallel provision.

2794.     The definitions have been rewritten for income tax using the following principles:

• if definitions are relatively short or straightforward, they are duplicated in the legislation about each of the taxes to which they apply;

• if a definition is longer and more complicated, and is mainly concerned with one tax, it is set out in full in the legislation about that tax and defined by cross reference for the purposes of any other taxes that are relevant;

• if a definition is longer and more complicated and is made substantial use of in relation to more than one tax, it is normally duplicated.

2795.     As a result, the clauses are closely bound up with the related consequential amendments in Schedule 1.

Chapter 1: Definitions

Overview

2796.     This Chapter contains definitions which apply for the purposes of the Income Tax Acts, except where the context otherwise requires.

Clause 922: Overview of Chapter

2797.     This clause provides an overview of the Chapter. It is new.

2798.     Clause 923 sets out the terms which are defined, and either contains or sign-posts the definitions concerned.

2799.     Some definitions do not apply for the purposes of specified provisions. And some definitions only have effect for the purposes of specified provisions.

Clause 923: The definitions

2800.     This clause sets out the definitions in alphabetical order. It is based on section 832 of ICTA and a variety of other provisions.

2801.     Section 832 of ICTA, and other provisions, consequentially amended, continue to provide parallel definitions for corporation tax purposes.

2802.     The definition of "capital allowance" no longer makes reference to allowances under enactments which under ICTA are treated as contained in CAA. This is because the only such enactment is section 532 of ICTA, and the only provision to which it remains potentially relevant (section 527 of ICTA) is rewritten in clause 461.

2803.     The definition of "interest" (as including yearly interest and interest other than yearly interest) has been omitted, both from this clause and from the amended section 832, as it adds nothing to the general meaning of "interest". It was originally enacted in paragraph 20 of Schedule 13 to FA 1969.

2804.     The definition of "personal representatives" is new. It follows the approach adopted in ITTOIA. See Change 143 in Annex 1.

2805.     The definition of "trade" has been streamlined in line with the drafts included as clause 3.1.4 of ED1 (July 1997) and clause 3.1.5 in Exposure Draft No 10 (May 2000). Adopting this approach in this Bill, rather than in ITTOIA, has enabled it to be done for all income tax purposes at the same time.

2806.     Parallel definitions of "tax year" and "year of assessment" are provided, in order to support those provisions of the Income Tax Acts, including those in TMA, that have not been rewritten.

2807.     Section 832(5) of ICTA is not rewritten in this Bill, or retained in ICTA in relation to corporation tax, as this provision has been overtaken by the Adoption and Children Act 2002 (if it was not redundant before). See Change 144 in Annex 1.

Clause 924: Meaning of "Act"

2808.     This clause is based on section 832(1) of ICTA.

2809.     The reference to Northern Ireland legislation has been updated. See Change 145 in Annex 1.

2810.     See also clause 952, about the meaning of references to Northern Ireland and Scottish legislation in provisions in this Bill, and the commentary on that clause.

Clause 925: Meaning of "bank"

2811.     This clause is based on section 840A of ICTA.

2812.     The definition operates only where it is specifically applied.

2813.     In subsection (2), Article 3 of the European Investment Bank (Designated International Organisation) Order SI 1996/1179 has been enacted. See Change 128 in Annex 1 and the commentary on clause 812.

2814.     Section 840A of ICTA, consequentially amended, continues to provide the definition for corporation tax purposes.

Clause 926: Meaning of "company"

2815.     This clause is based on section 832(1) and (2) of ICTA.

Clause 927: Meaning of "connected" persons

2816.     This clause is based on section 839 of ICTA.

2817.     The definition operates only where specifically applied.

2818.     Section 839 of ICTA, consequentially amended, continues to provide the definition for corporation tax purposes.

2819.     Section 575 of CAA defines "connected" by cross reference to section 839. CAA is important both in the income tax and corporation tax contexts. Rather than continuing to operate by cross reference to section 839 or to this clause, this Bill amends section 575 of CAA so that it contains the text of the definition. See Schedule 1.

Clause 928: Meaning of "connected" persons: supplementary

2820.     This clause is based on section 839 of ICTA.

Clause 929: Meaning of "control"

2821.     This clause is based on section 840 of ICTA.

2822.     The definition operates only where specifically applied. The drafting has largely followed the approach adopted in section 574 of CAA.

