Clause 955: Application of definitions of "connected" persons and "control"

2876.     This clause applies these definitions for the purposes of the Bill. It is based on a variety of provisions in the source legislation.

2877.     The application of the definition of control in clause 929 to clause 560(8) is new and arises as a consequence of including detailed provisions on approved charitable investments in Part 10. See Change 100 in Annex 1 and the commentary on clause 560.

Clause 956: Meaning of "debenture"

2878.     This clause defines "debenture" for the purposes of certain provisions of this Bill. It is based on sections 312(1) and 481(5) of, and paragraph 13(1) of Schedule 28B to, ICTA.

Clause 957: Meaning of "double taxation arrangements"

2879.     This clause defines "double taxation arrangements". It is new.

Clause 958: Meaning of "modified net income"

2880.     This clause explains how the amount of a person's modified net income is calculated for the purposes of certain provisions of this Bill. It is based on sections 348(1) and (2) and 349(1) of ICTA.

2881.     The provisions concerned are those providing for:

• certain adjustments in calculating gift aid relief under Chapter 2 of Part 8;

• the deduction allowed for annual payments and patent royalties under Chapter 4 of Part 8; and

• the similar deduction allowed to the trustees of an unauthorised unit trust for payments treated as made by them, under Chapter 9 of Part 9.

2882.     The way in which tax deducted from payments within Chapter 4 of Part 8 is recovered sometimes depends on whether the payer has any modified net income in the year in which the payment is made. See Change 82 in Annex 1.

2883.     Subsections (2) to (4) provide the details of the calculation of the amount of a person's modified net income. Starting with net income, the following items are to be excluded:

• any non-qualifying income included in the person's charged income. See clause 959, which details the types of income that in the source legislation are to be regarded as being paid "out of" income not brought into charge to income tax;

• any relief due under Chapter 4 of Part 8 (annual payments and patent royalties); and

• reliefs or adjustments that, under Schedule 1B to TMA, are stated to "relate to a later year".

See Change 147 in Annex 1.

2884.     Similar calculations also must be made for the purposes of gift aid. See clause 427 (meaning of "charged amount"). Gift aid is not given as a deduction from total income, so the deduction for annual payments and patent royalties takes priority. So for those purposes subsection (2)(c) is ignored (subsection (3)).

2885.     Trustees of unauthorised unit trusts are treated under the source legislation as making annual payments equal to the grossed-up amount of their income. In this Bill this is a separate relief under Chapter 9 of Part 9. So in this case that relief is substituted for the relief for annual payments and patent royalties (subsection (4)).

Clause 959: Meaning of "non-qualifying income" for the purposes of section 958

2886.     This clause sets out the types of income that are "non-qualifying income" for the purposes of clause 958. It is based on sections 348(4) and 804(6) of ICTA. See Change 82 in Annex 1.

Clause 960: Minor and consequential amendments

2887.     This clause gives effect to Schedule 1.

Clause 961: Power to make consequential provision

2888.     This clause confers power on the Treasury to make consequential amendments, additional to those contained in Schedule 1 to this Bill. It is new.

2889.     The scope of the power is in substance the same as that in section 882 of ITTOIA.

2890.     As with that power, it is intended that this power will not be exercised without the agreement of the Tax Law Rewrite project's Consultative and Steering Committees.

2891.     Subsection (2) provides that the power may not be used after 5 April 2010. There was no provision of this kind in section 882 of ITTOIA, but it is sensible to enable additional consequential amendments to be made in this way only over a limited period, and it would in any case become progressively more difficult to do so accurately as subsequent Finance Bills are enacted. The date of 5 April 2010 takes account of this while giving a reasonable amount of time for missed consequential amendments to come to light.

2892.     Subsection (4) provides that the power may contain provision having retrospective effect, making explicit something which was implicit in relation to the power in section 882 of ITTOIA. As the power can be used only to make provision in consequence of this Bill, any retrospective effect is limited to provision having effect from the date the Bill comes into force.

Clause 962: Power to undo changes

2893.     This clause confers power on the Treasury to undo changes in the law made by the Bill, for the purpose of restoring the effect of the law to what it was immediately before 6 April 2007 (the date on which this Bill will come into effect). It is new.