2823.     Section 840 of ICTA, consequentially amended, continues to provide the definition for corporation tax purposes.

Clause 930: Meaning of "farming" and related expressions

2824.     This clause defines "farming" and "market gardening" and clarifies the meaning of "forestry" and "woodlands". It is based on sections 397(5) and 832(1) of ICTA, section 154(1) and (3) of FA 1995 and section 876 of ITTOIA.

2825.     Section 876 of ITTOIA provides a definition for the purposes of that Act. This clause follows the pattern of section 876 of ITTOIA but applies for the purposes of the Income Tax Acts. So section 876 of ITTOIA is no longer needed and this Bill repeals it.

2826.     Subsection (3) provides that the cultivation of short rotation coppice is to be regarded as husbandry. In strictness this means that the cultivation must involve the occupation of land to be regarded as farming. But as it is impossible to cultivate short rotation coppice without occupying land the cultivation will also be regarded as farming.

2827.     As with section 876 of ITTOIA there is no territorial restriction in the definitions in this Bill. This means that there is no need to apply the definition of farming to activities outside the United Kingdom in the rewrite of section 397 of ICTA as clause 67. Also, the cultivation of short rotation coppice on land outside the United Kingdom will be regarded as husbandry and therefore as farming.

2828.     Again following the pattern in ITTOIA if a territorial restriction is required it is applied to a particular clause. So subsection (7) restricts the definitions to farming or market gardening in the United Kingdom in the rewrite of section 297(2) of ICTA as clause 192(1) and paragraph 4(2) of Schedule 28B to ICTA as clause 303(1).

Clause 931: Meaning of "generally accepted accounting practice" and related expressions

2829.     This clause is based on the definition of "for accounting purposes" in section 832(1) of ICTA and on section 50 FA 2004.

2830.     Those sections, consequentially amended, continue to provide the definitions for corporation tax purposes.

Clause 932: Meaning of "grossing up"

2831.     This clause is new.

2832.     The clause follows the pattern of section 877 of ITTOIA which (along with similar existing provisions) is repealed now that there is a general definition for the purposes of the Income Tax Acts.

Clause 933: Meaning of "local authority"

2833.     This clause is based on section 842A of ICTA.

Clause 934: Meaning of "local authority association"

2834.     This clause is based on sections 519(3) and 832(1) of ICTA.

Clause 935: Meaning of "offshore installation"

2835.     This clause is based on section 837C of ICTA.

2836.     Section 837C of ICTA, consequentially amended, continues to provide the definition for corporation tax purposes.

Clause 936: Regulations about the meaning of "offshore installation"

2837.     This clause is based on section 837C(5) and (6) of ICTA.

Clause 937: Meaning of "oil and gas exploration and appraisal"

2838.     This clause is based on section 837B of ICTA.

2839.     Section 837B of ICTA, consequentially amended, continues to provide the definition for corporation tax purposes.

Clause 938: Meaning of "property investment LLP"

2840.     This clause is based on sections 832(1) and 842B of ICTA.

2841.     Section 842B of ICTA, consequentially amended, continues to provide the definition for corporation tax purposes.

2842.     Section 842B, as amended, does not contain a definition of "investment LLP" because the term is not used in corporation tax legislation. This clause does not contain such a definition either, because clause 399 of this Bill contains the only reference to it in income tax legislation.

Clause 939: Meaning of "recognised stock exchange"

2843.     This clause is based on section 841(1) and (2) of ICTA.

2844.     The corporation tax definition in section 841 of ICTA, consequentially amended, operates by cross reference to this definition. This guards against any risk of orders being made which might inadvertently result in the two definitions getting out of step.

Clause 940: Meaning of "research and development"

2845.     This clause is based on section 837A of ICTA.

2846.     Section 837A of ICTA, consequentially amended, continues to provide the definition for corporation tax purposes. And it ensures that any regulations made for income tax purposes are also taken account of for corporation tax purposes.

Clause 941: Meaning of "unit trust scheme"

2847.     This clause is based on sections 469(7) and (8) and 832(1) of ICTA.

2848.     The corporation tax definition is located in section 832(1) of ICTA, as consequentially amended.

Chapter 2: Other Income Tax Acts provisions

Overview

2849.     This Chapter contains provisions (other than definitions) which apply for the purposes of the Income Tax Acts.

Clause 942: Scotland

2850.     This clause is based on sections 363(3) and 832(1) of ICTA and section 879 of ITTOIA.

Clause 943: Sources of income within the charge to income tax or corporation tax

2851.     This clause is based on section 832(1) of ICTA.

Clause 944: Application of Income Tax Acts to recognised investment exchanges

2852.     This clause is based on section 841(3) of ICTA.

2853.     Section 841(3) of ICTA, consequentially amended, continues to provide the definition for corporation tax purposes.

Clause 945: References to married persons, or civil partners, living together

2854.     This clause is based on section 282 of ICTA.

2855.     It explains that married couples and civil partners are treated as living together unless they are separated under a court order, under a deed of separation or in fact separated in circumstances where the separation is likely to be permanent.

2856.     This rule applies in particular in relation to married couple's allowance (Chapter 3 of Part 3) and to jointly held property (Chapter 3 of Part 13).

Clause 946: Relationship between rules on highest part of total income

2857.     This clause brings together a number of provisions about the relationship between the rules about which particular income is to be treated as the highest part of a person's total income. It is based on sections 1A(6) and 833(3) of ICTA.

2858.     These rules affect clause 16 and a number of provisions inserted by this Bill including section 404A of ITEPA and section 465A of ITTOIA.

2859.     The clause remedies an omission in section 833(3) of ICTA by providing a rule as to which of section 404A of ITEPA and section 465A of ITTOIA takes the very highest slice in a case where both are present. In practice, if both arise it will be to the taxpayer's advantage if the chargeable event gains are treated as the very top slice. Accordingly, section 404A of ITEPA defers to section 465A of ITTOIA. See Change 146 in Annex 1.

2860.     Subsection (5) makes it clear that the rules in this clause override any other provision that purports to treat a given type of income as the top slice. The effect is that the income concerned will simply form the top slice of income within its category of savings, dividend or other income.

Clause 947: Territorial sea of the United Kingdom

2861.     This clause is based on section 830(1) of ICTA.

Clause 948: Orders and regulations

2862.     This clause is based on section 828 of ICTA.

Clause 949: Territorial scope of charges under certain provisions to which section 950 applies

2863.     This clause is based on section 827A of ICTA.

Clause 950: Table of provisions to which this section applies

2864.     This clause is based on section 836B of ICTA.

2865.     The table in section 836B of ICTA includes two provisions (section 804(5B)(a) of ICTA and paragraph 11(3) of Schedule 20 to FA 1994) which are in substance about the recovery of double taxation credit relief that has been over-allowed, although both operate by converting the tax to be recovered to an amount charged to income tax at the basic rate.

2866.     Amounts charged under those two provisions are not regarded as income for any other purpose and none of the other provisions which invoke the table (for example, to utilise losses under clause 152) could have any application in relation to these amounts. As it is misleading for them to be included in the table, they have been omitted.

2867.     Amendments are made to both provisions by Schedule 1 so that they operate as charges to amounts of income tax.

Part 16: Definitions for purposes of Act and final provisions

Overview

2868.     This Part sets out definitions which are specific to this Bill and a number of other supplementary and general provisions.

Clause 951: Abbreviated references to Acts

2869.     This clause lists the abbreviated references to other Acts. It is new.

Clause 952: "Act" to include Scottish and Northern Ireland legislation in some cases

2870.     This clause defines "Act" for the purposes of certain provisions of this Bill. It is based on section 832(1) of ICTA.

2871.     The definition means that "Act" includes Scottish and Northern Ireland legislation in the provisions concerned. See Change 145 in Annex 1.

2872.     See also clause 924 and the commentary on that clause, in relation to the meaning of "Act", and in particular the updating of references to Northern Ireland legislation, in other provisions of the Income Tax Acts.

Clause 953: Meaning of "certificate of deposit"

2873.     This clause defines "certificate of deposit" for the purposes of this Bill. It is based on sections 56(5), 349(4) and 482(6) of ICTA and section 552(2) of ITTOIA.

Clause 954: Claims and elections

2874.     This clause provides a general rule concerning the making of claims and elections. It is based on section 42(11) of TMA and paragraphs 1 and 2 of Schedule 1A to TMA.

2875.     In the source legislation some provisions specify that a claim or election has to be in writing while others are silent. But the effect of paragraph 2(3) to (5) of Schedule 1A to TMA is that a claim or election has to be in writing (unless a specific provision says otherwise).