2894.     The power will make it possible for any errors made in rewriting the source legislation to be corrected without recourse to a Finance Bill.

2895.     The power provided by this clause will, in particular, enable errors in making consequential amendments to be corrected.

2896.     For example, had ITEPA contained such a power, it would have been possible to use it to reverse its mistaken repeal of section 108 of FA 1995. In the absence of such a power, it was necessary for the error made by ITEPA to be corrected in a Finance Act (see paragraph 6 of Schedule 17 to FA 2004).

2897.     Depending on the nature of the error, corrections made to restore the effect of the pre-6 April 2007 law could be taxpayer-favourable or taxpayer-adverse.

2898.     Subsection (2) provides that the power may not be used after 5 April 2010. It is sensible to enable errors to be corrected in this way only over a limited period, and it would in any case become progressively more difficult to do so accurately as subsequent Finance Bills are enacted. The date of 5 April 2010 takes account of this while giving a reasonable amount of time for errors to come to light.

2899.     Subsection (4) provides that the power may contain provision having retrospective effect. Whether that was appropriate would need to be considered on a case-by-case basis.

2900.     As with the power in clause 961, it is intended that this power will not be exercised without the agreement of the Tax Law Rewrite project's Consultative and Steering Committees.

Clause 963: Transitional provisions and savings

2901.     This clause gives effect to Schedule 2 and confers power on the Treasury to make transitional or saving provisions additional to those contained in that Schedule.

2902.     Subsection (2) is in substance the same as section 883(5) of ITTOIA.

2903.     Subsection (3) provides that the power may contain provision having retrospective effect. As there is likely to be only a short period between the date on which the Bill receives Royal Assent and the date on which it comes into force, it is possible that the need for additional transitional provision will not have come to light before the Bill comes into force. Subsection (3) therefore ensures that the power can be exercised after the Bill comes into force.

2904.     As with the power in section 883(5) of ITTOIA, it is intended that this power will not be exercised without the agreement of the Tax Law Rewrite project's Consultative and Steering Committees.

Clause 964: Repeals and revocations

2905.     This clause gives effect to Schedule 3.

Clause 965: Index of defined expressions

2906.     This clause gives effect to, and introduces, Schedule 4.

Clause 966: Extent

2907.     This clause ensures that the Bill applies to the whole of the United Kingdom.

Clause 967: Commencement

2908.     This clause provides for the commencement of the Bill.

2909.     Subsection (1) deals with the position both for income tax and corporation tax. This Bill is in substance an income tax only Bill. But it makes many consequential amendments to corporation tax legislation. Those consequential amendments also require a commencement provision.

2910.     Subsection (3) deals with the enterprise investment scheme (EIS). EIS has some distinctive features which could result in very complicated transitional and savings provisions. In contrast to venture capital trusts (VCTs) where there are two sorts of investments, those made in the VCT and those made by the VCT, in EIS there is no intermediate investor. This makes it possible for EIS to have the different commencement basis, expressed in terms of "shares issued", provided in this subsection.

2911.     These features are:

• many of the conditions on which eligibility for relief hinge need to be met for the whole of the period prescribed for that particular requirement;

• the commencement date for that period is dependent on the date when shares are issued; and

• EIS relief is given in the tax year in which the shares are issued and, if the relief is reduced or withdrawn, it is that year which is affected.

2912.     It may not be clear in relation to all the clauses in Part 5, that the commencement provision in clause 967(1) applies only to new share issues. So clause 967(3) provides that Part 5 does not have effect in relation to shares issued before 6 April 2007.

2913.     This means, for instance, that it will be necessary to refer to the provisions of ICTA to determine whether and to what extent relief is to be withdrawn or reduced on a disposal on or after 6 April 2007 of shares acquired before that date.

2914.     Clause 967(3) also extends to consequential amendments and repeals. For this reason both Schedules 1 and 3 have a separate Part which has effect in relation to EIS shares issued on or after 6 April 2007.

2915.     There is one transitional provision in Part 7 of Schedule 2 which preserves the effect of the FA 2006 amendment of section 293(6A) of ICTA.

Clause 968: Short title

2916.     This clause specifies the short title of the Bill.